Bede Music Box

Responsible Leadership and Corporate Sustainability Anne H. Reilly, Ph.D. Professor of Management and Associate Dean, Graduate School of Business Loyola University Chicago 820 N. Michigan Avenue , Chicago, IL 60611 (312) 915 - 6537 areilly@luc.edu P aper p resented at the 1 3 th Annual Meeting of Colleagues in Jesuit Business Education (CJBE) Marquette University, July 2010 Audiovisual n eeds: PowerPoint slides -- e ither laptop & data projector OR overhead projecto r 2 Abstract University courses about s ustainability may be found more frequently in biology departments than in business schools , yet responsible leadership requires effective stewardship of organizational resources . Jesuit business schools are poised to make a significant contribution to both researching and teaching this important topic , with their well - established reputation for moving forward the corporate social responsibility (CSR) agenda . This presentation provides an overview of key elements in c orporate sustainability , discusses multiple measures used in assessing net impact , and identifies challenges in implementing sustainability initiatives with in the domain of responsible leadership . 3 Responsible Leadership and Corporate Sustainability When assessing organizational performance, a responsible leader recognizes that financi a f irm’s effectiveness ( Kanter, 2009; Senge, et. al, 2008) . A balanced scorecard approach suggests that multiple measures may be required to evaluate overall corporate effectiveness . One key non - financial performance metric is sustainability : meeting current economic, environmental , and social needs without jeopardizing the ability of future generations to meet those same needs. W hile the popular media has addressed corporate su stainability initiatives ( McGinn, 2009; Business Week , 2007 ), empirical research to date has been limited (Reilly, 2009) , and sustainability course offerings may be found more frequently in biology departmen ts than in business schools . Jesuit schools of business are thus poised to make a significant contr ibution to both researching and teaching this important topic . Indeed, the International Association of Jesuit Business Schools (IAJBS) Sustainability Task Force just released the following recommendation s : “We recommend that IAJBS use the term „global sustainability’ instead of „sustainable development’…and we recommend the following definition: „Global sustainability is the broad set of interconnected issu es that encompass, but are not limited to, achieving environmental preservation, poverty eradication, social justice, desirable production and consumption patterns, species preservation, and spiritually rich lives at this time in our species' history on th is planet. To realize or achieve global sustainability we need to create socially just and spiritually - whole ways for our species (and all other species) to thrive 'forever’.’' This presentation provides an overview of some of the key elements of sustain ability and its place within the domain of responsible leadership . 4 Defining Sustainability The concept of sustainability is a broad construct. It overlaps with the corporate social responsibility (CSR) domain, with a focus on a dvancing the standard of li ving while also preserving natural and human resources. As in many field s, sustainability teachers and researchers use certain shared terms. For example, a firm’s sustainability “ net impact ” may be assessed using a “triple bottom line ” approach. This tr iple bottom line addresses three forms of sustainability outcomes: 1. E nvironmental impact on land, air, water, and ecosystems. This dimension describes a company’s effects on the physical environment surrounding it, and t his compo nent may be the most vis ible to consumer s (being “green” ; McGinn, 2009 ) . E nvironmental impact statements often utilize qu antifiable such as global warming emissions, hazardous waste, and water usage. 2. E conomic impact in contribu t ing to the ongoing viability of the larg er economic system . This dimension incorporate s a company’s employment of equitable business practices in its global operations . Sample m easures here include flow of capital among different stakeholders, distribution of wealth, and infrastructure investm ent. 3. S ocial equity impact on the local communities in which the firm conducts business. This aspect includes corporate philanthropy , although most agree that social sustainability is a broader concept. Manufacturing safe products under safe working co nditions and providing equal opportunity and fair wages are examples of social sustainability measures. 5 Measuring Sustainability Outcomes Given the broad sustainability construct and its multiple components, a firm’s s ustainability performance may be meas ured in many ways . A “ balanced scorec ard ” approach to sustainability has been suggested , addressing the perspectives of financial ( shareholders’ interests), customer (creating customer value), internal business processes (performance on key internal dimen sions), and learning and growth (meeting future challenges) performance (Figge et al, 2002) . In addition, Epstein and Roy (2003) propose nine dimensions business relationships, financial ret urn, community involvement/economic development, value of products and services, employment practices, and protection of the environment. According to the balanced scorecard approach, these multiple dimensions must be considered in assessing a firm’s sust ainability net impact. Comparing firm performance may be difficult, because the s ustainability research to date has clearly shown that s ustainability initiatives — -- vary across corporations and industries (Reilly, 2009) . For example, m anufacturi ng c ompanies may emphasize reducing emissions, decreasing water consump tio n, and recycling by - products, while s ervice firms may focus on customer relationships, employee development, and community service. vol untary basis, and to date most measures are not standardized (unlike GAAP, generally accepted accounting principles) . Furthermore , o rganizations communicate their sustainability initiatives through multiple media and approaches. About two - thirds of U.S. - based global firms issue some form of stand - alone corporate social responsibility 6 (CSR) report including sustainability metrics (Sustainable Life Media, 2008) . M any companies are active users of social media as well ( blogs, Facebook, Twitter ) . Challeng es in Assessing Net Impact B communicating a consistent sustainability message can be challenging — and assessing the message relayed can be even more difficult. The measures reported are often idiosy ncrati c to an industry , and leaders both within and external to the firm may have limited knowledge of sustainability parameters. In addition, “g reenwashing ” is commo n: c ompanies tend to promote the well . Many companies provide li sts of the awards they have received (for example, Leadership in Energy and Environmental Design ( LEED ) - certified buildings ) and ignore any negative publicity. In addition, t arget ed sustainability initiatives are not always accomplished, especially if the se initiatives involve consumer participation (think recycling batteries) . For all of these reasons, responsible leaders may find it quite difficult to assess the net impact of a corporation’ s sustainability performance, as c onflicting results may emerge w hen an organization’s overall performance is assessed. Consider Barron’s 2010 ratings by major investors of the “world’s most respected companies” (Racanelli, 2010): Apple was No. 1. However, Apple was also ranked on Portfolio.com’s “Toxic Ten” list of w orst corporate polluters (Hurt, 2008), after corporate management at Apple rejected shareholder proposals designed to help the company phase out toxins such as polyvinyl chlorides (PVCs) from its products. An even more visible example is the current crisi s 7 involving BP, which had been considered a sustainability leader in the petroleum industry until the catastrophe in the Gulf of Mexico (McGinn, 2009) . Implementing Sustainability Initiatives For responsible leaders seeking to improve their firms’ perform ance in the sustainability domain, de veloping a vision to foster sustainability and communicating a plan are key fir st steps . The next challenge is to implement these initiatives. For most companies, i mplementing a corporate sustainability initiative may be compared to implementing organizational change. As in any change process , sharing information through education is important . For example, educating both consumers and companies alike about the potential negative side effects of products ranging from pesticides to pharmaceuticals is critical in achieving support for a sustainability change effort . Next, r esponsible leaders recognize the key role of motivation in changing people’s behavior; consider the impact of incentives such as cash redemptions in the recycling of glass bottles and aluminum cans. Other change implementation techniques may be applied at a broader level. On example is v oluntary and/or industry regulation as another means of supporting n the building design and construction industries involving LEED certification is an illustration of how self - regulation may move the sustainability agenda forward. Finally, as shown in the municipal arena (e.g., laws ranging from seat belt usage to water ing lawns ), legislation is another powerful means of supporting sustainability measures. 8 Responsible leadership requires effective stewardship of organ izational resources, and sustainability is a critical concept for principled leaders (Kanter, 2009) . Giv en their w ell - established reputation in moving the corporate social responsibility agenda forward , Jesuit business schools are particularly qualified in preparing leaders to implement sustainability initiatives in today’s complex business environment. 9 Re f erences “Beyond the Green Corporation,” Business Week , January 29, 2007. Epstein, M.J. & Roy, M. (2003). “ Improving Sustainability Performance: Specifying, Implementing and Measuring Key Principles, “ Journal of General Management, 29 (1), 15 - 31. Figge, F. , Hahn, T., Schaltegger, S., & Wagner, J. (2002). “ The Sustainability Balanced Scorecard — Linking Sustainability M anagement to Business Strategy,” Business Strategy, and the Environment, 11, 269 - 284. Kanter, R.M. (2009). Supercorp: How Vanguard Companies C reate Innovation, Profits, Growth, and Social Good . New York: Crown Business. McGinn, D. (September 28, 2009). “The Greenest Big Companies in America.” Newsweek , 34 - 54. Racanelli, V.J. (2010). “The World’s Most Respected Companies,” Barron’s , February 15, 2010. Reilly, A.H. (2009). “Communicating Sustainability Initiatives in Corporate Reports: Linking Implications to Organizational Change,” Management (SAM) Journal , 74:3, 33 - 43. Senge, P., Smith, B., Kruschwitz, N., Laur, J ., & Schley, S. (2008). The Necessary Revolution: How Individuals and Organizations Are Working Together to Create A Sustainable World. New York: Doubleday. Sustainable Life Media , “Two - Thirds of Fortune 500 Firms Issue Standalone Reports on Responsi bility,” February 14, 2008.