Journal Article

How to Become a Sustainable Company

Eccles, Robert G, Perkins, Kathleen Miller, Serafeim, George

2012

Overview

Corporate sustainability has captured the attention of much of the world over the last few years. Trends suggest that the public is no longer satisfied with corporations that focus solely on short-term profit maximization. A recent study that compares companies that adopted environmental and social policies with companies that didn't, authored by two of the authors of this article and another colleague, provides empirical support for this view. High sustainability companies significantly outperformed their counterparts over an 18-year period in terms of both stock market and accounting criteria, such as return on assets and return on equity. They also exhibited lower performance volatility. Currently, organizations that exhibit a broad-based commitment to sustainability on the basis of their original corporate DNA are few and far between. For most companies, becoming sustainable involves a conscious and continuing effort to build long-term value for shareholders by contributing to a sustainable society. The authors studied the organizational models of companies that they refer to as sustainable by comparing them with companies that they call traditional. They focused on two primary questions: 1. How do sustainable companies create the conditions that embed sustainability in the company's strategy and operations, and 2. What are the specific elements of sustainable companies cultures that differentiate them from those of traditional companies? The authors have developed an identity and cultural model for how to create a sustainable company. While the model is straightforward, implementation is by no means easy, because it is grounded in large-scale change something that few companies seek out or do well. The first stage involves reframing the company's identity through leadership commitment and external engagement. The second stage involves codifying the new identity through employee engagement and mechanisms of execution. Both are ongoing processes. Once the second stage begins, the two stages reinforce each other. Employee engagement enables even more sophisticated external engagement, since a broader range of employees will be able to effectively engage with outside stakeholders. Mechanisms of execution bind leadership commitment, since these organizational-level attributes continue from one generation of leaders to the next. Similarly, leadership commitment provides a strong motivating force for employee engagement, since employees know that their leaders care about what they are doing. External engagement strengthens the company's mechanisms of execution, since stakeholder pressure challenges the company to constantly improve its quality. The article draws on examples at companies including Dow Chemical, PepsiCo, Natura and Toyota.

• Publisher: Massachusetts Institute of Technology, Cambridge, MA
• Subject: Corporate image / Decision making / Employee involvement / Financial performance / Institutional investments / Leadership / Securities markets / Social responsibility / Studies / Sustainability