The effect of pressure from secondary stakeholders on the internalization of ISO 14001

Independent third party certification has been proposed as a governance mechanism to control for unobservable practices of firms, such as green practices. Although showing some promise, it has been also argued that the challenge of independent third party certification is to force firms to embrace certifications in substance (hence to internalize the certifications in daily practice) not only to adopt certifications in a symbolic manner. This paper investigates whether the pressure from secondary stakeholders can assist with this challenge. We study this problem in the context of ISO 14001 certification. Based on a study of a sample of 328 Australian and New Zealand firms, we found that ISO 14001 certificate is being accepted by secondary stakeholders as a sufficient signal of firms' environmental efforts. In other words, firms, which experience pressure from secondary stakeholders to adopt the standard, find reputational benefits from the mere fact that they are certified. At the same time, the study also shows that the pressure from secondary stakeholders is not contributing to the internalization of ISO 14001. Firms do not put extra effort into the management of their environmental systems just because they experience stakeholders' pressure to get certified. In line with the findings from other studies, we found that firms that internalize ISO 14001 do also report environmental benefits such as reduced pollution or reduced energy consumption yet the pressure from secondary stakeholders is not contributing to such improvements.