Introduction

What role can business managers play in finding solutions to environmental problems? For many years, the business management literature proposed that managers could help their firms discover win/ win opportunities that protect the environment while simultaneously increasing profits (Porter and van der Linde 1995b; Hart 1995). This is an attractive suggestion, for it implies that environmental protection can be accomplished with little pain, and that environmental problems are caused not by defects in our institutions but by failures in our insight or perception.

The literature on when it might “pay to be green” has advanced our understanding of how and when firms achieve sustained competitive advantage. What this literature has failed to do, however, is demonstrate that “win/win” opportunities will be sufficient to bring about meaningful environmental improvements. “I used to think that all we needed was a few managers to ‘get it,’” remarked Matt Arnold, founder of the Management Institute for the Environment and Business. “Now I think that the problem goes much deeper.”

If managers who “get it” cannot find ways to profitably protect the environment, then, given the magnitude of today's environmental problems (UNEP 2002; Worldwatch Institute 2006), the rules of competition must be changed to make environmental responsibility more profitable. North (1991, p. 97) defines these rules, which he terms “institutions,” as the “humanly devised constraints that structure political, economic, and social interaction.” Institutions come in many forms: formal or informal, private or public, centralized or decentralized (North 1981; Ingram and Clay 2000). For-profit firms, the subject of most management research, are examples of private, centralized institutions.