Taking environment performance as an endogenous factor at the macro system level, we propose organizations as market system engage in a negotiated exchange with stakeholders as society system. We reframe micro system externalities as the choice for the central firms to trade their above-normal performance on technical dimension with below-normal performance on environment dimension. However, as the costs of this trade escalate or values evolve, they shift their priorities. We develop testable hypotheses from this dynamic theory, and show support using an exploratory dataset of managerial perceptions of environment performance from a survey in China of small and medium enterprises.