Magazine article Strategic Finance

Implementing Sustainability: The Role of Leadership and Organizational Culture

Magazine article Strategic Finance

Implementing Sustainability: The Role of Leadership and Organizational Culture

Article excerpt

This article is based on a study supported by IMA's Foundation for Applied Research (FAR).

Executives recognize the importance of social and environmental responsibility--corporate sustainability--but they seldom implement it successfully. The challenge lies in how to actually integrate sustainability into operational and capital investment decision making and implement it successfully in large, complex, for-profit organizations. The financial executive plays a vital role.

Top management typically cascades these management decisions down because sustainability impacts are often local, so usually only a small number of these decisions are made at corporate headquarters. As individual managers at the business units, geographical units, and facilities make these decisions, they also must make the appropriate tradeoffs regarding social and environmental impacts vs. financial ones. Typically, the vice president of sustainability, who reports to the CEO, requests improved sustainability performance, while the CEO and CFO demand improved financial performance. At the same time, a company provides little guidance and support to senior- and middle-level operations managers to aid in the decision making and tradeoffs. How can they manage this challenge successfully?

Field Study Brings New Findings

In the January 2008 issue of Strategic Finance,Marc J. Epstein presented the Corporate Sustainability Model, a comprehensive approach for examining, measuring, and managing the drivers of corporate sustainability. The model can help managers incorporate a sustainability strategy into daily operations and link that strategy to specific actions that improve both sustainability and financial performance.

Epstein argues that, to improve the sustainability strategy implementation process, managers should carefully identify and measure key performance drivers included among the various inputs and processes. The drivers of the model include:

* External context (regulatory and geographical),

* Internal context (mission, corporate strategy, corporate organizational structure, organizational culture, and systems),

* Business context (industry sector, customers, and products), and

* Human and financial resources.

The inputs guide leaders in making decisions so they can develop an appropriate sustainability strategy; set up aligned structures, systems, and programs; and take action. The managerial actions lead to positive or negative sustainability performance and stakeholder reactions, ultimately affecting long-term corporate financial performance. This model should help managers better analyze and manage these drivers as well as pursue social and environmental impacts more effectively. Figure 1 illustrates the Corporate Sustainability Model.

[FIGURE 1 OMITTED]

Recently, the Foundation for Applied Research (FAR) of the Institute of Management Accountants (IMA[R]) sponsored a research study to examine how leading corporations integrate economic, social, and environmental impacts into day-to-day management decision making.

The research focused on four companies:

* Nike, the world's leading designer, marketer, and distributor of athletic products and clothing;

* Procter & Gamble (P&G), one of the world's leading branded consumer products companies;

* The Home Depot, the world's largest home-improvement specialty retailer; and

* Nissan North America, a unit of Nissan Motor Co., a leading global auto manufacturer.

These companies have reputations for leading practices in managing sustainability and have high ratings on various indexes on sustainability performance. We conducted open-ended, semi-structured interviews with senior managers, business unit and facility managers, geographical unit managers, functional managers, and sustainability managers. The study investigated how managers currently make tradeoffs and simultaneously manage social, environmental, and financial performance. …

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