Ethics, Governance and Sustainability - Study Guide

Introduction:

In this topic 8 we continue with the theme from topic 7 of looking at sustainable business strategy themes based on the phases model.

Learning objectives:

1. Understand and critique the main features of a strategic proactivity approach and the sustaining corporation approach to sustainable business.

Discussion:

Strategic proactivity strategy

Here’s a summary of how Dunphy et al (2003) describe the strategic proactivity phase:

Dunphy et al (2003) describe this strategy as one where a firm sees sustainability not as a cost or impediment, or as something merely to be pursued by compliance or efficiency strategies, but rather as a source of strategic business opportunities and competitive advantage (i.e., sustainability as a strategy position, as discussed by Mintzberg – refer to topic 7). For Dunphy et al, this approach to sustainable business requires organizations to shift their cultures, structures, reward systems and job responsibilities (that is, strategy as a perspective) and build the internal capabilities to support this strategy. In addition, firms cannot forget that competitive advantage does not come from sustainability initiatives alone. Firms compete in many dimensions in the market place and attending to basic competitive strategic practices (such as logistics management, cost controls, marketing strategy, etc) is no less important under a strategic proactivity approach to sustainable business.

As with the compliance and efficiency phases we have discussed so far, this topic will look at some issues with the strategic proactivity approach to consider whether it is a credible sustainable business strategy in its own right.

Self interest vs doing what is right

The first point we will cover has to do with the core underpinnings of the strategic proactivity approach, namely it being based on a win-win outlook for business: good conduct in the sustainable business space is also good for business (this view also underpins the compliance and efficiency approaches we discussed earlier). But is this approach sufficient? If we go back to the discussion in topic 2 on the business case for CSR and the arguments for this business case set out in the Carroll et al (2010) article, we find a similar issue in play. Recall the quote from topic 2 by Hoffman (1991) – here it is again:

 “Is the rationale that good ethics is good business a proper one for business ethics? I think not. One thing that the study of ethics has taught us over the past 2500 years is that being ethical may on occasion require that we place the interests of others ahead of or at least on par with our own interests. And this implies that the ethical thing to do, the morally right thing to do, may not be in our own self-interest. What happens when the right thing is not the best thing for the business?
Although in most cases good ethics may be good business, it should not be advanced as the only or even the main reason for doing business ethically. When the crunch comes, when ethics conflicts with the firm's interests, any ethics program that has not already faced up to this possibility is doomed to fail because it will undercut the rationale of the program itself. We should promote business ethics, not because good ethics is good business, but because we are morally required to adopt the moral point of view in all our dealings—and business is no exception. In business, as in all other human endeavors, we must be prepared to pay the costs of ethical behavior.
There is a similar danger in the environmental movement with corporations choosing or being wooed to be environmentally friendly on the grounds that it will be in their self-interest. There is the risk of participating in the movement for the wrong reasons. But what does it matter if business cooperates for reasons other than the right reasons, as long as it cooperates? It matters if business believes or is led to believe that it only has a duty to be environmentally conscientious in those cases where such actions either require no sacrifice or actually make a profit. And I am afraid this is exactly what is happening. I suppose it wouldn't matter if the environmental cooperation of business was only needed in those cases where it was also in business' self-interest. But this is surely not the case, unless one begins to really reach and talk about that amorphous concept long-term self-interest. Moreover, long-term interests, I suspect, are not what corporations or the new environmentalists have in mind in using self-interest as a reason for environmental action.
I am not saying we should abandon attempts to entice corporations into being ethical, both environmentally and in other ways, by pointing out and providing opportunities where good ethics is good business. And there are many places where such attempts fit well in both the business and environmental ethics movements. But we must be careful not to cast this as the proper guideline for business' ethical responsibility. Because when it is discovered that many ethical actions are not necessarily good for business, at least in the short-run, then the rationale based on self-interest will come up morally short, and both ethical movements will be seen as deceptive and shallow” (Hoffman 1991, pp 176-177).

The point to take from this commentary by Hoffman is that the compliance, efficiency, and strategic proactivity approaches to sustainable business all place progressing of the wellbeing+justice principles within the context of benefits to the firm. Self interest remains the dominant driver for action. But is this a sound way of thinking about a sustainable world? An alternate view is to say that humans have no option (outside of a collective human extinction decision) but to live sustainably and from an intergenerational justice perspective, each generation is morally bound to do so. Under this view, living sustainably must take priority and is the standard against which all human behaviour must be measured. Organisational strategies and behaviours must therefore be first and foremost consistent with sustainable world objectives. A corporation’s existence then becomes conditional on sustaining corporation status being achieved and maintained. In this respect, none of the compliance, efficiency or strategic proactivity strategic approaches to sustainable business are sufficient to give humanity its best opportunity to progress to a sustainable world. This is where the idea of the sustaining corporation – Dunphy et al’s final strategic position – comes in to play.

Entering and exiting business lines

Some authors propose that certain products and services simply do not belong in a society that is committed to a sustainable world (Van De Ven & Jeurissen 2005) (examples might include ozone depleting substances, land mines and other such forms of weaponry, inherently toxic and harmful substances, etc). A key question here is how to respond practically to this problem in a way that achieves the needed outcome. If a firm decides to head down the strategic proactivity path and, as part of that strategic move, divests itself of a business line it sees as inconsistent with sustainable world objectives, this does not mean the product or service is eliminated from society: a divesture simply transfers ownership to another firm. Alternatively, if a firm decides to shut down its operations in a product or service line, then unless there is some other mechanism to stop other firms from filling the space in the market place then again nothing is achieved (imagine a firm making land mines deciding that land mines are inherently bad and should not be part of our society; the firm closes its land mines operations and most likely competitors will fill the void and the same number of mines get made regardless).

This poses some substantial challenges for organisations seeking to embrace sustainable business principles. As discussed in topic 6, one of the features of a sustainable business, we proposed, is to drive social change: to advocate for change within their industry sector, within government, and within society at large to progress a sustainable world outcome. This is an example of how products and services that have no place in society may be eliminated: by organisations making a public stand and actively driving the needed social change to achieve this end. This is not to say that action by a firm to deliberately exit a business line and ensure no other firm can fill the void is easy and without financial consequences. But simply avoiding taking action because these challenges exist does not solve the core sustainable world problem. It may take some creative and innovative thinking to see the needed change come about, but if we are to progress to living sustainably, then solutions need to be found.

Some authors also suggest that organisations can pursue a strategic proactivity sustainable business agenda at the corporate strategy level by deliberately seeking out business lines that have a direct link to products and services that fit with what we perceive to be sustainability practices and seeking to secure a competitive advantage from doing so (Porter & Kramer 2006). Examples of these business lines might include renewable energy, pollution abatement and clean-up equipment, water purification systems, plantation timber rather than using native forests and so on. Although this may present some good opportunities for businesses, for a sustainable world to come about we need, as a society, to live in ways that are inherently sustainable. In this respect, it doesn’t matter if a business makes chairs, carpets, modes of transport, or provides banking services: these day-to-day aspects of life all need to fall under the sustainability banner. The point is that if organisations see themselves as being able to gain some form of competitive advantage in the market place as a result of providing a product or service that fits a model of what is ‘sustainable’, or can somehow promote sustainability credentials to gain a competitive advantage, then this is a demonstration that humanity is not living sustainably: if all businesses were operating sustainably, there would be no competitive advantage in being sustainable. So although we can talk of sustainability as a competitive advantage opportunity for business (as we have), this is really a transitional state to what the world would need to look like if humanity were living sustainably.

Green consumerism

One approach to strategic proactivity is through green consumerism: the production of goods and services that are seen to have strong environmental (and/or social) credentials that appeal to specific markets. The argument is that action by a firm to produce goods and services in this manner can have positive environmental and social benefits, as well as giving the firm a strategic advantage in the market place by way of sales, reputation, community support, and so on.

These strong environmental and social credentials are mostly found though less harmful behaviours in the production and consumption process and can cover a multitude of initiatives including less harmful ways of extracting recourses (e.g. fishing practices that reduce by-catch and the killing of non-target species, or agriculture using less harmful fertilisers and pesticides), less polluting technologies, products manufactured for ease of recycling, consumer level recycling systems, and so on. All of these practices are again clearly important for business and society to aggressively pursue in order to reduce humanity’s impact on the Earth’s ecological systems. The business sector in particular has a key role to play as, for the most, it is business that determines, amongst other things, which resource extraction technologies are used, what the product design and manufacturing technologies are, what set of options the public has to select from in its consumption decisions, what information members of the public have in relation to the impacts of their consumptive choices, and whether consumptive waste can be recycled in a meaningful way (Bruno & Karliner 2002; Gould, Pellow & Schnaiberg 2008). But do we have a similar problem here as for the efficiency strategy we discussed earlier?

In some respects at least, the answer is 'yes'. One reason is that the more we feel our activities are less harmful (less polluting, less resource intensive, and so on), the more we may feel inclined to consume, or be convinced by marketing departments that we can consume, and to believe we can do so sustainably. The marketing message is simple: you can save the world through your consumption choices, and can consume with a clear conscience (Beder 2002; Bell 2009). In the end, so the claim goes, everyone wins: business, the consumer, and the environment.

Critics would suggest there is a problem here. For one thing, green consumerism can continue to push humanity down the resource consumption path which is currently running at unsustainable rates: consuming more is not going to solve this problem regardless of the 'green' nature of what is consumed (Beder 2002). In addition, green consumerism can continue the business-as-usual marketing strategies of need creation through the deliberate engineering of feelings of dissatisfaction and deprivation in people's lives, offering the solution to this dissatisfaction through consuming a particular product (in this case, a 'green' product), and cycling the whole dissatisfaction-consume-dissatisfaction-consume routine indefinitely to drive continued consumptive demand and economic growth. This entire need-creating-and-consuming process is however ecologically damaging, undermines human wellbeing, and offers no durable wellbeing solution (Brown 1995; Raiklin & Uyar 1996; Hamilton, C 2004; Hamilton, C. & Denniss 2005; Cato 2009).

None of this is to say that ‘green’ products aren’t important – they surely are. The alternate view by green consumer critics is that ‘green consumption’ needs to be match with consumptive sufficiency collectively contained within the Earth’s ecosystem limits.

Sustaining corporation strategy

Here’s a summary of how Dunphy et al (2003) describe the sustaining corporation phase:

Dunphy et al describe the sustaining corporation phase as an ideal, but one which few, if any, corporations have achieved. There may be many firms that aspire to this ideal phase, but achieving it is another matter and the change process that needs to occur both within any one firm, and within the boarder social context in which a firm operates, is substantial.

The key points we have covered in this course setting out what a sustainable business is (in reference to the sustaining corporation – being an organisation that is committed to progressing the wellbeing+justice sustainable world principles doing so both within its internal operations and in the broader social context) – is captured in the sustaining corporation description Dunphy et al offer shown above.

Some of the key points to take from this description of the sustaining corporation are these. First is that sustainability principles must be embedded throughout all levels of strategy: enterprise, corporate, business, and functional. Further, sustainability must be an integral part of all strategy initiatives and activities, whether as a plan, a ploy, a pattern, a position, or as a perspective. In short, for the sustaining corporation, sustainability is part of the organisation’s DNA. It is the norm, the way business is done, and there is no compromise.

Second is that the problems we have identified as applying for each of the compliance, efficiency, and strategic proactivity strategies are countered in this sustaining corporation phase. Notice for example that Dunphy et al see people and nature as valued for their own sake, and actions to progress the wellbeing+justice principles are not dependent on there being a corporate self interest benefit: if there is, then that is an important outcome, but self interest is not the overriding criteria for decision making.

The final point we will cover is what sustainability approach should a firm be pursuing and promoting in its sustaining corporation quest: the reformist approach or the transformational? This is an important question and one that is beyond the scope of this course to explore. It is however, a question you need to ask yourself and give some deep, insightful, and reflective thought to. We can all talk of how important it is to live sustainably, and how critical it is for business to be part of this quest, but to pursue an approach to a sustainable world that merely gives the illusion of progress can easily become a barrier to needed change rather than a facilitator of change.

References

Beder, S 2002, Global Spin: The Corporate Assault on Environmentalism, Green Books Ltd., Devon, UK.

Bell, MM 2009, An Invitation to Environmental Sociology, Pine Forage Press, California, USA.

Brown, L 1995, 'Ecopsychology and the Environmental Revolution', in Ecopsychology: Restoring the Earth, Healing the Mind, eds. T Roszak, ME Gomes & AD Kanner, Sierra Club Books, Berkley, California, pp. xiiv-xvi.

Bruno, K & Karliner, J 2002, Earthsummit.biz: The Corporate Takeover of Sustainable Development, Food First Books, Oakland, California.

Carroll, AB & Shabana, KM 2010, 'The Business Case for Corporate Social Responsibility: A Review of Concepts, Research and Practice', International Journal of Management Reviews, vol. 12, no. 1, pp. 85-105.

Cato, MS 2009, Green Economics, Earthscan, London.

Dunphy, D, Griffiths, A & Benn, S 2003, Organizational Change for Corporate Sustainability, Rouledge, London.

Gould, KA, Pellow, DN & Schnaiberg, A 2008, The Treadmill of Production, Paradigm Publishers, Boulder, Colorado USA.

Hamilton, C 2004, Growth Fetish, Pluto Press, London.

Hamilton, C & Denniss, R 2005, Affluenza: When Too Much is Never Enough, Allen & Unwin, Crows Nest, NSW.

Hoffman, WM 1991, 'Business and Environmental Ethics', Business Ethics Quarterly, vol. 1, no. 2, 1991/04, pp. 169-184.

Porter, ME & Kramer, MR 2006, 'Strategy and Society', Harvard Business Review, vol. 84, no. 12, December, pp. 78-92.

Raiklin, E & Uyar, B 1996, 'On The Relativity of the Concepts of Needs, Wants, Scarcity, and Opportunity Cost', International Journal of Social Economics, vol. 23, no. 7, pp. 49-56.

Van De Ven, B & Jeurissen, R 2005, 'Competing Responsibly', Business Ethics Quarterly, vol. 15, no. 2, April 2005, pp. 299-317.