EFFECT OF CORPORATE SUSTAINABILITY FACTORS ON ORGANIZATIONAL PERFORMANCE
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EFFECT OF CORPORATE SUSTAINABILITY FACTORS ON ORGANIZATIONAL PERFORMANCE
Chapter one
INTRODUCTION
1.1 Background to Background
Until recently, corporate sustainability was not taken seriously by business owners and shareholders. To them, it is simply another way to waste money that could otherwise be used for successful production.
However, this is no longer the case, as many organisations and businesses today view corporate sustainability as a requirement for organisational growth and profitability. (Chukweike, 2014).
Corporate sustainability is an approach that provides long-term stakeholder value by implementing a business strategy that takes into account all aspects of how a company functions, including ethical, social, environmental, cultural, and economic factors.
It also develops tactics for building a corporation that promotes longevity through transparency and proper staff development (Wikipedia, 2014).
Corporate sustainability is an extension of more traditional terms for ethical corporate behaviour. Corporate social responsibility (CSR) and corporate citizenship are still used, but the larger phrase corporate sustainability is gradually taking their place. Corporate sustainability, as opposed to “added-on” policies, refers to company practices based on social and environmental factors. (Wikipedia. 2014).
Corporate sustainability not only improves a corporation’s profitability, but it also improves their goodwill, strong brand name, and reputation, resulting in consumer loyalty and repeat purchases (the ideal of any business owner).
Neoclassical economics and other management theories presume that the corporation’s goal is profit maximisation within capacity (or other) restrictions. In such models, the shareholder serves as the ultimate residual claimant, providing the financial resources required for the firm’s activities (Jensen and Meckling, 1976; Zingales, 2000).
However, there is significant variety in how firms actually compete and seek profit maximisation. Different corporations place more or less emphasis on the long term versus the short term (Brochet., Loumioti., serafeim., 2012); care more or less about the impact of externalities from their operations on other stakeholders (Paine, 2004);
focus more or less on the ethical grounds of their decisions (Paine, 2004); and assign relatively more or less importance to shareholders compared to other stakeholders (Freeman., Harrison., Wicks., 2007). Southwest Airlines, for example, has recognised employees and Novo Nordisk patients as its major stakeholders.
During the last 20 years, a small but growing number of businesses have consciously integrated social and environmental issues into their business models and daily operations (i.e., their strategy) by implementing relevant corporate policies.
The integration of environmental and social issues into a company’s business strategy presents a number of fundamental questions for organisational researchers. Does the governance structure of firms that implement environmental and social policies differ from that of other firms, and if so, how?
Do such firms have distinct stakeholder engagement methods and decision-making timelines? How do their measuring and reporting methods differ? Finally, what is the performance impact of incorporating social and environmental issues into a company’s strategy and operations?
According to Godfrey (2005), doing good can help organisations succeed. (Elfenbein & Walsh, 2007). Porter and Kramer (2011) make the premise that fulfilling the requirements of other stakeholders, like as employees, through investment in training, directly creates value for shareholders.
It is also based on the assumption that if companies do not meet the needs of other stakeholders, they will lose shareholder value due to consumer boycotts (Sen, Gurhan-canli, Morwitz., 2001), an inability to hire the most talented people (Greening and Turban, 2000), and potentially punitive fines from governments.
Other researchers, however, claim that environmental and social measures can erode shareholder wealth (Clotfelter 1985; Friedman, 1970; Galaskiewicz, 1997; Navarro 1988).
In its most basic form, their argument is that sustainability may simply be a type of agency cost: managers benefit privately from incorporating environmental and social policies into the company’s strategy
but doing so has negative financial consequences for the organisation (Baloti and Hanks, 1999; Brown et al., 2006. Furthermore, these enterprises may have a higher cost structure (for example, paying their staff living rather than market rates).
As a result, the reasoning goes, organisations that do not face such additional environmental and societal restraints will be more competitive, and thus successful in a highly competitive economy. Indeed, this hypothesis is nicely represented by Jensen (2001), who states:
Companies who attempt to do so will either be removed by competitors who are not as civic oriented, or they will survive solely by consuming their economic rents in this manner.
People all throughout the world expressed deep worry about environmental devastation and its impact on their lives and companies. The Brundtland report emphasises the importance of corporate sustainability for the future of their businesses, as well as the fortunes of nations and individuals (Edwards, 2005; White, 2009).
According to (Ullmann, 2007), corporate sustainability focuses on how to organise and manage corporate activities such that they provide physical and psychological requirements without jeopardising the ecological, social, or economic foundation that allows these needs to be addressed. Corporations play a big role in this process in most countries around the world, particularly in the industrialised West.
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