The concept of sustainability has been on corporate agendas for over a decade. The notion of People, Profit and Planet has been the basis for triple bottom line reporting for most listed companies for many years. However, in most cases the focus has been on compliance, whether directly in respect of legislation or indirectly whereby companies recognise the social need for a “licence to do business”.
In almost all cases sustainability has been a secondary item on the strategy agenda. As such it has been relegated to specialist functional departments headed by executives whose primary involvement is often in photo shoots or oversight of annual reporting.
Of late, considerable evidence is emerging that this concept of sustainability is rapidly changing and that it is becoming a central feature of business strategy. Traditionally an optional subject in Executive Development programmes, sustainability is poised to become the next great leadership challenge.
The results of the Ogilvy Earth South Africa Survey 2011 emphasise the importance of organisational reputation and show, amongst other things, the following:
- 85% of respondents would boycott a company or brand if they suspected it was acting in an irresponsible or damaging way towards its people, its community or environment
- 76% would be prepared to pay a little bit more for a product or service that was ethical in its social, environmental and general business practices.
- 91% want big brands to keep them up to date with news about the positive contribution they are making to society
- 60,9% would buy a product because of the corporate social responsibility initiatives that the brand or company is involved in.
Commenting on the results strategist Melissa Baird says: “What’s also clear from this survey is that we should not assume that what we do and what we say are not intrinsically linked and highly perceptible by our customers. People are far more “savvy” than we give them credit for”.
Reputation is an important asset
Company reputation is one of the most important intangible assets that an organisation can have. McKinsey & Company point out that the value of sustainability has moved beyond reputation.
Leading companies are pursuing sustainability for a number of reasons.
Firstly process improvement. By effectively managing energy consumption, water usage, emissions and waste management, organisations can potentially save considerable amounts of money while demonstrating sustainable practices.
Secondly, product design. Products that are environmentally friendly often command a premium while products that result from non-sustainable practices may quickly move out of favour. Historically, Nike is a good example. Currently chocolate companies are under pressure due to CNN’s revelations of child slavery in cocoa-producing West Africa. Bank remuneration issues is another example of community outrage.
Finally, new product opportunities. Many leading organisations are drastically increasing their R&D and product development spend to take advantage of new products and services such as renewable energy. Just look at the huge strides being made in biomimicry!
Hence a commitment to sustainable leadership is becoming a business imperative and leaders who are not advocates are likely to find their relevance decreasing.
What does it mean?
So what does it mean for leaders who wish to drive sustainable strategies?
Firstly, they need to make sustainability central to their strategy. This means avoiding the trap of relegating the various aspects of sustainability to specialist departments. Like safety, innovation, cost control, etc. it needs to be central to the business strategy.
Like all key strategic thrusts, the strategy needs to be converted to scorecards by which leaders are measured, rewarded and sanctioned. It needs to be an integral measurement in the performance management system.
Traditionally, the balanced scorecard comprised 4 key aspects of management: finance; customer; processes; learning. The emergence of sustainability as a strategic priority suggests that two more aspects need to be added to the scorecard, resulting in the following framework:
The New Scorecard
Measurements need to be created for managers in the domains of social and environmental aspects of management. They need to be of equal importance to other elements of the scorecard.
The measurement of Learning also takes on a new perspective. Whereas traditionally it refers to individual learning and development, within the context of sustainability it needs to encompass “renewability”. In other words, if the business environment changes, how quickly can the business “reinvent” itself in response? How agile is the organisation in the changing environment?
Under “Processes”, issues such as corporate governance need to be incorporated and given significant prominence in addition to traditional business operational processes.
Hence, leaders need to take sustainability to the frontline of the organisation. They need to make it part of the organisational DNA.
The legacy that such leaders create will be to ensure the ongoing enhancement of the business environment in which their organisations operate as well as their own organisational growth and prosperity over time.
By Terry Meyer