Sustainability: Business Strategy Trumps Reputation
by Gael O'Brien
I was talking last week to three former corporate executives who sit on more than a half-dozen corporate boards among them about whether sustainability had come up as an agenda item at any of their board meetings. The answer was it hadn’t.
It is one of the ironies of a global movement that gets at the very essence of preserving life, business viability, and the future of the world, that sustainability is a chameleon moving between its micro and macro applications. One of its challenges is the ambiguity in its label. It isn’t surprising that when you ask people what their company is doing in sustainability, the question back is almost always “how are you defining it?”
In companies, sustainability is led at various levels of the organization – rarely at the board or CEO levels – though when the CEO is an active supporter, not surprisingly, programs flourish.
Although it is generally accepted that sustainability encompasses the spectrum of social, economic and environmental issues, companies generally focus on particular aspects most relevant to their business needs and stakeholders. For some the label means predominantly environmental; for others, it’s part of their corporate social responsibility (CSR) program; and for a smaller number, there is a holistic approach where it is incorporated as a business strategy and involves the board and the culture.
Sustainability is about accountability. Not just to regulators and customers, but, as BP discovered last spring, to an ever-expanding definition of stakeholders for whom business judgment errors can prove catastrophic.
Reputation vs. Strategy
No matter how a company defines sustainability, however, there appears widespread agreement - based on surveys last summer by McKinsey and the UN Global Compact led by Accenture, as well as last year’s research by the Boston Consulting Group - that strengthening reputation and trust are prime motivators for companies to be involved with sustainability.
This isn’t the green light it may seem on the surface. Of course it is essential that companies place a value on investing in sustainability, but the reputation argument has a clear downside: it is hard to measure; without a crisis, complacency can be seductive; and unless a company is engaged in proactive risk management, reputation may not carry the day in competition with other seemingly more pressing business priorities. In addition, while support for sustainability ranked high in the surveys, a gap was evident between intentions and actions, which is a huge red flag. As important as reputation is, sustainability should be tied to business strategy, or at a minimum, be tied to many pieces of the business.
Avery Dennison is a good example. The company started its sustainability effort 10 years ago as a natural progression in the development and communication, both internally and externally, of its statement of corporate values and ethics, says Robert van Schoonenberg, former executive vice president, general counsel and secretary, who led the effort. “For sustainability to take hold and be real in a company what is done must make business sense in terms of the long-term needs of the business and creation of value for shareholders.” For it to work, he adds, “doing something good for the world, the community, or other stakeholders needs to be linked with other corporate objectives -- including cost reduction, quality, risk management, reputation, and being an employer who people want to work for or buy products from.”
It is hard to find a corporate website that doesn’t tout its efforts in sustainability and/or corporate responsibility – and also hard to tell by reading the hype from real impact.
“When it comes to companies addressing their real carbon footprint,” says S. Prakash Sethi, “most are good at cost-driven initiatives where there is a clear economic and public relations benefit to do it; for example to produce raw materials as efficiently as possible and improve operations minimizing impact to the environment.” Sethi is Distinguished University Professor of Management at Baruch College.
“However, companies generally aren’t addressing the negative externalities at the user end,” Sethi continues, “how a customer disposes of the product at the end of its useful life so it doesn’t end up in local community garbage dumps or shipped off to impoverished countries like Nigeria where workers salvage saleable raw materials at tremendous risk to their health and safety.” Sethi is also president of Sethi International Center for Corporate Accountability.
Design for Living
Herman Miller designs its furnishings to meet the “cradle to cradle” (C2C) standard to which Sethi was referring — environmentally safe ways to dispose of products. Herman Miller’s goal by 2020 is for 100 percent of its products (old and new) to be able to be recycled or decomposed. Last year, after three years of work, its popular Aeron chair was made 94 percent recyclable.
Paul Murray, Herman Miller’s director of Environment Health & Safety, can also point to a significant track record in reducing carbon footprint in FY 2010 over the baseline year of 1994. He indicated that their overall footprint reduction is 90.68 percent; the result of averaging landfill reduction at 91.9 percent, water reduction at 82.1 percent, hazardous waste at 96.3 percent, air emissions at 83.2 percent, and renewable electrical energy at 100 percent.
In 2005 when CEO Brian Walker joined Herman Miller, his commitment to sustainability resulted in his choosing to embed two environmental goals (about how well Herman Miller protected the environment) into his own scorecard on which the board evaluated his performance from 2005 to 2010. One goal was the overall footprint reduction, described above, that was met. The second was the percentage of sales that were Design for the Environment (DfE) approved. That goal was met in 2010 at 54 percent of sales, says Murray.
In FY 2011 – 2013, for Walker’s performance scorecard, the board will evaluate him on the two environmental goals with new targets and a third Walker added, which is the company’s goal to be carbon neutral by 2020.
Walker introduced the company to the concept of "creating a better world" in 2005. Murray says it ties together CSR topics of environment, community, diversity and inclusiveness. One example of that, Murray says, is the house for Habitat for Humanity that employees and the company funded last summer and that employees built to be LEED certified energy-efficient.
Walker says sustainability/CSR is incorporated into Herman Miller’s business strategy. That seems to be right. It explains why engagement in environmental priorities continued in spite of the recession’s impact on the company’s sales and profits. Over 1,000 jobs were cut; employees received a 10 percent pay cut and a four-day work week beginning in spring 2009. Walker took a 20 percent pay cut. On June 1, 2010, the company experienced an increase in sales and returned to the 40-hour work week and restored most of the salaries.
In the tough choices Herman Miller faced last year, if sustainability were just about reputation, the program might have been endangered. Instead it was embedded, part of the business strategy, part of the company’s DNA, and it would seem, part of Herman Miller’s sense of its own sustainability.
Gael O’Brien is a Business Ethics Magazine columnist. Gael is a thought leader on building leadership, trust, and reputation and writes The Week in Ethics.
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Tagged as: Accenture, Aeron, Avery Dennison, Baruch College, Board of Directors, Boston Consulting Group, BP, CEO, Corporate Social Responsibility, Cradle to Cradle, CSR, Herman Miller, LEED Certified, McKinsey, Reputation, S. Prakash Sethi, Strategy, Sustainability, United Nations Global Compact