This Article Appeared in a Journal Published by Elsevier. the Attached

This article appeared in a journal published by Elsevier. The attached copy is furnished to the author for internal non-commercial research and education use, including for instruction at the authors institution and sharing with colleagues. Other uses, including reproduction and distribution, or selling or licensing copies, or posting to personal, institutional or third party websites are prohibited. In most cases authors are permitted to post their version of the article (e.g. in Word or Tex form) to their personal website or institutional repository. Authors requiring further information regarding Elsevier’s archiving and manuscript policies are encouraged to visit: http://www.elsevier.com/copyright Author's personal copy Organizational Dynamics (2010) 39, 306—315 available at www.sciencedirect.com journal homepage: www.elsevier.com/locate/orgdyn Solving the sustainability implementation challenge Marc J. Epstein, Adriana Rejc Buhovac On April 20, 2010 the explosion of the Deepwater Horizon to community and other pressures to be good corporate drilling rig in the Gulf of Mexico killed 11 platform workers citizens. Corporate social responsibility (CSR), or ‘‘sustain- and injured 17 others. It caused the Deepwater Horizon to ability’’ as it is now often termed, was seen as something that burn, and started a massive ongoing offshore oil spill that has frequently was necessary even if not desired or included in become the worst environmental disaster in U.S. history. the corporate strategy. CSR managers would often go to British Petroleum has been criticized extensively and held business unit heads and top management to do more in this responsible for the disaster, but also for the actions that area with a plea that ‘‘it is the right thing to do.’’ And, even preceded it. Much of the criticism focused on the manage- when it was done, it was never long lasting. A new chief ment control systems in place to prevent the disaster and the executive officer (CEO) would arrive and eliminate those lack of preparation for an effective response. This also activities that were not seen as core. follows other recent BP disasters including the Texas City Those days are long gone. Sustainability is a critical part of Refinery explosion in Texas City (March 23, 2005) when 15 most major corporations today. Whether the motivation is people died and the Prudhoe Bay oil spill in Alaska (March 2, concern for society and the environment, government reg- 2006) when over 212,000 US gallons were spilled. ulation, stakeholder pressures, or economic profit, most While British Petroleum often attempted to position itself managers recognize the importance of developing sustain- externally as an environmental leader, questions persisted ability strategies and activities. Sustainability is discussed regarding its environmental performance. And the recurring inside most organizations as a ‘‘business case’’ in addition to events raised questions as to whether these were one-time being the right thing to do. This is the only way it can be long events or systemic and whether sustainability was really a lasting. Most CEOs acknowledge its importance, but the critical part of the fabric and operations of the company. challenges of implementing sustainability are still quite sig- To effectively implement sustainability strategies, com- nificant. panies must have the formal (hard) and informal (soft) Setting clear and measureable goals. These challenges systems in place. Too often they do not. Companies need exist, in part, because implementing sustainability is funda- the processes, performance measurement, and reward sys- mentally different from implementing other strategies in an tems (formal systems) to measure success and to provide organization. For operating goals, for example, the direct internal and external accountability. But they also need the link to profit is usually clear. For innovation, though long- leadership, culture, and people (informal systems) to support term and also often difficult to predict, measure, and man- sustainability implementation. An alignment among the for- age, the intermediate goal is new products and processes, mal and informal systems along with the organizational and the ultimate goal is increased profit. For sustainability, structure is critical for success. however, the goal is to achieve excellence in social, environmental, and financial performance simultaneously. The social and environmental impacts of corporate activities have THE CHALLENGES OF IMPLEMENTING effects that are often longer-term and more difficult to SUSTAINABILITY measure than most of the impacts managers typically con- front. For years, some company managers were charged with the Financial incentive pressures. The issue of integrating responsibility of addressing the social and environmental corporate sustainability into day-to-day management deci- impacts of company operations. Even when there was little sions is further complicated as managers at all levels have buy-in from senior management, a need was seen to respond significant pressure to increase short-term earnings. When 0090-2616/$ — see front matter # 2010 Elsevier Inc. All rights reserved. doi:10.1016/j.orgdyn.2010.07.003 Author's personal copy Solving the sustainability implementation challenge 307 actions improve both social and financial performance simul- align organizations, coordinate activities, motivate employ- taneously, such as when energy consumption, waste, or ees, and quantify the impacts of corporate activities on social toxics are reduced, this is simpler than when there is a and environmental performance. significant financial cost associated with improving social or environmental performance. In such situations, managers THE CORPORATE SUSTAINABILITY MODEL are faced with a dilemma of how to make the choices and which actions to take. Stakeholder reactions. Adding to the challenge is uncer- The Corporate Sustainability Model was developed to help tainty about how different stakeholders will respond to managers measure and manage their success in implementing various sustainability actions and performance through time. sustainability strategies. More specifically, the model Corporate and societal priorities often change, as do the enhances the understanding of: costs of implementing sustainability. All these issues make the decision-making associated with sustainability imple- - the role of various drivers (inputs and processes) in sus- mentation particularly challenging. tainability; One of the key ingredients to make sustainability work - the causal relationships among the various actions that can within any organization is to put in place formal systems that be taken; support the sustainability strategy. Formal (or ‘‘hard’’) sys- - the impact of these actions on sustainability performance; tems typically include the management control, perfor- - the likely reactions of the corporation’s various stake- mance measurement, and reward systems that are used to holders; and steer employee behavior toward strategic goals. New tools - the potential and actual impacts on financial performance. for managing and measuring corporate sustainability such as The Corporate Sustainability Model (see Exhibit 1, drawn This model can be used to more successfully implement from the Epstein’s book (2008)) and its associated measure- sustainability strategies and achieve superior sustainability ments aid in implementing sustainability strategies. performance. The Corporate Sustainability Model provides a compre- At the core of the model is the leadership function. The hensive approach for examining, measuring, and managing role of committed leadership can never be overstated. Man- the drivers of corporate sustainability. It has been extensively agement commitment to sustainability as a core value, and tested and revised in both academic and managerial studies management recognition that sustainability can create finan- and implementations. Using it leads to a clear understanding cial value for the organization through enhanced revenues of the impacts of past, pending, and future corporate deci- and/or lower costs are critically important. sions on the society, the environment, and corporate finan- Jeffrey Immelt, CEO of General Electric Co. (GE), for cial performance. Along with performance measures, closely example, has publicly committed his company to sustain- [(Exhibt_1)TD$FIG]tied to the various elements in the model, these tools help ability. His combination of words and actions is leading Exhibit 1 The Epstein Corporate Sustainability Model. Author's personal copy 308 M.J. Epstein, A.R. Buhovac change at GE and has moved the company to the top of many ability performance to align the interests of the corporation, global sustainability rankings and indices. Leaders are senior managers, and all employees. Wal-Mart Stores, follow- responsible for the identification and analysis of the inputs ing in the path of many large U.S. companies, has linked and, accordingly, for designing processes (sustainability executive bonuses to diversity in its hiring practices. Bonuses strategy, sustainability structure, and sustainability systems) will be reduced by as much as 15% if the company does not needed to accomplish the desired sustainability outputs and promote women and minorities in proportion to the number outcomes. Vice presidents of sustainability, in particular, that apply for management positions. take the lead in considering inputs, developing a sustain- Managerial actions lead to sustainability performance

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