Coevolution of the German electric industry and the
national government: Fukushima’s effect on their
sustainability trade-offs
Jurgen J.J. Andriessen
10003247
June 30, 2014 Year 2013/2014
Master thesis (Business studies: Strategy) Supervisor: Ms. Francesca Ciulli MSc Second supervisor: Dr. René Bohnsack
Abstract
This thesis investigates how a disruptive event affects the coevolution between an industry and a government on sustainability issues. This is done by conducting a single embedded case study with respect to the Fukushima nuclear accident, and by focusing on the German electric industry and the country’s national government, since it provides a unique and ‘politically salient’ environment. From the data, it can be observed that the Fukushima nuclear accident significantly affected the coevolution patterns of the electric industry and the government. Secondly, this research suggests that revolutionary changes of government policy can trigger adaptive changes within an industry. Thirdly, it is found that disruptive events can temporarily undo existing isomorphisms in an industry, even though this effect fades over time. Furthermore, disruptive events are likely to affect the interaction between a government and an industry by temporarily interrupting their coevolution with a period of conflict on sustainability issues. Finally, this research confirms that trade-offs between the aspects of corporate sustainability are the rule rather than exception. These findings are, however, limited to some extent due to the limited generalizability of focusing on one industry in specific. Widening the context could be subject of follow-up studies.
Contents
Abstract... 3 1. Introduction... 5 2. Literature review a. Coevolution framework... 9 b. Sustainability trade-offs... 12 c. Disruptive events... 15 3. Research design... 17 4. Results a. Pre-Fukushima coevolution... 21b. The Fukushima nuclear accident... 25
c. Post-Fukushima coevolution... 26
5. Discussion... 35
6. Conclusion... 40
1.
Introduction
Corporate sustainability is a key challenge for organizations nowadays, not only for a healthy ecological environment, but also for a company’s reputation (Aragon-Correa & Rubio-López,
2007). Conflicts between the different sustainability issues firms have to address, defined as
sustainability trade-offs, make the development of corporate strategies particularly complex. In sectors that are ‘politically salient’ (Henisz, 2003), the relation between firms and governments to tackle sustainability trade-offs is particularly important, especially when disruptive events like environmental disasters change the balance between different sustainability issues (Bansal, 2005). Mainstream literature mostly focuses on investigating when the three components of corporate sustainability (economic, environmental, and social sustainability) can be achieved simultaneously (Bansal, 2005; Hahn et al., 2010; Jacobsson & Lauber, 2006; Kaptein & Wempe, 2001; Lehr et al., 2007). According to this stream of research, the three sustainability pillars are in harmony with each other and management should seek to identify those cases in which economic, environmental and social sustainability objectives can be attained simultaneously (Hahn et al., 2010). This approach involves, for example, the identification of situations and strategies in which environmentally friendly behavior (e.g. the investment in renewables) pays off financially (Aragon-Correa & Rubio-López, 2007). Even though much research has been done on the topic of sustainability, there still exist important contradictions between different scholars’ approaches and findings. In particular recent studies have stressed that the three sustainability objectives often in fact cannot be addressed simultaneously and trade-offs and conflicts between sustainability issues are more frequent (Hahn et al., 2010). This aspect has been largely overlooked by extant research and the investigation of sustainability trade-offs is still in its early stages, making further investigation highly needed (Hahn et al., 2010). In particular, while studies focusing
on sustainability trade-offs and conflicts examine firms and their possible strategies to address these trade-offs, in politically salient industries (Henisz, 2003), like the electric sector, firms’ strategies are highly related with the government’s actions. Therefore the presence and the development of sustainability trade-offs is highly connected to the interaction and coevolution between firms and governments (Kaptein & Wempe, 2001). Yet, research on sustainability trade-offs has not examined how these aspects are addressed in the industry’s coevolution with the government. That represents an interesting gap for this thesis, since the concept of coevolution is a powerful framework to analyze how organizations and their environments coevolve and adapt to each other (Lewin, Long & Carrol, 1999).
Both researchers examining sustainability trade-offs and those investigating coevolution have overlooked the investigation of the impact of a disruptive event on these two concepts. Defined as events whose occurrences are difficult to foresee and whose impacts on organizations are disruptive and potentially detrimental, disruptive events often surprise organizations (Meyer, 1982) and can have a great impact not only on a company’s strategy, but also on its evolution and interaction with governments. Disruptive events can therefore significantly influence the coevolution of an industry and the government as regards sustainability issues related to the disruptive event.
Researching how a disruptive event affects the coevolution of a politically salient industry and the government as regards sustainability trade-offs therefore is a particularly interesting topic, which has been overlooked by extant literature. This research aims to address this gap by answering the following research question: how does a disruptive event affect the coevolution between the industry and the government on sustainability trade-offs?
In order to answer the research question, a single embedded case study will be conducted. The study will examine the coevolution between the German government and the electric industry regarding sustainability trade-offs in a defined period before and after the
Fukushima disaster. Given that the effect of disruptive events on the coevolution of the two as regards sustainability issues have, to the knowledge of the author, not been studied yet, it remains a phenomenon to be investigated. Choosing an exploratory approach therefore helps to develop our understanding of its underlying complexities and allows for multiple
explanations (Cooper & Morgan, 2008). The electric industry will be the focus of the study,
because it provides a unique sector to investigate, especially since it differs from other industries by the presence of ‘strong’ institutions (Henisz, 2003; Peng, 2003; Mez & Piening, 2002). The Fukushima disaster has been a significantly disruptive event in terms of its effect on the global electric industry. The German electric sector has been selected because it produces a significant amount of nuclear energy. 15% of the country’s total electricity production, which equals 133 billion kWh, is obtained from nuclear power plants (World Nuclear Association, 2014). Moreover, this particular environment has proven to have a turbulent political history, contesting nuclear energy on multiple occasions in the past (World Nuclear Association, 2014). Most recent is the political attention with respect to the Fukushima accident, involving the discussion about nuclear energy safety. This disruptive event’s impact on the coevolution of the German energy industry and the national government will be analyzed by examining their actions in relation to nuclear energy-related sustainability during the one-year period preceding and the three-year period following the Fukushima disaster. Given the focus on a disruptive event related to nuclear energy, the four largest electric companies operating in the country are investigated since they own and operate all of the country’s nuclear power plants (EnBW, 2014; E.ON, 2014; RWE, 2014; Vattenfall, 2014).
In seeking an answer to the research question, this thesis aims to make three contributions. Firstly, an important contribution of this thesis is its integration of research on sustainability trade-offs, disruptive events, and coevolution theory. This creates a unique insight in the effect that a disruptive event can have on the coevolution of an industry and the
government as regards sustainability issues. Secondly, this study builds on and expands academic knowledge with regard to sustainability trade-offs. This is interesting since this stream of research is still in its infancy and thus far there has been no academic consensus on whether companies should look to create win-win situations or deal with trade-offs between the aspects of corporate sustainability. Thirdly, examining coevolution by integrating institutional theory and the logic of strategic choice gives this thesis the opportunity to analyze a firm’s role in the coevolution process since the two contradict with regard to this aspect.
The next chapter will present an extensive review of existing literature on coevolution, sustainability, and disruptive events. Secondly, the research methods will be described. Subsequently, the findings will be illustrated. The interactions of the firms, E.ON, RWE, Vattenfall, and EnBW, and of the government regarding sustainability issues and trade-offs will be explored. This analysis will show how the coevolution between the German energy industry and the national government, as regards nuclear-energy related sustainability issues, has been affected by the Fukushima accident. These results will be discussed, after which recommendations for further research are provided, the conclusion will be drawn and managerial implications are given.
2.
Literature review
Coevolution framework
Coevolution theory originally emerged in ecology to describe situations where two or more species influence each other’s evolution (Ehrlich & Raven, 1964; Nitecki, 1983). Darwin (1859) did not use the word “coevolution” literally, but he used the concept of coadaptation primarily to describe the adaptations of one distinct organic being to another being in interspecific transactions (Darwin, 1859). Coadaptation was thought of as a reciprocal change; for example, in discussing the evolution of interactions between flowers and pollinators Darwin describes: “Thus I can understand how a flower and a bee might slowly become, either simultaneously or one after the other, modified and adapted in the most perfect manner to each other, by continued preservation of individuals presenting mutual and slightly favorable deviations of structure” (Darwin, 1859, p. 95). The idea of reciprocal change in interacting species is what we now call coevolution (Thompson, 1989). The fundamental insight of the coevolution concept is that species sharing a habitat are part of each other’s environment, and therefore influence each other’s evolution (Dieleman & Sachs, 2008). Unraveling the mutual adaptation mechanisms is the object of research by coevolutionary theoreticians. The general meaning of coevolution has come into more consistent usage and it is becoming clear that this word is an umbrella for a variety of mechanisms and outcomes of reciprocal evolutionary change (Thompson, 1989).
Over the past decades, multiple organizational theorists introduced and used the originally biological concept of coevolution as a framework to analyze how organizations and their environments coevolve and adapt to each other (Lewin, Long & Carroll, 1999). Coevolution studies argue that the dynamics inside and between organizations are multi-directional and significantly related to contextual and historical factors (Lewin & Volberda,
1999). By using this concept in strategic and organizational literature, it is assumed that firm-environment dynamics vary over time in causality, intensity, and impact (Dieleman & Sachs, 2008). This gives academic research the possibility to study corporations and their impact on institutions, as well as organizational adaptation to changing institutional environments (Dieleman & Sachs, 2008).
In investigating coevolution, management literature encompasses multiple theoretical lenses, among which institutional theory and strategic choice theory (e.g. Lewin & Volberda, 1999; Dieleman & Sachs, 2008). As Jennings and Zandbergen (1995) argue, institutional theory is a highly relevant framework to corporate sustainable development since institutional pressures can lead to the diffusion of sustainable development practices among firms, for example because of their regulatory power. This environment in which firms operate is the main focus of institutional theory. Institutions have been defined as “the rules of the game” (North, 1990) and “collective and regulatory complexes consisting of political and social agencies”, thus also involves governments’ regulations (Child & Tsai, 2005, p. 97). Indeed, it is commonly accepted that governments possess the power to significantly influence corporate evolution and strategy (North, 1990; Scott, 1995). Institutional theory argues that if firms fail to conform to the norms set by for example governments, the latter could threaten their resources, legitimacy, and ultimately their survival (Bansal, 2005; DiMaggio & Powell, 1983). Institutional pressures are argued to lead to firms within the same industry becoming more alike in terms of structure and practices. According to DiMaggio and Powell (1983) this isomorphic evolution, defined as “a constraining process that forces one unit in a population to resemble other units that face the same set of environmental conditions” (p. 146) results of three types of isomorphisms. Firstly, coercive isomorphism stems from pressures exerted on organizations by other organizations upon which they are dependent, and could also be a direct response to, for example, a political constrain such as a government mandate
(DiMaggio & Powell, 1983). Secondly, mimetic isomorphism results from uncertainty, which can also be a powerful force that encourages imitation and firms in an environment becoming more similar. For example, when organizational technologies are poorly understood, or when the environment creates symbolic uncertainty, organizations may model themselves on other organizations (DiMaggio & Powell, 1983). A third source of isomorphic behavior is normative isomorphism. This stems primarily from professionalization. Additionally, institutional theory stresses that the embeddedness of organizations in their institutional context is the basic reason for organizations’ resistance to change (Lewin & Volberda, 1999). According to institutional theory, in the process of evolution, firms are therefore accorded a rather passive and reactive role (Child & Tsai, 2005). The implication is that governmental and social institutions offer normative guidelines for, and impose regulatory constraints upon, the strategies of firms and hence the practices they can perform. Institutions can therefore constrain the available choices to firms regarding their environmental strategy with regard to sustainability issues, for example by means of formal environmental laws or informal environmental protection demands (Child & Tsai, 2005). Consequently, firms within an industry adjusting to new regulations or norms might become more alike in terms of their structure and practices.
While institutional theory argues that the firms’ role is passive, other scholars, in contrast, emphasize that firms can also proactively shape the environment they are active in (e.g. Dieleman & Sachs, 2008). It is therefore relevant to integrate another theoretical lens to investigate the active role of firms in the coevolutionary process.
Another important theoretical lens to analyze coevolution is therefore strategic choice theory. In complement to institutional theory focusing on the influence of institutions on an organization, this framework studies the influence of firms on their external environment. Strategic choice theory argues that on a firm level, organizations seek to realize their goals
through selection between different environments to become active in (Oliver, 1991). Moreover, it assumes that they can exercise strategic choice in order to not only change the course of the organization itself, but also that of the environment they operate in (Dieleman & Sachs, 2008). This may be possible through interaction between organizations and external agents. Among others, such interaction can involve the informal communication of views and information, negotiation, and lobbying (Child & Tsai, 2005). This view stresses that organizations should take into account the different ways in which they interact with their external environment through the process of mutual adaptation (Lewin & Volberda, 1999). As regards sustainability issues, this also implies that firms have to manage the size of their ecological footprint, and pollution emissions.
Interestingly enough, the institutional and strategic choice frameworks seem to contradict with regard to the firm’s role in evolution processes. The former argues firms to be passive and unable to shape the environment they operate in, while strategic choice theory stresses that firms are not only able to change the course of the organization itself, but also that of the environment they operate in (Jennings & Zandbergen, 1995; Child & Tsai, 2005). When taken together, the conjunction of external institutional constraints and the strategies of organizations toward the environment leads to several scenarios interesting to investigate further (Child & Tsai, 2005).
Sustainability trade-offs
The concept of sustainable development is associated with an increasing awareness of the relation between environmental problems, socio-economic issues relating to poverty and inequality, and concerns about a healthy future for humanity (Hopwood, Mellor & O’Brien, 2005). Accordingly, the World Commission on Economic Development (WCED) defines sustainable development as “development that meets the needs of the present without
compromising the ability of future generations to meet their own needs” (WCED, 1987). This definition recognizes the dependency of humans on the environment to meet their wants and needs, and their general well being. Not only is the environment essential from an environmental perspective, but from an economic perspective as well. As the WCED (1987) stresses, “ecology and economy are becoming ever more interwoven – locally, regionally, nationally, and globally” (p. 5). Consequently, over the last decades the notion of sustainable development has increasingly been investigated in the management and organizational theory literature, referred to as “corporate sustainable development” (Bansal 2005, p. 199) or “corporate sustainability” (Hahn et al., 2000, p. 218).
Corporate sustainable development can be defined as “meeting the needs of a firm’s direct and indirect stakeholders (such as shareholders, employees, clients, pressure groups, communities, etc.), without compromising its ability to meet the needs of future stakeholders as well” (Dyllick & Hockerts, 2002, p. 131). As a concept, corporate sustainable development consists of three principles: environmental integrity, social equity, and economic prosperity. Firstly, the aspect of environmental integrity is an effort by firms to reduce the size of their ecological footprint (Bansal, 2005). The second aspect of corporate sustainable development is social equity. This requires that organizations consider the health, ethical, and discretionary expectations of all stakeholders, not only financial shareholders (Carroll, 1979). The third and final aspect of corporate sustainable development is economic prosperity. Firms create value by producing goods or services (Porter, 1985). By improving the effectiveness and efficiency of those goods and services, it is possible to increase the created value. When firms choose to sell or trade them in the marketplace they capture the value they created and improve their financial performance (Porter, 1985). However, value creation is not always rewarded with financial performance. Regulations or market conditions, for example, may obstruct a firm to capture the value it created, Makadok (2001) argues.
Management scholars studying corporate sustainable development have mainly focused on the process of achieving a win-win situation, where economic, environmental, and social sustainability aspects can, and should, be achieved simultaneously (Bansal, 2005). For example, Bansal (2005) argues that “each of these three principles of corporate sustainable development represents a necessary, but not sufficient, condition; if any one of the principles is not supported, economic development will not be sustainable” (p. 198). This paradigm argues that environmental and social issues are only considered to the degree to which they contribute to an improved corporate economic performance (Hahn et al., 2010). Consequently, the relevance of the first two aspects for corporate sustainability is derived from a purely economic perspective. In addition, defining clear objectives for each of the three sustainability aspects is argued to help in reaching such win-win situations and therefore generates less conflicts (Pope, Annandale & Morrison-Saunders, 2004). This would require agreements on the broad range of objectives of all stakeholders, according to the win-win paradigm. However, the win-win paradigm is challenged by recent attention to the existence of trade-offs between or within the three aspects of sustainability, as for example the deep-rooted sustainability trade-off assumption of environmental integrity and social equity being at odds with economic prosperity (Elkington, 1998; Hahn et al., 2010). Ignoring such conflicts and trade-offs could lead to “a limited view on corporate contributions to sustainable development”, Hahn et al. (2010, p. 219) argue. Trade-offs in corporate sustainability involve situations where these economic, environmental, and social aspects of sustainability cannot be achieved simultaneously by firms, therefore a compromise is needed where a sacrifice is made in one area to obtain benefits in another (Byggeth & Hochschorner, 2006; Hahn et al., 2010). In order to analyze such trade-offs, three dimensions have been identified: an outcome, a temporal and a process dimension (Hahn et al., 2010). Firstly, the outcome dimension encompasses the actual effects of organizational activities with regard to sustainable
development. Trade-offs within this dimension involve conflicts between different impact areas of corporate sustainability (Hahn et al., 2010). Secondly, the temporal dimension represents all trade-offs between present and future aspects in corporate sustainable development (Held, 2001). For example, it includes trade-offs between the alleged positive short-term effects on the reduction of greenhouse gas emissions of low-carbon nuclear power and the production of long-term radioactive waste (Hahn et al., 2010). This aspect of corporate sustainability has received little attention in management literature thus far (Bansal, 2005). Thirdly, the process dimension refers to “trade-offs in corporate strategies, processes and transformations for sustainable development” (Hahn et al., 2010, p. 223).
Interestingly, given the complexity and multi-faceted nature of sustainable development, Hahn et al. (2010) stress that trade-offs and conflicts between the three are the rule rather than the exception. This contradicts the win-win paradigm and thus there seems to be a significant difference of opinion among academics on this topic. Also, literature with regard to sustainability trade-offs being still in its infancy, this represents an interesting issue to be investigated further.
Disruptive events
Disruptive events, also referred to as environmental jolts, potentially can have an impact on the strategy and evolution of both corporations and governments (Sine & David, 2003). Defined as events that are difficult to predict and whose effect on organizations is disruptive and potentially detrimental, they often harm organizations (Meyer, 1982). As a consequence, companies may lose respected clients, dissatisfied ones may sue, regulative authorities may constrain orders, or activists may boycott (Meyer, 1982). Therefore, disruptive events can have significant influence on the coevolution of an industry and the government. Indeed, by affecting institutionalized processes they often reveal unexpected relationships between
institutions, organizational activities, and outcomes that may otherwise not have come to light in times of tranquility (Strang & Bradburn, 1999). The result of destabilizing disruptive events is often a re-examination of institutionalized logics and practices, and a reorientation of organizational strategies and processes in organizational environments (Oliver, 1992). Interestingly, having investigated the oil crisis in the 1970s and the effect of this disruptive event on the US electric power industry, Sine & David (2003) showed that the oil crisis had a disruptive effect throughout the US, leading to scrutiny and deregulation of the electric power industry. As a result, this drove the industry towards the implementation of increasingly diversified structures and strategies for power production and distribution (Sine & David, 2003). What, however, has been given little attention, by previous research, is the effect of disruptive events on the coevolution of institutions and industry. Moreover, often the findings of research on disruptive events are related to one specific company or based on simulated environments, so little is known about the effect on institutions’ coevolution with an entire industry. This presents an interesting gap to explore, and investigate how coevolution patterns change under disruptive circumstances as regards to sustainability. Especially as we know that industries are not static but instead evolve through frequently changing power balances and interaction patterns (Brint & Karabel, 1991).
3.
Research design
This research utilizes a qualitative and exploratory approach to gain a thorough understanding of the research topic. In specific, a single embedded case study design has been selected in order to investigate how a disruptive event impacts the coevolution between the industry and the government on sustainability issues. Case studies are defined as “strategies for doing research, which involve an empirical investigation of a particular contemporary phenomenon within its real life context using multiple sources of evidence” (Robson, 2002, p. 178).
The German electric industry and the German government will be the subject of this research. This particular sector has been selected because it produces a significant amount of nuclear energy. 15% of the country’s total electricity production, which equals 133 billion kWh, is obtained from nuclear power plants (World Nuclear Association, 2014). Moreover, this environment has shown to have a turbulent political history, contesting nuclear energy on multiple occasions in the past (World Nuclear Association, 2014). Therefore, it forms an appealing context to investigate the disruptive effect of the 2011 Fukushima nuclear accident
Table 1 General corporate information (E.ON, 2014; EnBW, 2014; RWE, 2014; Vattenfall, 2014)
Name E.ON RWE Vattenfall EnBW
Year of establishment 2000 1898 1909 1997 Headquarter Düsseldorf, Germany Essen, Germany Stockholm, Sweden Karlsruhe, Germany
2013 EBITDA € 9,315 million € 8,762 million € 4,890 million € 2,240 million
Nuclear plants in Germany
on the coevolution of Germany’s national government and electric industry. The latter will be assessed through analyzing its four largest competitors operating all the country’s nuclear power plants: E.ON, RWE, Vattenfall, and EnBW (table 1). Their joint market share in the German household customers sector counted 45% in 2011 (World Nuclear Association, 2014). Each of these organizations will be considered embedded, signifying that the organization is concerned as specific sub-units since this research only focuses on the German activities with respect to nuclear and renewable energy (Saunders et al., 2009). In order to investigate the effect of the Fukushima disaster, both the industry’s and the government’s actions as regards sustainability issues in the year prior to the event is to be compared with the 3 years following it. Archival data will be used to conduct this study, including the newspaper ‘Die Zeit’ and ‘The Financial Times’, and also press releases, speech transcripts, annual reports, and corporate strategy statements regarding nuclear energy-related sustainability issues. By using different sources of documentation, triangulation is created (Saunders, 2009). That increases the reliability, or “the extent to which the data collection techniques or analysis procedures will yield consistent findings” (Saunders et al., 2009, p. 156), of the data and the process of gathering it (Yin, 2002). In collecting data, attention is paid to conflicting data while it represents an opportunity to improve the reliability of this study (Eisenhardt, 1989). Conflicting data could force the research to a more creative way of dealing with frameworks, leading to a deeper insight into the literature and a sharpened generalizability (Eisenhardt, 1989). However, academic literature discussing similar findings is important as well in order to ensure the validity of this thesis. Validity is defined as “the extent to which a researcher measures what it intends to measure by its research method” (Saunders et al., 2009, p. 157). As Eisenhardt (1989) indicates, literature discussing similar findings can tie together underlying similarities in phenomena normally not associated with each other. The result is often a theory with stronger internal validity (Eisenhardt, 1989). The collected data will be
Sources Advantages Limitations Annual reports and corporate
documentation
- Comprehensive corporate and strategic information - Financial data
- Limited to legal obligations for disclosure
Media sources
-Information from wide range of sources, including specialized and domestic media
- Focus on ‘news value’
Secondary sources - Different perspectives
- Prior analysis available
- Potential bias
- Comes with interpretation
Table 2 Source analysis (Dieleman & Sachs, 2008)
analyzed through thematic coding, using NVivo coding software. Firstly, the firms’ strategic responses are coded according to the framework introduced by Oliver (1991). The framework consists of five types of responses: acquiescence, compromise, avoidance, defiance, and manipulation. Acquiescence involves three tactics: habit, which refers to the following of invisible, taken-for-granted norms; imitate, referring to mimicking institutional models; or comply, which refers to obeying rules and accepting norms. Compromise, as the name implies, refers to balancing the expectations of multiple constituents, or negotiating with institutional stakeholders (Oliver, 1991). Avoidance involves the disguising of a firm’s nonconformity, the loosening of institutional attachments, and the adaption of goals, activities, or domains. Defiance refers to contesting rules and requirements, and assaulting the sources of institutional pressure (Oliver, 1991). The final possible strategic response a firm could handle is the manipulation of an institution. Secondly, the government’s actions are coded classified into one of four categories: prescriptive, economic, information, or symbolic and hortatory tools (Tanaka, 2011; Schneider & Ingram, 1990; Vedung, 1998).
Thirdly, all actions of both the industry and the government are categorized as regards the different sustainability issues they focus on (table 3). In contrast to the constructs
identified for the actions of firms and governments, which derived from the literature, the constructs on sustainability issues emerged from the analysis of the data themselves. Analyzing the results, the strategies and activities as regards sustainability issues of the German electric industry are compared and confronted with those of the German national government over time. Subsequently, a conclusion will be drawn to answer the research question and propositions are presented.
One of the strengths of utilizing an inductive approach is that such a research methodology permits alternative explanations of what is going on (Saunders et al., 2009). Also, by means of a case study, a better understanding can be derived as regards the coevolution of the electric industry and German government (Saunders et al., 2009). This is one of the advantages of theory building from case studies (Eisenhardt, 1989). However, it can also have potential limitations. By focusing on one country and industry in specific, case study research can be limitedly generalizable. Industries often are unique, with different competitors, clients, culture, regulatory authorities, or governments. Therefore, the primary goal for this thesis is to explain the disruptive effect of a specific event on the coevolution of an industry and a government as regards sustainability issues.
Environmental issues Social issues Economic issues
• Nuclear safety risks: for example meltdowns as a consequence of ecological disaster
• Nuclear safety risks: for example meltdowns as a consequence of ecological disaster
• Profitability of nuclear energy firms
• Radioactive waste issue • Radioactive waste issue • Pay-offs/Losses for the economy as a result of a nuclear phase-out • Reduction of carbon
dioxide emissions
• Pay-offs/Losses for the economy as a result of the retention of nuclear energy • (In)compatibility of nuclear
energy with renewables
• Security of supply / Energy security
4.
Results
Pre-Fukushima coevolution
In early 2010 the nuclear power debate in Germany continued to evolve. Although a protracted debate, it now seemed to be revived by the recently held Copenhagen climate summit. More specifically, the political and public debate involved the economic aspect of sustainability: the issue of the German energy’s security of supply, whether the country could afford to stick to its current legal obligation to phase out its nuclear reactors after 32 years of service without risking a serious blackout, or if it should extend, as other countries are doing, the operational life of its nuclear reactors that provide about a quarter of the country’s electricity (Betts, 2010). After all, the US had extended the life of its nuclear facilities from 40 to 60 years and Spain was considering a similar extension at the time (Betts, 2010). Regarding the issue, in February 2010, chancellor Angela Merkel suggested to extend the life of German nuclear plants, “at least until such time that alternative renewable sources can make up the energy deficit that the nuclear phase-out is bound to provoke” (Betts, 2010, p.14). In addition, trade and commerce minister Brüderle stated he would like to take the economic measure to skim half of the energy suppliers’ resulting extra profits and invest it in renewable technologies and indulge consumers (Brost & Vorholz, 2010). Interestingly, within the German government there did not seem to exist consensus as regards a nuclear phase-out. In the same month, Norbert Röttgen, the CDU minister for the environment and nuclear safety, broke party lines by suggesting that nuclear energy should be phased out as fast as possible (Betts, 2010). He argued there were fundamental objections against the so-called harmonious existence of nuclear and renewable energy (Vorholz, 2010). Not much later, foreign affairs minister and FDP leader Guido Westerwelle engaged in the political debate and responded to Röttgen “it would be a big mistake to phase out nuclear energy at this point” (Vorholz, 2010,
vol. 8). In early June the national government surprised the large energy suppliers by introducing plans for a so-called fuel-rod tax (Flauger & Stratmann, 2010). The resulting revenues of such a tax could be used for the processing of radioactive waste (Flauger & Stratmann, 2010). However, the economic measure to charge this nuclear requisite would have meant an extra expense for RWE, E.ON, EnBW and Vattenfall of €2.3bn per year, and a conflict arose. The four companies instantly reacted in a defiant way, challenging the new government measure (Flauger & Stratmann, 2010; Oliver, 1991). RWE chief executive Jürgen Großmann commented on the new tax by calling it “not effective”, “misleading” and expressing the industry’s concern to be disadvantaged with an extra expense, “without some form of compensation” (Flauger & Stratmann, 2010, vol. 28). Especially the latter seemed a firm call directed to the government to negotiate the terms and come up with a plan not to affect the profitability of their firms. The sustainability trade-off central to these possible negotiations was between the economical aspect of the nuclear energy firms’ profitability and on the other hand the environmental aspect of the processing of radioactive waste. RWE’s statement was followed up in August 2010, when news came out the four large energy conglomerates E.ON, RWE, EnBW and Vattenfall had offered the German government a compromise worth €30bn to delay the shutdown of nuclear power plants by 12 years and solve the trade-off (Vorholz, 2010). Also, with the offer they wanted to prevent the fuel-rod tax getting adopted. It looked as if the industry was now indeed negotiating with the government, looking for a compromise on the delicate issue. However, they kept a defiant and urgent tone in their communication (Vorholz, 2010). On the same day, E.ON chief executive Johannes Teyssen accused the government, like his predecessor, of lacking a clear energy strategy (Vorholz, 2010). “We warn the government for creating extra expenses that could make the operation of nuclear power plants economically impossible and lead to decreasing overall revenues resulting in potentially lower investments in renewable energy technologies.
T abl e 4 P re -F u kus hi m a a ct ions
I have unmistakably made it clear to the government that going down this current path would be wrong, both economically and ecologically.” (Vorholz, 2010, p. 32). In their protest, the energy industry got backup support from 40 of Germany’s largest corporations in an open letter published in German newspapers (Wiesmann, 2010). German business leaders demanded that Angela Merkel musters the “courage to be realistic” and fulfills her energy pledges by extending the life of the country’s 17 nuclear power stations, thereby emphasizing the potential losses for the economy as a result of a nuclear phase-out (Wiesmann, 2010, p. 10). In their open letter, Berlin was warned that it would “block required investment in new energy sources” (Wiesmann, 2010, p. 10). Ms Merkel responded steadfast, standing by her plans for a tax on nuclear power, but also said she favored an extension of Germany’s nuclear plants and “understands everyone who wants to have a decision”. (Wilson, 2010, p. 4).
Then, in September, a compromise was reached with regard to the sustainability issue between the German government and the electric industry about a nuclear extension (Flauger, Stratmann & Bialek, 2010). The country’s 17 nuclear power plants were granted an average operating-life extension of 12 years in return for €30bn from extra profits that the government expected the nuclear industry to amass (Wiesmann, 2010). With the young plants getting a 14-year extension, the last German nuclear plant would close around 2036 instead of 2022. The chief executives of E.ON, RWE, and EnBW all “welcomed” the compromise and showed acquiescence but, however, also remained critical. For example E.ON CEO Teyssen remarked “the nuclear energy compromise also meant considerable burdens” (E.ON, 2010, par. 6). RWE CEO Großmann responded similarly, and EnBW chief Hans-Peter Villis said: “With this step the federal government has acknowledged that nuclear energy is of great importance for an economical and climate-friendly electricity supply combined with high supply reliability. This is generally good for Germany, both as an energy location and as an industry location.” (EnBW, 2010, par. 1).
Meanwhile, the electric industry started showing signs of acquiescence and compliance with the German energy plan, E.ON ahead. In September, they published a press release stating that the company “plans to play its role and make a key contribution to the implementation of the energy plan. Especially it will support the modernization of conventional power plants, the expansion of renewable energies, and research and development work related to energy efficiency.” (E.ON, 2010, par. 5). Furthermore, they stressed “E.ON and the other operators have accepted the government demands and support the establishment of a fund to develop innovative energy technologies.” (E.ON, 2010, par. 9). This new strategic focus was confirmed in November 2010, when the company said to accelerate its climate-protection efforts and it was now planning to halve the carbon emissions of its power generation in Europe by 2020 from a 1990 baseline (E.ON, 2010, par. 4). In addition, they were to focus on growth outside Europe. In early March 2011, Johannes Teyssen announced that the company has already reached several milestones in implementing its new strategy (E.ON, 2011, par. 1). RWE and EnBW also welcomed the agreement of the industry and the government and recognized it as “a bridge that will carry the country into the renewables era” (RWE, 2010, par. 2; EnBW, 2010).
Interestingly, in the pre-Fukushima era all four companies operating nuclear power plants seemed to respond in a similar way to the government pressures. This isomorphic evolution was mostly coercive, and to some extent mimetic.
The Fukushima nuclear accident
On March 11, 2011 a magnitude 9.0 earthquake struck Japan (The Economist, 2011). Following this offshore quake, a 15-meter high tsunami disabled the power supply and cooling of three Fukushima Daiichi reactors, causing them to release substantial amounts of radioactive materials. The accident was rated level 7 on the INES scale due to the latter, being
only the second nuclear disaster ever to have been classified as the highest INES level (World Nuclear Association, 2014). Although no short-term radiation exposure fatalities were reported, some 300,000 people evacuated the area, and approximately 18,500 people died due to the earthquake and tsunami (The Economist, 2011). Future cancer deaths from accumulated radiation exposures in the population living near Fukushima were predicted to be elevated for certain types of cancer such as leukemia, solid cancers, thyroid cancer, and breast cancer (Reuters, 2013).
Post-Fukushima coevolution
After the tsunami and subsequent impact of the nuclear power plant meltdown, the German government immediately prescribed to temporarily idle seven of the country’s 17 nuclear power plants, and launched a three-month review of the energy policy (Wiesmann, 2011). Subsequent to meeting the governors of the five regions that were home to nuclear power plants, Angela Merkel said she had issued a government security decree to suspend from electricity production all nuclear plants built before 1980 (Wiesmann, 2011, par. 2). By doing so, she abruptly suspended the decision taken less than five months ago to extend the power plants’ lives (Wiesmann, 2011). Calling the nuclear disaster in Japan “a turning point in the history of technology-based society”, she denied the rethink of her pro-nuclear policy had anything to do with a crucial regional election in the Christian Democrat stronghold of Baden-Württemberg, home to four of Germany’s 17 nuclear power plants, at the end of March (Wiesmann, 2011, par. 4). The main issue at the time seemed to be socio-environmental sustainability rather than economical sustainability. Realizing that nuclear power plants potentially could meltdown as a result of an ecological disaster was argued to be the driving force behind the accelerated phase-out of nuclear energy. However, electric firms stressed the
safety argument to be questionable since Germany, unlike Japan, is not at risk from earthquakes, let alone tsunamis (Wiesmann, 2011).
After the abrupt prescriptive measures of the German government the large power companies collectively reacted fiercely defiant and a new conflict between the two seemed to arise. However, now the trade-off was between the socio-environmental issue of nuclear safety risks and the economic issue of the energy firms expecting to see their investments and profitability vaporize. Not much later, E.ON and RWE made it public preparations were made to file lawsuits against the German government in the wake of its decision (Wiesmann, 2011). Officials of the companies said no top-level decisions had been taken, but obligations to shareholders made suits “almost an imperative” (Wiesmann, 2011, p. 18). In addition, they also wanted to test the legality of the nuclear fuel-rod tax, which the German government introduced as part of last year’s deal with the companies to delay the nuclear phase-out (Wiesmann, 2011).
Nevertheless, after a defeat in the elections in Baden-Württemberg of the Christian Democrats and Free Democrats, mainly due to their pro-nuclear policies, the government underscored its new anti-nuclear standpoint. Guido Westerwelle, foreign minister and head of the Free Democrats, partner to Merkel’s CDU, said the election meant the FDP could not return to “business-as-usual” on nuclear power (Wiesmann, 2011, p. 3). Hermann Gröhe, CDU general, added that the majority of the decommissioned reactors could be closed as a result of tough safety checks. Moreover, Ms Merkel herself emphasized the new perspective by saying: “As a supporter of the peaceful use of nuclear energy, my view on nuclear energy has changed since the events in Japan.” (Wiesmann, 2011, p. 3). These were strong words that showed no willingness to compromise with the electric energy companies this time and confirmed the trade-off between the socio-environmental aspect of nuclear safety risks and the economic aspect of the profitability of the nuclear energy firms.
Since the government did not seem to capitulate nor compromise, in April, RWE became the first electric power supplier to follow op on its threat to sue the German government for damages over its decision to idle seven nuclear power plants (Wiesmann, 2011). However, Berlin stood firm. In contrast to RWE, EnBW took a different approach in dealing with the government prescribed accelerated phase-out. In the same month they stated the company would not appeal against the decision (EnBW, 2011). They said to have “a culture of high safety standards and a great sense of responsibility that extends beyond the safe operation of power stations” and “acceptance by the general public is of fundamental importance for the future of the energy infrastructure” (EnBW, 2011, par. 2). This seemed to be the first time since early 2010 that the strategies of the four large energy suppliers in Germany deviated significantly, RWE and E.ON challenging the government prescriptions and EnBW obeying the rules and accepting the new norms. The disruptive effect of the Fukushima accident seemed to have undone the former isomorphisms among the nuclear energy firms. One of the reasons for this deviation could be that EnBW is largely owned by the federal state of Baden-Württemberg, and thus by the German government (EnBW, 2014). Not much later they confirmed their strategy by saying “renewable energies are an important focus of their investment growth” (EnBW, 2011, par. 1). In contrast, RWE continued their confrontational, perhaps also manipulative, stance with respect to the German government by warning its decision to halt two of its nuclear plants would drag down the power companies’ earnings (Schäfer, 2011). By doing so, they presumably hoped Berlin would realize there was a danger of overstretching the utility companies both financially and politically, not least because they fulfilled an essential role as investors to fund replacement renewable energy. However, the industries’ defiance did not seem to have a positive effect, as the government subsequently tried to publicly persuade the German people and the industry by communicating the phase-out’s economic benefits (Wiesmann & Peel, 2011). Environment
T abl e 5 P o st -F uk us hi m a act io n s
P o st -F uk us hi m a act io n s
minister Röttgen claimed “phasing out nuclear power in the next decade could boost competitiveness and reap enormous pay-offs for the economy” (Wiesmann & Peel, 2011, p. 8). Moreover, a week later the government prescribed the closure of all the 17 nuclear power plants, which generated a quarter of the country’s electricity, by 2022 (Wiesmann, 2011). In addition, they decided not to abolish the nuclear fuel-rod tax. Obviously, the rigorous measure asked for a reaction from the industry. E.ON was the first to respond publicly with again a firm threat they were seeking “billions of euros in damages from Berlin for the decision to phase out nuclear power by 2022 rather than 2036, as agreed last year.” (Wiesmann, 2011, p. 4). Also, the company said it “would take legal action against the nuclear fuel-rod tax, which Berlin wants to keep even though it is reneging on the nuclear lifetime extensions that led to the tax’s birth.” (Wiesman, 2011, p. 4). E.ON and RWE, the two utilities being publicly listed, already suffered from the government decision financially, seeing their stock prices fall by 6.9% and 5.8% respectively (Dennis, 2011).
Yet again, Ms. Merkel had no intention of compromising. In fact, her government even accelerated the shutdown of nuclear power plants even further, bringing an unexpectedly abrupt end to three of these sites (Wiesmann, 2011). Instead of closing by late 2021 as announced a week earlier, the three plants would now shut down in 2015, 2017 and 2019. Evidently, this period after the Fukushima accident seemed to be marked by mere conflicts, leaving no room for negotiations or compromises.
Subsequently, RWE and Vattenfall responded defiant as well. The former made it public they joined E.ON in filing a suit against the German tax on nuclear fuel-rods, thereby challenging the rules and requirements of the government (Wiesmann, 2011; Oliver, 1991). Vattenfall on the other hand again demanded compensations from the German government for its decision to bring an early end to the country’s nuclear power programme (Ward & Wiesmann, 2011). It said it “trusted the German political system would take full
responsibility for its decisions, and will keep future options open” (Ward & Wiesmann, 2011, p. 19). Several weeks later they followed up on their demand by quantifying and publicly communicating its results for the company: an immediate $ 1.6bn hit on profits (Ward, 2011). Vattenfall’s involvement seemed to ad a diplomatic dimension to the dispute because the company is largely owned by Swedish taxpayers.
However, not much later E.ON radically changed their behavior with respect to the nuclear debate and the German government. It’s CEO, Johannes Teyssen, signaled it was time for power companies to move on and look to the future (Wiesmann, 2011). He called Germany’s switch to renewable energy “a huge opportunity”, and said “Germany will become a laboratory for the accelerated switch to renewable energy” (Wiesmann, 2011, p. 14). It now took more acquiescence approach, obeying the institutional rules and norms. Accordingly, the company was choreographing the building of its first German offshore wind park, actively anticipating on the shift to renewables. The reason for this significant change of direction cannot directly be appointed from the collected data.
After the second quarter of 2011 had passed, financial results of all the companies were published and showed declining revenues. Most of the firms ascribed the disappointing results to the early phasing out of nuclear power. However, the companies dealt with it differently. For example, Vattenfall steered towards a compromise by on the one hand saying to “respect the German parliament’s decision”, expecting the phase-out to results in “an acceleration of the transition to renewable energy”, and “seeing business opportunities in the transition and intending to continue actively participating in the development of new projects” (Vattenfall, 2011, par. 3). On the other hand, however, they firmly expected a fair compensation for the company’s financial losses in return. In addition, EnBW reported declined revenue as well (EnBW, 2011). Its adjusted EBIT had fallen by 24.2% in the second quarter. In line with their earlier comments on the nuclear phase-out, they did not (publicly)
warn the government or said to expect financial compensation and instead focused on their investments in renewables, which now included half of their total investments in the first six months of that year (EnBW, 2011).
Interestingly, in December 2011, the German government stepped in and supported E.ON in their internationalization strategy by helping them secure a stake in Energias de Portugal (Wiesmann, 2011). In their reaction, the company said to be happy with the political support as it is said to be worried about being outbid. Whether related or not, three days later E.ON introduced a € 7bn program for investments in renewables, three large winds farms in the North Sea and Baltic Sea, and new transmission lines for wind power (E.ON, 2011).
In May 2012, RWE executive Jürgen Großmann, one of the most vocal critics of the nuclear phase-out, resigned and made way for his successor Peter Terium. The latter was expected to put more emphasis on renewable energy, much like E.ON has done (Wiesmann, 2012). Even though short after his accession he questioned the German government for their 2020 wind power goal, Terium lived up to the expectations by stressing he “is committed to increasing the share of renewables in its generation capacity to at least 20 per cent by 2020” (Barber, 2012, p. 20). By saying so, RWE seemed the last of four companies to have accepted the shift to renewables. Nevertheless, their lawsuit against the government was still running.
From that moment on no significant measures or prescriptions were taken by the national government, and the German electric industry accepted the new norms set by decommissioning nuclear power plants and developing corresponding strategies as regards renewable energy (EnBW, 2012; EnBW, 2013; E.ON, 2013; Vattenfall, 2012). This phase again showed similar attitudes among the four energy-producing firms. E.ON chief financial officer Marcus Schenck confirmed its approach saying “we are beyond the point where we are feeling sorry for ourselves. While it is frustrating when we have visitors from other countries who tell us they cannot believe we are shutting down world-class power plants, we have
accepted that this is what society wants” (Pfeifer, 2013, p. 13). In the trade-off between the socio-environmental sustainability issue of nuclear energy safety risks and the economic sustainability issue of firm profitability, the solution did not seem to come from the government compromising. Instead, over time the industry seemed to accept the powerful anti-nuclear opinion of the German people, political representatives and shareholders, and adapt accordingly to the new standards.
5.
Discussion
The case of the German electric industry clearly shows the influence of governments and broader contextual factors on corporate strategy, as the patterns of coevolution are chronologically visualized in figure 1. The industry responded and adapted to the frequently arising issues as regards sustainability and, notably, its coevolution with the German government seems to be affected fiercely by the disruptive Fukushima accident in 2011.
As it becomes clear from the analysis of the results, this nuclear accident divided their coevolution into three phases. Firstly, the period of 2010 to March 2011 was characterized by partial adaptation from both sides. The debate at that time involved a trade-off between the socio-environmental sustainability issue of the processing of radioactive waste and the economic aspect of the nuclear energy firms’ profitability, which could be negatively affected by a nuclear phase-out. In the discussion, both the industry and the government compromised and adapted to ultimately come to an agreement on a 12-year extension.
The second phase right after March 2011, in contrast, was hostile of nature. This period knew mere conflicts, no solutions and no coevolution. The government initially ordered for the country’s seven oldest nuclear power plants to shut down and not much later to close all 17 plants by 2022. RWE and E.ON reacted defiantly by threatening to sue the government.
Proposition 1: Disruptive events are likely to radically change coevolution patterns of an industry and a government
About a year later, the hostility evolved more towards harmony. In this third period the nuclear energy firms all showed signs of acquiescence and complied with the new rules by
C oe vol ut ion p at ter n s
increasing investments in renewables. The altered government policy with respect to nuclear energy thus has resulted in a significant change of strategy of the industry.
Proposition 2: Revolutionary changes of government policy are likely to trigger adaptive changes within an industry
Looking back at the pre-Fukushima period in early 2010, the German government suggested extending the life of German nuclear plants and using it as a bridging technology until renewable energy sources can be relied upon. This would have meant a win-win situation: securing both the reliability of Germany’s electricity supply and the energy firms’ profitability at the same time. However, not much later it decided to introduce a new tax on nuclear fuel rods. Where several scholars adhering an institutional theory perspective argue the firm’s role in such processes of evolution to be passive, implying that governments guide (and to some extent control) the strategies of firms and hence the practices they can perform, this research proves the contrary to be true (e.g. Child & Tsai, 2005). In the arisen sustainability trade-off between the environmental aspect of the processing of radioactive waste issue and the economic aspect of the nuclear energy firms’ profitability, we can observe that now the industry influenced the government. Instead of handling a passive approach and obeying the regulations set by the government, the industry reacted defiant and tried to influence the government by offering a compromise so that their profitability would suffer less because of new taxes or regulations. A few weeks after, the two parties agreed to extend the country’s 17 nuclear power plants’ operating-life in exchange for €30bn of the industry’s extra profits, thereby reaching a mutually accepted outcome of the trade-off. This provides support for the strategic choice perspective on coevolution, arguing that firms can exercise strategic choice in order to not only change the course of the organization itself, but also that
of the environment it operates in (Oliver, 1991; Dieleman & Sachs, 2008). However, the electric industry in particular does not allow much strategic options for firms to realize their goals by selection between different environments to become active in, as it is argued (e.g. Dieleman & Sachs, 2008). This is a consequence of the large and therefore less flexible corporations, and high level of regulations.
After the compromise, the industry handled an acquiescence approach, accepting the new rules and guidelines. However, on March 11, 2010 a magnitude 9.0 earthquake struck Japan and lead to a nuclear disaster. Since the effect of disruptive events on the coevolution of institutions and industries has not been researched thus far, it is interesting to see it had a significant effect.
Following the Fukushima accident the government ordered to idle seven of Germany’s 17 nuclear power plants, and for the remaining ten to be investigated extensively with regard to their security. The measure was taken in the light of the socio-environmental sustainability issue of nuclear energy’s safety risks, such as meltdowns as a consequence of ecological disasters. However, since before the event the electric industry was anticipating on an extension of the nuclear phase-out, given the €30bn agreement with the government, this sudden change of policy with respect to nuclear energy meant a severe amortization of the industry’s investments. Yet again a trade-off arose, now involving the socio-environmental aspect of nuclear safety risks being at odds with the economic aspect of the nuclear energy firms’ profitability.
Interestingly, the energy companies did not respond similar as they did before the Fukushima accident. In the second phase of coevolution (figure 1) the practices of the four firms deviated. Where E.ON and RWE kept defiant, EnBW showed acquiescence. The disruptive effect thus also pervaded to the isomorphic evolution of the industry. However,
after a year in the subsequent third phase, coercive isomorphism led to the firms again acting alike since they all were significantly investing in renewables (DiMaggio & Powell, 1983).
Proposition 3: Disruptive events can temporarily undo existing isomorphic behavior in an industry, but this effect fades over time
Proposition 4: Disruptive events are likely to affect the interaction between an industry and a government by temporarily interrupting their coevolution with a period of conflict on
sustainability issues
Furthermore, this study supports Hahn et al. (2010) on the topic of sustainability trade-offs. In discussing whether corporate sustainability should be reached by following a win-win paradigm as other scholars argue, they argue that the multi-faceted and complex nature of the concept leads to trade-offs and conflicts being the rule rather than the exception (Hahn et al., 2010). Since the academic literature with regards to sustainability trade-offs still is in its infancy, this research confirms trade-offs between the three aspects of corporate sustainability to be more frequent than potential win-win situations.
Proposition 5: Trade-offs between the aspects of corporate sustainability are the rule rather than exception
6.
Conclusion
The goal for this thesis is to investigate how a disruptive event affects the coevolution between an industry and a government on sustainability trade-offs. This is done by conducting a single embedded case study with respect to the Fukushima nuclear accident, and focusing on the German electric industry and the country’s government, since it provides a unique and ‘politically salient’ environment. More specifically, E.ON, RWE, Vattenfall and EnBW are analyzed because they operate all of Germany’s nuclear power plants. From the data, it can be observed that the Fukushima nuclear accident significantly affected the coevolution of the electric industry and the government with regard to multiple aspects.
In the timeframe investigated, three coevolutionary phases can be identified (figure 1). In the years prior to the event, a trade-off arose between the environmental and economic aspect of corporate sustainability when the government suddenly introduced a nuclear fuel-rod tax. In dealing with this trade-off it became clear the industry handled a proactive approach and did not hesitate to take a defiant stance with respect to the government. By doing so, they ultimately agreed upon a compromise to extend the operating life of Germany’s nuclear power plants and thus shaped the electric environment. This first period was characterized by partial adaptation from both the government and the industry. Moreover, all four firms acting and responding in a similar way proved their isomorphic evolution.
However, after the Fukushima accident the coevolution patterns significantly changed. The government’s energy policy drastically changed, and it set out new rules and guidelines by ordering the closure of seven of the country’s 17 nuclear power plants. Now the sustainability trade-off was between the socio-environmental aspect of nuclear safety risks and the economic aspect of the profitability of nuclear energy firms. Interestingly, the Fukushima event also affected the industry isomorphisms. The four firms did not act in a
similar way as they did before the event, and their strategies deviated significantly. EnBW for example accepted the new rules and guidelines, where RWE and E.ON tried to manipulate and fight the government over the radical decision. This second phase was hostile of nature with many conflicts, no solutions, and no coevolution of the industry and government. Over time, the industry did adapt to the government’s prescriptions and all companies started to invest in renewable energy sources. This was marked as the third period in which the isomorphism evolution again was significant.
This thesis provides several contributions to existing literature by combining theories of coevolution, sustainability trade-offs, and disruptive events. Firstly, analyzing a disruptive event’s impact on the coevolution of an industry and government has thus far not been done in academic research. This thesis contributes by proposing disruptive events can radically change coevolution patterns of an industry and government as shown by the three phases (figure 1). Relatedly, it can also be concluded that disruptive events can temporarily undo historic isomorphic evolution of an industry since the four energy firms did not respond similarly after the Fukushima accident and handled different strategies. Thirdly, this research found that revolutionary changes of government policy trigger adaptive changes within an industry. Also because of the changed regulations, the energy firms were forced to heavily invest in renewables in order to cope with an accelerated nuclear phase-out. Furthermore, where institutional theory argues the firm’s role in evolution processes to be passive, this research proves the contrary to be true. The four firms showed to take an active attitude with respect to influencing the government and current legislation as regards a nuclear phase-out. Finally, this thesis found that trade-offs between the three aspects of corporate sustainability are more common than win-win situations.
Consequently, the findings have several managerial implications. In contrast to institutional theory this research suggests that firms are able to influence the environment they
operate in, as the German electric industry did in this case study by offering a compromise to the government, and benefit as a result of it. However, they should be aware that disruptive events, even though they come unexpected, could radically change existing power balances between and industry and a government. This research proves such events to be able to lead to a period of conflict in which no coevolution takes place. As a result, revenues might decline and a company’s public image could suffer. Therefore, in such periods firms should try to analyze the situation and assess whether their arguments are likely to persuade a government. If not, it would be best if they adopt the new rules and guidelines as fast as possible in order to prevent unnecessary losses. Furthermore, as this thesis suggests trade-offs between corporate sustainability aspects to be the rule rather than exception, firms should be aware that win-win situations are difficult to achieve.
The results do, however, have potential limitations. By focusing on one country and industry in specific, generalizability might be limited. The German political environment might differ significantly from for example the US political environment. Furthermore, this research only focuses on the coevolution of an industry and a government. As we have seen, disruptive events affect many actors among which also a country’s general population. Since the latter elects the government it undoubtedly influences their strategy in many ways, it would be interesting to see in what way this additional actor plays a role in the coevolution of an industry and a government. This could be done by a follow-up research. Additionally, further research could involve other relevant theories than institutional theory and strategic choice theory in order to look at an environment from a different perspective. For example, the paradigm of life cycle or punctuated equilibrium, which discusses periods of adaptation and consolidation that are followed by periods of radical competence-destroying change, could be useful to investigate the effects of a disruptive event.
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