Ethics, Governance and Sustainability - Study Guide

Course aims

This Ethics, Governance and Sustainability (EGS) course aims to provide you with an understanding of business in the social context and the impacts this has on management decision making, business strategy, and general business conduct. The course critically explores the topics of business ethics, sustainable business, and corporate governance. The course encourages active debate and reflection, and challenges you to examine your own values and beliefs by presenting alternate and culturally diverse narratives on the topics covered.

From the title of this course it might seem as if it’s about 3 different topics but as we progress, it will hopefully become apparent that each of the areas of ethics, governance and sustainability are inseparable in the business context. In particular, you will see how the idea of what it means for humanity to live sustainably (that is, for there to be a sustainable world) is grounded in principles of equity and justice that link directly to ethical decision making. Further, ethical and sustainable business practice is depended on good corporate governance processes being in place.

This course covers a lot of ground, and each of the 3 key areas we look at is big enough to be a course in its own right.

The main objective then is to give you enough to gain a fair understanding of the key issues and, importantly, to have take-away value from each class that you can apply in your own personal and professional lives.

Before you get started on the course material, a few comments might help.

First is that we take a critical look at the topics we cover. By this I mean we won’t just be taking things that various commentators might say on the topics areas we cover as being the way things might be in the real world, or the way things should be in the world.

Even if the views being expressed in some of the course material might toe the mainstream line, we will try and put up some alternate views to provide a broader perspective. In this sense, we try to run the course in a way that puts everything under the microscope and everything is up to critique and challenge.

This can be quite confronting at times as it can see our own values and beliefs open to this same critique but again, that’s part of what learning is all about.

The other way this can be confronting is that alternate views to mainstream thought can be seen as a bit ‘out there’ – maybe too extreme on the political right or the political left.

We will nonetheless put some of these views up for discussion and let you ponder their merits. These views find their way into the social space regardless, and this course gives us a chance to look at some of them and consider their merits and implications.

Next is that pretty well every area we cover in this course is controversial, will see different opinions show themselves, and can stimulate some quite robust debate. This is all good and is strongly encouraged. Just be respectful in your comments to others and importantly open your own views to challenge.

Remember also that although giving your opinion is encouraged, it needs to be an informed and considered opinion, not just something off the cuff based on values and beliefs that have not been open to your own self reflection.

The third point is that, in the course, we look at a number of cases and examples that are a mix of what we could term “good things happening” and “bad things happening”.

Often we can get as much value from seeing where companies have not done the right thing as we can from cases that show the positive.

Also, a couple of the cases – Interface Global for example – are used over 2 or 3 topic areas. This is done to give you time to look into these cases in a bit more detail than if we keep throwing a new case at you each week.

We will give you plenty of snap-shot practical examples along the way covering a broad set of businesses and industries so hopefully by the end of the course, there will have been a good mix of real world examples to learn from.

Finally, some people who have taken the class are not sure that the sequencing of topics is in the best order. Should Governance be first or last?...and so on. There’s no magical answer to this but hopefully the sequencing, and how we will try and link sections together, will work well for you.

So enjoy the course and feel free to drop me a message if you have any questions or comments about the course content or how the course is run.

We are always looking to improve the course so your feedback would be very welcome.

Topics

Topics 1 & 2 consider the purpose of the firm and its role in society. These two topics look at the firm from the perspective of a shareholder approach and an alternate stakeholder approach, and then in terms of a corporate social responsibility view and a triple bottom line view.

Topics 3 & 4 then consider issues of ethics and justice. We look at what it means to make ethical decisions and what it means to act justly, with particular reference to business conduct.

Topics 5, 6, 7 & 8 then consider what it means for humanity to live sustainably – that is, for there to be a sustainable world, how this links to issue of justice we covered in topic 4, and what it means for business to make a positive contribution to a sustainable world, that is, to be a sustainable business.

Finally, in topics 9 and 10, we consider the issue of corporate governance and make particular reference to the role corporate governance has in seeing a firm fulfil its purpose in society (as per the issues covered in topics 1 & 2) and ensuring the principles of ethics, justice, and sustainable business we cover in topics 2-8 are addressed in the way a firm goes about its activities.

Each topic has a set of core (required) readings - articles and the occasional book chapter.

Additional optional readings are also referenced (where possible, these are also included in the material we provide). It’s up to you whether you read some or all of these. They are provided to give some added material to help you explore the course content in a little more depth but you are not required to read any of these additional items.

You are expected to discuss the core readings as part of the course work (in the lecture room or on-line seminar room, depending on the mode of course delivery you are undertaking). Other readings are there simply to get you thinking and pose questions you may like to work through to help further your understanding of the issues being covered.

We begin this course by looking at the questions of why do firms exist and what the purpose of business is in society.

To do this, we look at 4 main views of the firm.

Topic 1 focuses on the shareholder approach and the stakeholder approach, and Topic 2 on the triple bottom line view and the corporate social responsibility view.

In short:

The shareholder approach, sees the firm as existing principally, or even exclusively, for the benefit of its shareholders and the role of the Board and managers is to deliver, or some would say maximise, shareholder value.

In contrast, the stakeholder approach sees the firm as a social entity whose existence requires the inputs of a broader range of parties than merely that of shareholders, plus the firm impacts on, and is impacted on by, many parties. In this sense, managers have a role to deliver or, again some would say, maximise, value to all of the firm’s stakeholders, not just shareholders.

The triple-bottom-line view that sees a firm as having economic, social, and environmental responsibilities and proposes that these all need to be given consideration in Board and management decision making.

Finally, the corporate social responsibility view, which is similar in many ways to the triple bottom line view, sees a firm as having a number of social and environmental responsibilities and proposes that pursuit of profits is conditional on these responsibilities also being met.

Much of this debate on different ways the firm is viewed and, flowing from that, the responsibilities of Boards and managers in how they go about their decision making and activities, is based on our view of the world and how business fits in.

In particular, property rights is a strong theme in the shareholder view, where one argument supporting this view is that shareholders are the owners of the business and as such, managers have first and foremost a responsibility to meet the interests of shareholders – the owners.

Critics of this view might say that this shareholder focus tends to separate business out of the social context and instead business should be seen as having a purpose to benefit society.

If in doing so, a business can make money for shareholders then all well and good, but growing shareholder value is dependent on social (and in the sustainable business context, ecological) wellbeing criteria first being met.

Another point made by critics of the shareholder view is that shareholders are not the only parties that are responsible for a firm coming into existence and staying viable.

Firms need a legislative framework to operate in, infrastructure (transport, utilities etc), use of natural resources (land, air, water etc), employees, banking and finance…. so the list goes on.

So why, if all of these things are needed to see a firm exist and function, do we separate out shareholders as being the ones that the Board and managers give first priority to? Why aren’t all of the other stakeholders given similar importance in having their interests met?

It’s here that we see the difference in the shareholder approach verses the other 3 approaches we cover coming into the open. The stakeholder, TBL and CSR approaches all take this broader view of business – as it being something embedded in society – and all parties who are impacted on by a business have a valid stake in the firm whether a shareholder or not.

Why does all of this matter?

Well, as we work through the rest of the course hopefully this will become clearer but at the core is the question of what the role of the Board and management should be – what purpose should these key parties in an organisation pursue?

In addition, it impacts on what might be seen as right or wrong in business decision making.

For example, those holding a strong shareholder view could – and do – argue that charitable giving by a firm is unethical unless there is a clear payback to the firm…..the reason is that managers are claimed to be spending shareholder money on things that do not add to shareholder value.

Under this view, any charitable actions that have no payback to the firm should be left to shareholders to do privately out of their distributed profits.

Whether this view is a fair one or not is something we will consider during the course but hopefully it illustrates the point of why the questions covered in these first two topics are important to work through early in the course.

Introduction:

Why do firms exist? What is their purpose in society?

Topics 1 and 2 consider these questions by looking at the firm from a number of alternate perspectives, namely:

• The shareholder approach, which sees the firm as existing principally (or exclusively) for the benefit of its shareholders and the role of the Board and managers is to deliver (some would say, maximise) shareholder value.
• The stakeholder approach, which sees the firm as a social entity whose existence requires the inputs of a broader range of parties than merely that of shareholders, plus the firm impacts on, and is impacted on by, many parties. In this sense, managers have a role to deliver (or, again some would say, maximise) value to all of the firm’s stakeholders, not just shareholders.
• The triple-bottom-line view that sees a firm as having economic, social, and environmental responsibilities and proposes that these all need to be given consideration.
• The corporate social responsibility view, which sees a firm as having a number of social and environmental responsibilities and proposes that pursuit of profits is conditional on these responsibilities also being met.

In topics 1 and 2, we look at each of these four views, consider the implications for business conduct, and look at some practical situations where the issues we cover can be seen in a real-world setting.

Topic 1 covers the shareholder and stakeholder approaches. Topic 2 covers the triple-bottom-line and corporate social responsibility views.

Learning objectives:

1. Understand the features of, and differences between, the shareholder and stakeholder approaches to the nature of the firm.
2. Purposefully critique these two approaches and appreciate their implications in how firms go about their activities.
3. Identify a firm’s stakeholders and consider the implications of using common stakeholder analysis tools for this purpose.

Discussion:

For this topic, we look at two ways in which the nature of the firm is conceived: the shareholder approach, and the stakeholder approach.

The shareholder approach sees the firm as existing principally (or exclusively) for the benefit of its shareholders and the role of the Board and managers is to maximise shareholder value. This view has a strong grounding in the notion of private property rights with shareholders seen as the owners of a firm and in this sense, having rights attached to that ownership that see shareholders as the party for whose benefit the firm exists. In this sense, any other party (customers, the local community, the environment etc) are really only of instrumental value to the firm – the interests of parties other than shareholders matters, but do so to the extent to which these parties contribute to shareholder value.

The stakeholder approach is a challenging concept to pin down. Even basic questions as to who or what is a stakeholder, and what obligations an organisation has towards its stakeholders, remain contested (Mitchell, Agle & Wood 1997; Phillips, Freeman & Wicks 2003). At a conceptual level however, and in the corporate setting, the stakeholder approach sees the firm as a social entity whose existence requires the inputs of a broader range of parties than merely shareholders. In addition, the firm impacts on, and is impacted on by, many parties, not just shareholders (let’s call these parties the beneficiaries). For the stakeholder approach, the central role of managers is to ensure the survival of the corporation (Freeman & McVea 2001) but to do so in ways that maximise the overall value the corporation creates based on what the beneficiaries consider to be of value relevant to their interests, and to distribute this value fairly to all of the beneficiaries (Phillips, Freeman & Wicks 2003). In this sense, beneficiaries are seen as ends in themselves and not merely as instruments to increase the returns to shareholders. The stakeholder approach does not ignore the interests of shareholders, but sees the existence of the firm as requiring more than what shareholders may contribute. It requires government funded physical and regulatory infrastructure, bankers, environmental inputs, employees, customers…. a range of participants that all need to come together to see the firm exist and function.

The line between the shareholder and stakeholder approaches becomes somewhat ambiguous at times, particularly where the stakeholder approach is espoused but, in reality, is practiced in terms of ‘managing stakeholders’ to ensure shareholder value is maximised – as such, it is more of a shareholder approach in disguise. Banerjee (2008) discusses this point at length and takes a strong critical stance on how the stakeholder approach is practiced in the day to day business setting – here is a little of what he has to say:

 “ despite all the strident rhetoric about the ‘stakeholder corporation’ the reality is that stakeholders who do not toe the corporate line are either coopted or marginalized. The stakeholder theory of the firm represents a form of stakeholder colonialism that serves to regulate the behavior of stakeholders. That (perceived) integration of stakeholder needs might be an effective tool for a firm to enhance its image is probably true. However, for a critical understanding of stakeholder theory, this approach is unsatisfactory. Effective practices of ‘managing’ stakeholders and research aimed at generating ‘knowledge’ about stakeholders are less systems of truth than products of power applied by corporations, governments and business schools” (p. 72)

Banerjee gives an example of this problem he sees in how the stakeholder approach can be practiced as little more than a shareholder approach in disguise:

In my work with two indigenous communities in Australia I sought ‘stakeholder input’ about the presence of a mine on indigenous land. The response was unanimous: both communities wanted the mining company (a very, very, very large multinational company) to ‘clean up, pack up, leave and never come back’, to quote the words of one traditional owner. The company’s response was to hire an anthropologist to ‘consult’ with communities on how best to expand its operations. The fact that these ‘consultations’ take place under drastically unequal power relations remains unaddressed.  As Tatz (1982) points out, Aboriginal communities are the ‘receivers of consultation, that is, that Aboriginal people are from time to time talked to about the decisions arrived at’ (1982: 176, original emphasis). In every case involving ‘consultation’ with traditional owners in Australia, the focus was not whether or not mining should proceed but under what conditions should it be carried out. Royalties, promises of jobs, pitting one community against another are some strategies that have proved useful for mining companies.” (p. 64)

Both the shareholder approach and the stakeholder approach have their supporters and critics, and some of the arguments from both sides are included in the readings.

Importantly for this course is to consider the implications for managers from adopting either of these approaches in the way businesses are managed.

Who/what are stakeholders?

Who/what are a firm’s stakeholders? This question is the subject of significant debate in the stakeholder literature with two main themes evident: a narrow view and a broad view. The narrow view focuses on those human parties (people, groups of people, organisations, and institutions) that are of direct relevance to a corporation's economic interests and without whose continuing involvement and support the corporation could not survive (Clarkson 1995; Dunphy, Griffiths & Benn 2003). Tag-names for these stakeholders include 'primary stakeholders' (Clarkson 1995) and 'normative stakeholders' (Phillips, Freeman & Wicks 2003), although these terms are not necessarily used in ways that are directly comparable. Despite this, and although varying a little in who exactly might comprise this set of stakeholders, this core group usually includes shareholders, financiers, employees, customers, suppliers, local communities and, for some authors, government (Clarkson 1995; Kaler 2004). This then becomes the set of stakeholders who are seen to have a moral and legitimate claim on a corporation to have that corporation direct its efforts to addressing their interests, and are those parties for whose benefit the corporation should be managed (Phillips, Freeman & Wicks 2003; Kaler 2004; Walsh 2005) (i.e., they are the beneficiaries referred to above). Some authors stop at this point and hold that anyone or anything outside of this set of parties is not a stakeholder whereas others extend stakeholder status to 'secondary' or 'derivative' parties. The greater this extension, the more the broad stakeholder view is embraced. If secondary/derivative stakeholders are recognised, these tend to be seen as parties that in some way impact on a corporation's ability to meet its obligations to the beneficiaries for whom the corporation is being managed. Meeting the interests of this broader set of stakeholders is, in this context, considered as a legitimate management activity but becomes mostly a matter of using these stakeholders as a means of maximising corporate value for distribution to a corporation's beneficiaries.

The broad view of who or what is a stakeholder follows an approach more in keeping with the Freeman definition namely:

"[a stakeholder is] any group or individual who can affect or is affected by the organisation's objectives" (Freeman 1984, p. 5, cited in Freeman & McVea 2001).

Broad views are often limited to considering only humans or human institutions in the here and now, however some definitions (very broad) extend further to include the natural (non-human) world (species, ecosystems, the biosphere as a whole and so on), future generations, and even past generations by way of recognition and respect for ancestral values and beliefs (Starik 1994; Dunphy, Griffiths & Benn 2003). In addition, some broad views of who or what is a stakeholder prescribe certain qualities a party needs to possess in order to be granted stakeholder status (such as at least one of the attributes of power, urgency, or legitimacy (Mitchell, Agle & Wood 1997) – more on this later). Others simply see stakeholders as anyone or anything that impacts on a corporation and/or is impacted on by it.

Stakeholder analysis tools

A number of stakeholder analysis tools have been developed to help managers identify and assess stakeholders and consider what action should be taken towards them. Some of these tools are shown in the additional readings section for this topic.

Mitchell et al propose a 3 dimensional model where any party holding any of the attributes of power, urgency, or legitimacy in relation to a corporation is a member of that corporation's stakeholder field and should command management attention. According to this model, managers pay attention to stakeholders holding two or all three of the attributes, with stakeholder power being of particular importance. Mitchell et al make the point that this model is descriptive, not prescriptive (i.e., it describes what managers do rather than represents what the authors think managers should do), although this has not stopped the model from being presented as a how-to (prescriptive) tool for managers. Mitchell et al also see their model as being quite useful to managers from a practice perspective despite this descriptive base.

Mitchell et al stakeholder analysis and categorisation model (refer to the Mitchell et al reading for this topic for more detail on the model).

Another common model is presented by Johnson et al (Johnson, Scholes & Whittington 2005) who use a 2x2 matrix based on stakeholder power to exert influence on the firm, and stakeholder interest in what the firm is doing. Each of the four quadrants then has a strategy identified as to how managers might go about dealing with those stakeholders.

Johnson et al stakeholder mapping and management matrix.

These models are not without their critics. Clifton & Amran (2010) for example propose that stakeholder analysis and mapping tools that give preference to stakeholders with high power (as do the two models shown above) are inconsistent with sustainable world criteria as they violate concepts of justice by making power a morally relevant criteria on which to base decisions on how people should be treated (we look at this issue of justice in more detail in later topics). These authors also propose that the other three stakeholder attributes of interest, urgency and legitimacy incorporated in these models are also troublesome. This interest attribute for example is claimed to be highly vulnerable to reducing the stakeholder approach in the management setting to little more than managing stakeholders for the achievement of corporate interests by making the issue of stakeholder interests legitimate only if those interests align with corporate objectives. In short, Clifton & Amran propose that stakeholder identification and assessment models such as those of Mitchell et al and Johnson et al, although providing an assessment of the political landscape in which corporate decisions are to be made and the pressures to which managers may be exposed in addressing stakeholder interests, work against basic principles of what it means to act justly and also work against the key elements of justice that are fundamental to what it means for there to be a sustainable world.

An alternate approach to assessing stakeholder interests and considering what action might need to be taken is to simply list who the stakeholders are, consider what they provide to the organisation and what the organisation provides to them, how they impact on the organisation and how the organisation impacts on them, and what their interests are and how this should be addressed. This approach has the benefit of avoiding basing stakeholder assessment on the parameters that are seen to be troublesome in the models discussed above. How the actual actions the organisation takes are managed to ensure stakeholders are treated justly is of course, a matter for managers to confront and address in the face of what might be some significant pressures from more powerful stakeholders, and challenges to satisfy conflicting interests where questions of tradeoffs come in to play.

Private property and share ownership

The last point we will cover here has to do with the shareholder approach and the claim that share ownership has private property rights attached to it that trump the interests of other parties who might be classed as stakeholders in a firm. This is a complex issue but one alternate view on the how shareholders in publically listed corporations can be viewed is given by Ghoshal (2005). Here is what Ghoshal has to say:

“As an example of how this pretense of science affects management practice, consider the dictum of Milton Friedman that few managers today can publicly question, that their job is to maximize shareholder value. Where did the enormous certainty that this assertion seems to carry come from?

After all, we know that shareholders do not own the company—not in the sense that they own their homes or their cars. They merely own a right to the residual cash flows of the company, which is not at all the same thing as owning the company. They have no ownership rights on the actual assets or businesses of the company, which are owned by the company itself, as a “legal person.” Indeed, it is this fundamental separation between ownership of stocks and ownership of the assets, resources, and the associated liabilities of a company that distinguishes public corporations from proprietorships or partnerships. The notion of actual ownership of the company is simply not compatible with the responsibility avoidance of “limited liability.”

We also know that the value a company creates is produced through a combination of resources contributed by different constituencies: Employees, including managers, contribute their human capital, for example, while shareholders contribute financial capital. If the value creation is achieved by combining the resources of both employees and shareholders, why should the value distribution favor only the latter? Why must the mainstream of our theory be premised on maximizing the returns to just one of these various contributors?

The answer—the only answer that is really valid— is that this assumption helps in structuring and solving nice mathematical models. Casting shareholders in the role of “principals” who are equivalent to owners or proprietors, and managers as “agents” who are self-centered and are only interested in using company resources to their own advantage is justified simply because, with this assumption, the elegant mathematics of principal–agent models can be applied to the enormously complex economic, social, and moral issues related to the governance of giant public corporations that have such enormous influence on the lives of thousands—often millions—of people.

But then, to make the model yield a solution, some more assumptions have to be made. So, the theory assumes that labor markets are perfectly efficient—in other words, the wages of every employee fully represent the value of his or her contributions to the company and, if they didn’t, the employee could immediately and costlessly move to another job. With this assumption, the shareholders can be assumed as carrying the greater risk, thus making their contribution of capital more important than the contribution of human capital provided by managers and other employees and, therefore, it is their returns that must be maximized (Jensen & Meckling, 1976).

The truth is, of course, exactly the opposite. Most shareholders can sell their stocks far more easily than most employees can find another job. In every substantive sense, employees of a company carry more risks than do the shareholders. Also, their contributions of knowledge, skills, and entrepreneurship are typically more important than the contributions of capital by shareholders, a pure commodity that is perhaps in excess supply (Quinn, 1992). As Grossman and Hart (1986) showed, once we admit incomplete contracts, residual rights of control are optimally held by the party whose investments matter more in terms of creating value. If these truths are acknowledged, there can be no basis for asserting the principle of shareholder value maximization. There just aren’t any supporting arguments” (pp. 79-80).

References

 Banerjee, SB 2008, 'Corporate Social Responsibility: The Good, the Bad and the Ugly', Critical Sociology, vol. 34, no. 1, pp. 51-79.

 Clarkson, M 1995, 'A Stakeholder Framework for Analyising and Evaluating Corporate Social Performance', Academy of Management Review, vol. 20, no. 1, pp. 92-117.

 Clifton, D & Amran, A 2010, 'The Stakeholder Approach: A Sustainability Perspective', Journal of Business Ethics, vol. 98, no. 1, pp. 121-136.

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

 Freeman, RE & McVea, J 2001, 'A Stakeholder Approach to Strategic Management', Darden Business School Working Paper, vol. 01-02.

 Ghoshal, S 2005, 'Bad Management Theories Are Destroying Good Management Practices.', Academy of Management Learning & Education, vol. 4, no. 1, 2005/03, pp. 75-91.

 Johnson, G, Scholes, K & Whittington, R 2005, Exploring Corporate Strategy, Pearson Education Limited, Essex, England.

 Kaler, J 2004, 'Arriving at an acceptable formulation of stakeholder theory.', Business Ethics: A European Review, vol. 13, no. 1, 2004/01, pp. 73-79.

 Mitchell, RK, Agle, BR & Wood, DJ 1997, 'Toward a Theory of Stakeholder Identification and Salience: Defining the Principle of Who and What Really Counts', Academy of Management Review, vol. 22, no. 4, pp. 853-886.

 Phillips, R, Freeman, RE & Wicks, AC 2003, 'What Stakeholder Theory is Not.', Business Ethics Quarterly, vol. 13, no. 4, 2003/10, pp. 479-502.

 Starik, M 1994, 'The Toronto Conference: Reflections on Stakeholder Theory', Business & Society, vol. 33, no. 1, pp. 89-95.

 Walsh, JP 2005, 'Book Review Essay: Taking Stock of Stakeholder Management.', Academy of Management Review, vol. 30, no. 2, 2005/04, pp. 426-438.

Core (required) readings:

1. Mitchell,   R. K., Agle, B. R., & Wood, D. J. 1997. Towards a theory of stakeholder   identification and salience: Defining the principle of who and what really   counts. Academy of Management Review, 22(4): 853-886.

2. Gladwin,   T. N., Kennelly, J. J., & Krause, T. S. 1995. Shifting paradigms for   sustainable development: implications for management theory and research. Academy   of Management Review, 20(4): 874-908.

3. Friedman,   M. 1970. The social responsibility of business is to increase its profits The   New York Times Magazine, September 13: 32 - 33 (and then continued on   pages 122--126).

Additional (optional) readings and resources:

• Video: R Edward Freeman: Managing stakeholder relationships (4 min 40 sec)   

This video talks through a few different ways in which the Stakeholder Approach might be used in the business setting. When looking at the video, try and think of how the different approaches Freeman identifies might see stakeholders used mostly for instrumental purposes to a firm, or stakeholder interests considered more for their own sake. 

• Press article - Shareholder vs Stakeholder approach (Australian Financial Review, 2013)  

This article is particularly useful so try and read it if you can - it's only short so shouldn't take too much time.

Optional Readings

• Reading 1.3: Sternberg 1997 'The Defects of Stakeholder Theory', Scholarly Research and Theory Papers, vol. 5, no. 1, pp. 3-10. This article takes a strong critical position against the stakeholder approach with the author’s arguments tending to be more in line with the shareholder approach.

• Reading 1.4: Ghoshal 2005: 'Bad Management Theories Are Destroying Good Management Practices.', Academy of Management Learning & Education, vol. 4, no. 1, 2005/03, pp. 75-91.

• Reading 1.5: Orts, & Strudler, 2002: 'The Ethical and Environmental Limits of Stakeholder Theory', Business Ethics Quarterly, vol. 12, no. 2, 2002/04, pp. 215-233.
  This article is useful in that it considers if the Stakeholder approach is sufficient to address some key ethical issues managers face. We pick up on some of these ethical issues in topics 3 and 4.

• Reading 1.6: Web sites: These web sites provide some models that are proposed as helpful for managers to use in stakeholder mapping and analysis. If you look at these models and use them to conduct stakeholder mapping, it is worth critically assessing them in the light of the content of the readings for this topic:
       Mindtools:
       12manage:
  
  
  

Introduction:

In topic 1, we looked at the shareholder approach and stakeholder approach to the nature of the firm. From the readings on the stakeholder approach who or what might be classed as a stakeholder is the subject of much debate. Regardless of how broad a definition of stakeholder we might like to adopt, the stakeholder approach deals with the idea that firms have responsibilities to a wider set of entities than just shareholders. In this topic 2, we continue this theme of firms having broader responsibilities then merely delivering (or for some, maximising) shareholder value and look at the concepts of the triple-bottom-line and corporate social responsibility.

Learning objectives:

1. Understand the features of, and differences between, the triple-bottom-line and corporate social responsibility views.
2. Purposefully critique these two views and appreciate their implications in how firms go about their activities.
3. Identify the basis on which the business case for corporate social responsibility is proposed and consider the merits of these arguments.

Discussion:

The triple bottom line

The triple-bottom-line (TBL) view proposes that firms have financial, social, and environmental responsibilities (sometimes termed “people, planet, profits”) and all three of these areas need to be addressed in the way a firm goes about its business. The TBL view has a strong link to the idea of sustainability (in the sense of humanity living sustainable on the Earth and, specifically for this course, the role of business in contributing to a sustainable world outcome) and we will look at this in more detail later in the course. The TBL view has, like most of the issues we confront in this course, many different interpretations and views on exactly what it means, how the 3 elements should be prioritised (e.g., should they all be given equal weighting to find a ‘balance’ or, as some claim, is environment the most important as society and business are ultimately both dependent on a healthy environment?), if there are more than just 3 elements (some models have 4 or more elements as opposed to the 3 in the TBL view – some for example include governance as a 4^th element), and so on.

Corporate social responsibility

Corporate social responsibility (CSR) proposes that firms have certain responsibilities in addition to financial ones. In this sense, making a profit (which is also seen as a responsibility of firms in order to meet their financial obligations) needs to be done within the context of a firm’s other responsibilities also being met. What these responsibilities are remains an issue of debate although they pick up issues of social and environmental responsibilities in one form or another. CSR is also sometimes thought of in terms of corporate philanthropy and this view comes from the early days of CSR when much of the behaviour firms engaged in that was classed as CSR had to do with corporate giving. Although the idea of philanthropy remains well embedded in the CSR concept, the agenda is much broader these days.

This difference between CSR as philanthropy (as contributions to social and environmental initiatives that are not part of a firm’s normal business operations) highlights the difference between how a firm uses its money verses how it makes its money.

• How it uses its money: CSR as philanthropy is really about how a firm spends its money. CSR as part of a PR and marketing exercise (which might also classify as philanthropic) is also a 'how a firm uses its money' issue.
• How it makes its money: One definition of CSR shown in the optional reading for this topic by Frankental (2001) is:
  "CSR is about a company's long-term footprint on society. It is about the extent to which a company is prepared to examine and improve its impact on all those affected by its activities and to view its long-term reputation within the context of the social and ecological sustainability of its operations".
  This view is really one of how a firm makes its money.

Critics argue that firms that spend money on CSR activities that are mostly philanthropic in nature (giving to a local environmental group, or to a women’s shelter, or to a school, and so on) but that do not match this behaviour with significant action from a CSR perspective in how a firm actually makes its money in the first place, are engaging in CSR that is little more than a PR activity. The point being made is that CSR viewed in terms of how a firm spends its money does not confront the core issues of the impact a firm has on society and the environment. There are plenty of examples of how firms use philanthropy as a way of gaining public favour while at the same time causing plenty of environmental and social damage in the way they make their money. We will look at some of these issues later in the course.

This isn’t to say that businesses should not engage in philanthropy, or not do PR activities that are good for the firm that also have a benefit to society and the environment. The problem comes when they are used as cover-ups for failing to deal with the negative impact a firm's activities have on society and the environment, or are otherwise used as a substitute for taking meaningful action in dealing with these negative impacts. This is something for you to give some thought to as you work through the case study for this topic, and consider the CSR activities you might come across in your day to day lives.

From this brief overview, you may wonder if the TBL view, the CSR view, and the stakeholder approach (and, as we will discuss later, sustainable business’) really are all that different.

Carroll et al (2010) suggest that these terms are all linked to a similar field of the responsibilities of business. One way to look at this issue is that:

• The stakeholder approach begins by asking which parties have some form of relationship with the firm, considering what the interests of those parties might be, and then proposing how managers might go about meeting those responsibilities. We could say this is a bottom-up approach.
• The TBL view, the CSR view, and the sustainable business view approach things from a responsibilities perspective – more of a top-down approach. That is, these views seek to determine what general responsibilities a firm has (picking up in some way, financial, social, and environmental responsibilities), and identifying actions that need to be taken to meet those responsibilities. The meeting of responsibilities may also include attending to stakeholder interests.

In short, the TBL, CSR and sustainable business views mostly refer to the same thing when looked at in their broadest application. The stakeholder approach is a little harder to tag as being similar to these other three views unless the definition of who/what is a stakeholder is taken to be very broad (i.e., to include things such as society in general, the environment, and even future generations).

Corporate social responsibility vs corporate accountability

There is also a difference between CSR and corporate accountability.

This is an important issue as often CSR is promoted as a 'voluntary' activity for organisations (although some dispute that it should be seen as voluntary but rather ethically and morally obligatory) and the more this 'voluntary' line is pushed, then the harder it is to make firms accountable for their actions other than what might be required by law.

Here is an overview of the differences between corporate responsibility and corporate accountability – hopefully it gives a feel of things.

"There is a great deal of confusion around the terms "corporate responsibility" and "corporate accountability." Corporate responsibility refers to voluntary measures for environmentally and socially beneficial behavior, while corporate accountability refers to holding companies to societal norms or having them face consequences. Examples of corporate responsibility would include a company eliminating child labor, improving working conditions or reducing toxic waste emissions on its own. The motivation for the new behavior might be cost savings, improved reputation or simply that the managers thought it the ethical thing to do. Commonly, corporate responsibility advocates emphasize the "business argument," meaning that corporate responsibility is also good for the bottom line. The financial benefit can be from savings on direct costs, avoiding bad publicity and boycotts or finding a niche market for a product perceived as socially beneficial by a sufficient number of customers. …

Corporate responsibility is the approach advocated by the WBCSD (World Business Council for Sustainable Development), the ICC (International Chamber of Commerce), the BASD (Business Action for Sustainable Development) and the [UN] Global Compact. Yet it is important to underscore that corporations themselves regularly acknowledge that promotion of corporate responsibility in environment, human rights, poverty alleviation and community service is, at least in part, a tactic aimed at avoiding accountability measures—that is, legislation and regulation of corporate behavior.

An example of corporate accountability would be if a company causing harm or breaking the law is sued and forced to pay a fine or forced to change the illegal behavior. Another example of accountability is the requirement of reporting toxic emissions. Under U.S. law for example, companies are required literally to "account" for their emissions. A third example would be a group of corporations, such as the manufacturers of ozone-depleting chemicals like CFCs or methyl bromide, being forced by an international U.N.-brokered accord to phase out these harmful chemicals. A fourth example is when a company is forced to alter its behavior or pushed out of a certain line of business by a consumer or investment boycott. In this last example, the accountability is not to the government, but to consumers and investors. The line between "responsibility" (the company chooses to do the right thing) and "accountability" (the company is forced to do the right thing because it will lose money if it does not) is slightly blurred in this last case, but the essential difference is still clear - the company is being held accountable for its actions.

A major limitation of the corporate responsibility "movement," as it is sometimes known, is that the definition of responsible behavior is usually left to the company itself. In a few cases, independent bodies like the Global Reporting Initiative are set up to evaluate reporting by companies, but the reporting itself is voluntary. When corporate responsibility is not good for the bottom line, there is no recourse for government or citizens”. (Bruno & Karliner 2002, pp 63-64) (pp. 63-64)"

The business case for CSR

The business case arguments for firms adopting CSR (i.e., CSR as good for the firm as well as good for society and/or the environment) are ones we will come back to later in the course. For now through, it is worth raising the question as to whether the business case argument is sufficient to drive firms to act in ways that meet CSR/TBL/sustainable-business objectives and help society transition to a sustainable way of living.

Here is what two authors have to say about this (which provides a good lead-in to the issues we cover in Topics 3 & 4):

"Corporate environmental responsibility, it is often argued, while sometimes mandated by laws and regulations, is good commercial sense since it placates the environmental concerns of consumers and thereby contributes to increased sales and profits. However, some control problems are apparent when environmental concerns cannot be directly observed by the market or by relevant consumer and other interest groups. For example, inefficient production processes, over-generation of waste, environmentally inappropriate technology, and planned obsolescence, while detrimental to the environment, cannot be effectively observed by markets alone.
In these instances, the credibility of corporate communications as well as its past environmental record and reputation are the only yardstick for evaluation of whether corporate actions are congenial to the environment. But the problems of “fudging” claims and of “free-riding” on reputation do exist. Ultimately, the only guarantee that corporations behave in an environmentally-sound manner with regard to their unobservable internal processes is their own ethical responsibility. Given the fact that perceptions of ethical behaviors vary widely, it is clear that behavior that is unobservable is also one that is externally uncontrollable. Thus, when practices cannot be evaluated, corporate environmental responsibility rests solely on moral principles" (Iyer 1999, pp 267-277).

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).

References

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.

Frankental, P 2001, 'Corporate Social Responsibility – a PR Invention?', Corporate Communications: An International Journal, vol. 6, no. 1, pp. 18-23.

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

Iyer, GR 1999, 'Business, Consumers and Sustainable Living in an Interconnected World: A Multilateral Approach', Journal of Business Ethics, vol. 20, pp. 273-288.

Core (required) readings:

• Rogers,   J. E. 2011. The CEO of Duke Energy: On Learning to Work with Green Activists.   Harvard Business Review, 89(5): 51-54. (OR You can read Swartz,   J. 2010. Timberland's CEO on standing up to 65,000 angry activists. Harvard   Business Review, 88(9): 39-43.). They are in similar space.

• Meyer,   C., & Kirby, J. 2012. Runaway Capitalism. Harvard Business Review,   90(1/2): 66-75.

• The   Economist. 2016. The trouble with GDP. The Economist,, April 30   http://www.economist.com/news/briefing/21697845-gross-domestic-product-gdp-increasingly-poor-measure-prosperity-it-not-even

Additional (optional) readings and resources:

• Frankental, 2001 'Corporate Social Responsibility – a PR Invention?', Corporate Communications: An International Journal, vol. 6, no. 1, pp. 18-23.
  The author was working for Amnesty International (UK) when the article was written so it looks at CSR mostly from a human rights perspective. The content is nonetheless pertinent to the broader issues CSR covers.

•  Web sites:

GRI web site:

This is the site of the Global Reporting Initiative (referred to in the Jones & Jonas article). The GRI describes itself as follows:

“The Global Reporting Initiative (GRI) is a network-based organization that produces a comprehensive sustainability reporting framework that is widely used around the world. GRI is committed to the Framework’s continuous improvement and application worldwide. GRI’s core goals include the mainstreaming of disclosure on environmental, social and governance performance”.

The site is worth looking over if you have an interest in the exploring in more detail the ways in which firms can go about the actual process of developing triple-bottom-line reports.

The next two topics cover the areas of ethics and justice.

When we talk of ethics and ethical behaviour, we are really looking at the questions of what is right and wrong in human behaviour and what underpins our decision making in coming up with answers to these “what is right and wrong” questions.

Justice is linked to the issue of ethical behaviour in that it is concerned with fairness in how things are distributed in society and in the way we treat others.

This includes questions of what is right and wrong in how we distribute things between, and treat, other humans within the current generation, between this and future generations, and how we treat non-human species.

There is a fair bit of reading for this topic – the readings on ethics in particular cover a lot of ground but hopefully they give you a good overview of the topic.

A couple of things are worth pointing out:

First is that sometimes we are presented with ideas on how ethical decisions are made using a one-dimensional model.

For example, we might be given a model that is ‘individual rights based’ where what is right or wrong depends on whether certain individual rights are upheld or violated and so long as these rights are honoured then whatever comes out in the wash is socially just.

An example is a claim that people have certain rights to pursue their own ends without interference and without government taking from them, under threat of imprisonment, part of their income (as tax) and distributing that money to others. If this means that we end up with a large gap between the rich and the poor than that is OK because the underlying principle of protecting certain claimed personal rights is upheld.

We see this type of view expressed in strong conservative political approaches to how society should operate – the TEA party in the USA is an example, and this view is consistent with theories of justice put forward by people like Robert Nozac in his book “Anarchy, State and Utopia” and Ayn Rand in her book Atlas Shrugged.

One of the criticisms of this view however is that it is overly individualistic and we should instead take a more socially supportive and compassionate view of humanity.

Other one-dimensional views include decision making on what brings the maximum overall good to society, or what might reflect a virtuous life, and so on.

Another approach though is to step away from the one-dimensional approach and look at ethical decision making as having many facets and a “one rule fits all” approach being too simplistic

This view tries to recognise that life just doesn’t seem to nicely fit into a one dimension decision making style.

Second, is that when thinking of ethical decision making in the business context – which is the focus of this course – it’s also important to look at things that might influence or encourage ethical or unethical behaviour.

We look at this in the readings for topic 3 to try and think through things such as beliefs, values, processes, goals, routines, incentives and so on that exist in business to see how these might influence our thinking and motivate us in certain ways.

The point here is that in business we can talk all we like about the need to act ethically but if we operate in ways that have underlying motivators to do the opposite, then problems will arise and keep arising.

The last point we’ll cover here has to do with justice.

In this course, we look at justice in a multidimensional way.

Sometimes justice is considered in terms of how things are distributed in society – who gets what.

These ‘things’ can include tangible things like money, food, land, housing and so on.

They also can include non-tangible things like access to the courts, opportunities for things such as to an education or a job, and so on.

A broader view takes into account issues such as ‘capabilities’ where, for this element of justice, simply making sure everyone has access to something – say, food or income – is inadequate: they also need to have the capability of turning these things into a fulfilling life.

Think for example of the time when the Federal Government distributed a bonus to most adult Australians to help stimulate the economy in the wake of the Global Financial Crisis: what did people do with the money? Some probably used it wisely but others made a quick trip to the pokies.

The point is that just making sure people have something – justice in distribution - doesn’t mean this translates into their lives become more rewarding and fulfilling.

The discussion on justice also gives a good lead-in to the next topic area – sustainable business.

Keep an eye out in the readings for the strong link between justice and what it means for humanity to live sustainably.

It is here that we also see the idea of justice between the current and future generations, and between humans and non-human species, come in to play.

In fact, the whole idea of humanity living sustainably is grounded in ideas of justice and what is right and wrong in the way we treat other humans and other species over space and time.

Hopefully the links to the discussions we have on justice, our business activities, will become increasingly clear as we move in to the sustainable business topics that follow.

Introduction:

The Ethics and Justice topic area looks at basic principles of ethics and justice and then applies them in the business setting.

When we talk of ethics and ethical behaviour, we are referring to the theory of morality covering moral rules and principles of human conduct – what is right and wrong, what is good and bad, and what the underlying motives are, of human behaviour.

Morality has to do with the standards by which people ought to behave and principles which reflect what is ultimately good or desirable.

Justice is concerned with fairness – in the distribution of things in society and in the way we treat others (including how we distribute things between, and treat, other humans within the current and future generations and non-human species).

Video: What is Ethics?: (2 min 25 sec)

Video: Ethics and International Standards of Behaviour: (2 min 27 sec)

Video: Virtue ethics and business: (2 min 18 sec) 

Learning objectives:

1. Understand the different ethical theories and the basis on which ethical decisions are made.
2. Understand the drivers for unethical behaviour in the business setting and how managers might address these issues.

Discussion:

The discussions we have had on the shareholder approach, the stakeholder approach, CSR, and the TBL, plus those we will have later in the course on sustainable business and governance, all try in some way to confront issues about how organizations and the people in them should behave and to whom they hold responsibilities. But as soon as we start talking about should, we start talking about ethical issues that guide us as to what behaviours we should or should not be engaging in, not just what we must do because the law or someone in a position of authority/power says so (although this also has an ethical side - our belief as to what laws or other commands should be obeyed), or what our own self interest might propose.

If we are to behave ethically, on what basis do we make decisions that would meet the ‘ethical’ criteria? Where do the standards come from?

In some sectors of society they come, to varying degrees, from religious texts (the Bible, the Koran, and so on). Outside of this, the history and scope of exploration into the basis of ethical action is substantial and can be quite challenging to digest.

The readings for this topic 3 walk through some of these questions which will help provide a platform to consider some of the ethical issues we will confront as the course progresses. The topic readings are quite comprehensive however, in general terms, there are three key foundations on which ethical decision making is considered namely, a:

• Consequentialist approach
• Deontological approach
• Virtues approach

Consequentialist approach

This approach to ethical decision making is goals/outcomes based where actions are considered to be right or wrong based on their outcomes (Ikeme 2003; O'Neill, Holland & Light 2008; Holbrook 2009). It asks the question "What state of affairs ought I to bring about?" (O'Neill, Holland & Light 2008, p. 47)

In practice, consequentialism translates to setting a desired outcome (say, a public policy goal regarding income distribution) and then putting in place the mechanisms to go about achieving this goal. When there is a conflict between the general good, and group or individual rights, the general good takes priority (Ikeme 2003).

The consequentialist approach has a number of different versions, some of the more common being:

• Actual and expected consequentialism

Actual consequentialism sees actions as right or wrong based on their actual effects. This has its problems, an example being where actions that are malicious or irresponsible accidentally produce good outcomes where, for actual consequentialism, this would not matter (Holbrook 2009).

Expected consequentialism sees actions as right or wrong based on the effects that are reasonably expected to occur – it is a ‘good intentions’ view (Holbrook 2009).

• Utilitarianism

The modern day roots of utilitarianism are mostly attributed to John Stewart Mill and his 'greatest happiness principle'. It is based on the idea that we should promote that which produces the greatest good for the greatest number. In its classical form, utilitarianism seeks the greatest aggregate good through summing the individual welfare outcomes – in effect, if we had a choice of say, two acts, we add up the individual good and harm from both and the one with the greatest net good is the preferred act (Ikeme 2003).

One of the key criticisms of utilitarianism is that it does not rule out inequality in the actual distribution of things within society. Although having a preference for spreading the 'good' around, the ‘greatest good’ objective comes first even if this good is concentrated in the hands of a few. Utilitarianism can also produce outcomes that are oppressive to minorities by placing the interests of the many over those of the few (Bell 2009).

Other versions of utilitarianism include pluralist consequentialism which is an extension of classical utilitarianism that seeks to both maximise welfare and to achieve equity in distribution, and hedonism which seeks the greatest pleasure and least pain at the individual level (Ikeme 2003).

One of the modern-day tools for making utilitarian type decisions in Cost Benefit Analysis, where the costs and benefits of a certain action (say, introducing regulations to discourage smoking, building a road, opening a forest to logging, …. ) are determined and if the benefits outweigh the costs, then the action is an acceptable one to pursue. We look at some of he possible problems with using Cost-Benefit analysis in this way, in the discussion below.

Deontological approach

The deontological term comes from Greek deon, 'that which is obligatory' and is an actions based approach where actions are considered to be right or wrong based on the morality of the actions themselves independently of the outcomes that follow (Ikeme 2003; O'Neill, Holland & Light 2008; Holbrook 2009). It asks the question "What acts am I obliged to perform or not perform?" (O'Neill, Holland & Light 2008, p. 47).

The deontological approach is based on principles of justice, basic rights, duties, obligations, responsibilities, proper conduct and inherent natural rights of others, and is largely ascribed to Immanuel Kant and his 'categorical imperative' to act only on certain rules and principles (Ikeme 2003).

For Kant, an act can be seen as morally right if it can be judged by all reasoning people to be a universal principle of conduct regardless of whether a person is the doer of an act, the receiver, or a mere observer. An example of such a categorical imperative is the ‘golden rule’ – do unto others as you would have done unto yourself (Fisher & Lovell 2009).

Two of Kant’s Categorical Imperatives are:

“Principle of universality – Act Only According To The Maxim By Which You Can At The Same Time Will That It Should Become A Universal Law.

Principle of Humanity – Act So That You Treat Humanity, Whether In Your Own Person Or In That Of Another, Always As An End and never As A Means Only” (Chan & Shenoy 2011, pp 34).

The Principle of Humanity means, in a practical sense, that we shouldn’t see people as simply things to use as a means to some outcome, but we should treat them as having value in themselves. People can of course be both a means to an end and an end in themselves. Think for example of a child. The child can bring happiness and purpose to his/her parents and family unit so in that sense is a means to an end – the child brings about benefits to others that those others desire from the child. But at the same time, the child is (for most parents we might hope) valued for his/her own sake. The parents love and care for the child independently of the benefits the child brings to them – the child is in this sense treated as an end in its own right.
You might like to give some thought to how this notion of treating people as ends , not just means to an end, might apply in the workplace – say, the organisation’s attitude to its employees (are employees simply a ‘resource’ for the firm?), or how stakeholders might be treated (is it right to treat stakeholders as merely a means to maximising shareholder profit?).

Another noted approach that fits under this general deontological category is Rawls’ theory of justice. Rawls’ theory is known as one of ‘Justice and Fairness’ where he proposes that social rules of conduct should be made under a ‘veil of ignorance’. This idea of a veil of ignorance sees people needing to assume what Rawls calls an ‘original position’ where the rules by which society will operate, and hence what is right or wrong in the way our social system works, should be made without anyone knowing what their lot in life might be – not knowing if they will be rich or poor, what race they might be, what their childhood might be like, if they will be tall or short, intelligent or not so, healthy or ill, physically or mentally sound or in some way disabled, and so on.

For Rawls, two key principles of justice can be derived from this ‘original position’ thought experiment:

“Each person is to have an equal right to the most extensive total system of basic liberties compatible with a similar system of liberty for all.

Social and economic inequalities are to be arranged so that they are both:

(a)   To the greatest benefit of the least advantaged; and

(b)   Attached to offices and positions open to all under conditions of fair equality of opportunity” (Chan & Shenoy 2011, p 42).

Other formulations of the deontological approach place an emphasis on the notion that all humans have a set of inalienable rights which no one, including the State, is allowed to interfere, irrespective of the consequences. As such, justice demands respect for these rights or remedial action if these rights are violated (Ikeme 2003). Under this view, ends (consequences) are just so long as the decisions that gave rise to the ends are just, regardless of what those ends actually are (Ikeme 2003).

One version of such a rights-based deontological approach that you will see in certain political narratives to varying degrees is libertarianism (Okereke 2006), which holds that people are entitled to their market allocation of goods in society regardless of the degree of poverty or want surrounding the outcome. Robert Nozick’s “Entitlement Theory”, set out in his book “Anarchy, State and Utopia”, is an example of this approach, as is the work by Ayn Rand as discussed in her book “Atlas Shrugged”. Under this view the market is seen as inherently just and capable of distributing costs and benefits in an efficient and appropriate manner. For libertarianism, State interventions are mostly undesirable, unnecessary, and a violation of the individual right to liberty, although the State is seen as having an important role in enforcing private property rights. This approach is consistent with neo-liberalism and is sometimes referred to as neo-liberal justice.

Some critics of the deontological approach suggest that it risks a 'means justify the ends' approach being adopted to decision making, where the ends can tend to fade to insignificance and all that matters is the means by which the ends came about (Ikeme 2003).

Virtues approach

A virtues ethic is based on consideration of what comprises a good human life and the personal qualities/virtues that provide the basis for such a life.

"The basic good of ethical life is the development of a certain character. A right action is the act a virtuous agent would perform; the best state of affairs is one that a good agent would aim to bring about" (O'Neill, Holland & Light 2008, p. 47).

Exactly what these virtues might be is a matter of dispute but might include things such as such as courage, loyalty, compassion, honesty, justice and so on.

The virtues approach then, asks the question "What kind of person should I be?" (O'Neill, Holland & Light 2008, p. 47) with ethical decision making based on living up to these virtues.

This approach is not based on a set of rules but rather a set of personal characteristics that, if practiced, will see a person likely to make sound choices when confronted with ethical matters.

East and West

The discussion so far has looked at different approaches to ethics from a mostly Western perspective.

This Western focus of much of the ethical discourse in the business literature is quite limiting in the globalised world in which we live.

Rather than trying to work through Eastern perspectives in these notes, an optional reading has been added to the readings list for this topic (the Chan article) and you are encouraged to browse though this article to gain some insights into Eastern views.

Another of the optional readings – the one by Fisher & Lovell, goes into the different approaches to ethics, as set out above, in more detail and is also worth looking through.

Issues

The different approaches to ethical decision making are often accepted as separate and incompatible on the assumption "that there is a single basic question and answer in ethical deliberation about the priority of states of affairs, acts and agency (O'Neill, Holland & Light 2008, p. 47).

An alternate approach to reliance on any one form of decision making (consequentialist, deontological, virtues… ) is a pluralist approach (O'Neill, Holland & Light 2008). This approach sees the need for procedural arrangements that support good decision making in the light of complex and often conflicting issues, demands, and ethical implications. It may be unrealistic to expect that rational decision making can resolve all moral conflicts that arise; it may be better to accept that conflicts will arise and that we need to make the best choices we can under the circumstances despite some uncomfortable and painful consequences.

Possible drivers of unethical behaviour in business

A number of factors are identified in the literature that may act as drivers of unethical behaviour in business. Here we touch on a few of these namely:

• How people are remunerated
• The focus on profits
• The use of cost-benefit analysis (CBA) as a decision making tool

In reading through these points, consider whether you agree with what is presented and if you think it has merit, what might be done to address the problems that are identified.

Remuneration:

One of the proposed drivers for unethical behaviour is how people are remunerated. An area of particular focus on this remuneration topic is executive pay and whether this is properly tied to the interests of shareholders (say, by way of share options and/or bonuses based on the extent to which shareholder value is enhanced). Executive pay is also picked up in the governance topic we cover later in this course. With our discussion on shareholder vs stakeholder approaches, this begs the question as to whether tying executive pay to shareholder value alone is the answer – why isn’t it tied to the achievement of goals that take into account the broader set of stakeholder needs and other corporate responsibilities, goals or objectives picked up in say, CSR?. Two member's of KPMG’s Sustainability Advisory Services practice support this view by proposing that "tying pay to sustainable development performance at organizational levels creates a true incentive for innovation and accepting the change to the “business as usual” culture" (Riepenhoff & Radcliffe 2001).

Profit focus

Linked to this question of the incentives people are given in their work environment is the focus of the business itself. Anita Roddick (of The Body Shop fame) sees the unethical behaviour of people in business as driven by the shareholder-profit model. Bakan (2005) describes Roddick's view this way:

"Roddick blames the 'religion of maximizing profits' for business's amorality, for forcing otherwise decent people to do indecent things: 'because it has to maximize profits…everything is legitimate in the pursuit of that goal, everything… so using child labor or sweatshop labor or despoiling the environment…is legitimate in the maximizing of profit.

The managers who do these things are not monsters, Roddick says. They may be kind and caring people, loving parents and friends [but] they compartmentalize their lives. They are allowed, often compelled, by the corporation's culture to disassociate themselves from their own values – the corporation, according to Roddick, 'stops people from having a sense of empathy with the human condition'; it 'separates us from who we are" (pp. 55-56).

What Roddick and Bakan are getting at is that, in their view, the very foundations on which corporations are structured encourages corporate behaviours, and behaviours of people in them, that can lead to the types of outcomes that cases like Enron show in the extreme. In discussing this further, Bakan goes on to say:

"Though the company [Enron] is now notorious for its arrogance and ethically challenged executives, the underlying reasons for its collapse can be traced to characteristics common to all corporations; obsession with profits and share prices, greed, lack of concern for others, and a penchant for breaking legal rules" (p. 58)

Cohan (2002) picks up this theme in a few places – here are a couple of the more direct statements from that article:

"It has been pointed out that people in corporations tend to make decisions that may not be in keeping with their own sense of morality. People working within corporations often have a distinct business persona, different from the one they display within their family relationships or in other roles in society. The idea is that people may act in seemingly altruistic ways outside the corporation, but in the firm there is a business morality that is somehow different from one's personal morality, that "business is business," with the focus being to maximize profit without regard to other considerations." (p. 288)

and

"Many supervisors, consciously or not, do not want to know precisely how their subordinates achieve their results. As long as the bottom line is profitable, there is little incentive to discover how those results were achieved. Focusing on the bottom line also facilitates the denial of either moral or legal complicity should severe problems be uncovered.'' (p. 286)

The last paragraph (from Cohan, p 286) is quite an aggressive statement about things that go in inside business, and we all (including Cohan) would probably hope that this is not the norm – but maybe in some areas it is. An article in the March 2008 issue of Scientific American on the problems with the tuna industry, that gives a clear link between the issue of ethics and sustainability, had this to say:

"Even if lower quotas [on the bluefin tuna catch] were in place, however, the bluefin would still be imperilled. The tuna fishery is rife with illegal, unregulated fleets that ignore quotas, restrictions, boundaries, and any other rules and regulations that might threaten their catch. Furthermore, the Japanese market – which devours about 60,000 tons of bluefin every year, or more than three quarters of the global catch – is only too eager to buy tuna, regardless of where or how it is caught. Japanese fishers have contrived to circumvent even their own country's restrictions, bringing in thousands of tons of illegal tuna every year and then falsifying their records" (Ellis 2008, p. 68).

The point to all of this is that advocates of the 'problem is in the system' view of the corporate world will say that Enron type events cannot be prevented simply by better policing. Bakan, Roddick, and like minded commentators focus more on the underlying system and how this needs to be reformed in order to reduce the Enron type consequences. They would argue that business needs to focus on more than just shareholder value as its purpose in life, hence the themes we find in approaches such as the stakeholder approach, CSR, and sustainable business.

Cost-benefit analysis (CBA)

CBA is a key decision making tool for government and business. It is used in many types of decision making including whether government should build a new road, or put in place some new regulations, or invest more in education and so on. For business it is used for things like whether a new factory should be opened, a new machine purchased… the list goes on. The concept is fairly straight forward although behind the scenes it can be a bit challenging to work through. Basically though, CBA is a process of working out all of the good things (benefits) that come from taking a certain action, working our all of the bad things (costs) that will arise, and so long as the good is greater than the bad, then this can provide a basis on which to go ahead and take the action. Because good and bad things can be both money and non-money items, the CBA process converts everything into money in current day dollar terms, so we end up with a purely money based decision to make. You are probably familiar with CBA from other MBA courses or studies you have done, mostly talked of in terms of net-present-value (NPV) calculations in project analysis. But CBA has its dark side and the following examples touch on some of these that are relevant to the issues covered in this course.

The first example is the Ford Pinto case. The Ford Pinto was a car built by Ford in the 1970's that had a habit of bursting into flames if on the receiving end of a rear-end collision (it had to do with the positioning of the fuel tank). Someone inside Ford worked out that it would cost (all these numbers are in 1970 US dollars) $137m per year to fix the problem based on the per-car additional costs incurred. But, it was also calculated that if a life was valued at $200,000 (remembering that CBA converts all things to money values), then the total cost of lost lives based on an estimated 180 deaths per year would be $36m. So it was financially better – about $100m better – for Ford to not make changes to the car and pay out compensation for deaths caused by the fault in the car. Eventually Ford was forced to fix the problem (Ackermann 2008). What we can see here though, when looking at the case form an ethical standpoint, are some challenging issues including:

(a) People inside Ford thought this CBA outcome (save money by paying compensation rather than fixing the fault) was a rational and sensible argument.
  Do you think it was a rational and sensible argument?
      If yes, why?
      If no, why not?
  What implications does your answer have for the use of CBA in your own professional life?

(b) Lives were converted into dollars.
  Do you think it is right to place a value on lives in this way?
      If yes, why and under what conditions?
      If no, why, and what alternate approach do you think might be useful for decision making?

(c) The ones carrying the costs of the bad design and faulty product were the people in the burning cars, not the company that sold a faulty product – the harm was ‘externalised’ (we will look at externalities in more detail later in the course, however in brief, an externality occurs when the activities of one party (say, a company) provide a cost or benefit to another party, with no compensation occurring. An example is pollution from a coal fired power station where the company and its shareholders gain from the sale of electricity, however communities and the environment suffer from the pollution the plant generates without these harms and related costs being imposed back onto the company and its shareholders).
  What ethical issues do you think might apply here in this externalising of harms approach?

Another more recent case has to do with cigarettes. Around the year 2000, Philip Morris, the cigarette company, commissioned an international consulting firm, Arthur D Little, to report on the public finance implications of smoking in the Czech Republic – the report looked at the numbers for the year 1999. Here is what the first few paragraphs of the report said:

"Based on up-to-date reliable data and consideration of all relevant contributing factors, the effect of smoking on the public finance balance in the Czech Republic in 1999 was positive, estimated at +5,815 mil. CZK.

This report details the findings of a study commissioned by Philip Morris and undertaken by Arthur D. Little to quantify the effects of smoking on the public finance balance in the Czech Republic in 1999. The objective was to determine whether costs imposed on public finance by smokers are offset by tobacco-related tax contributions and external positive effects of smoking”.

To come up with the numbers, the consulting firm did things like work out the 'financial benefits' from things such as the savings due to people dying early from smoking-caused illness (savings in elderly housing, in long-term healthcare, and in old age pensions) and income from cigarette taxes. On the negative were costs such as loss of income tax from people dying sooner and not being able to work, losses from fires (say, from falling to sleep with a cigarette in the hand) and so on. All up though, according to the report, the Czech public finances were much better off due to smoking and so, according to Philip Morris, no action should be taken to try and reduce the extent people smoked.
Looking at this case through ethical eyes, it raises a few issues to think about including:

(a) Similar to the Ford Pinto case, harms to people – illness and shortened lives – were reduced to dollar values where it was not a life lost or a person harmed that was at stake but a question of money in and money out.

(b) Causing harm (the negative impacts to human health from smoking) was, using CBA, transformed into a social financial good.
What do you think of this feature of how CBA works – what ethical issues do you think come in to play?

(c) We can ask questions about the values and ethics (or lack thereof) displayed by both Philip Morris in commissioning and promoting the report, and by Arthur D Little in taking the assignment and placing their name on the report.
Should the consulting firm have accepted such an assignment?
What flow on implications do you think your answer has for how professional advisers to firms (lawyers, accountants, PR consultants etc) should act and what contracts they should be willing to take on?

A copy of the full report is included in the additional readings for this topic.

The last case we will look at is a famous memo written in 1991 by Lawrence Summers, the then World Bank Chief Economist. Here is the full content of the memo (which is readily accessible on the internet – here is one URL access point: http://www.whirledbank.org/ourwords/summers.html).

World Bank Chief Economist, Lawrence Summers 1991 internal memo: 

DATE: December 12, 1991
TO: Distribution
FR: Lawrence H. Summers
Subject: GEP

'Dirty' Industries: Just between you and me, shouldn't the World Bank be encouraging MORE migration of the dirty industries to the LDCs [Less Developed Countries]? I can think of three reasons:

1) The measurements of the costs of health impairing pollution depends on the foregone earnings from increased morbidity and mortality. From this point of view a given amount of health impairing pollution should be done in the country with the lowest cost, which will be the country with the lowest wages. I think the economic logic behind dumping a load of toxic waste in the lowest wage country is impeccable and we should face up to that.

2) The costs of pollution are likely to be non-linear as the initial increments of pollution probably have very low cost. I've always though that under-populated countries in Africa are vastly UNDER-polluted, their air quality is probably vastly inefficiently low compared to Los Angeles or Mexico City. Only the lamentable facts that so much pollution is generated by non-tradable industries (transport, electrical generation) and that the unit transport costs of solid waste are so high prevent world welfare enhancing trade in air pollution and waste.

3) The demand for a clean environment for aesthetic and health reasons is likely to have very high income elasticity. The concern over an agent that causes a one in a million change in the odds of prostrate cancer is obviously going to be much higher in a country where people survive to get prostrate cancer than in a country where under 5 mortality is 200 per thousand. Also, much of the concern over industrial atmosphere discharge is about visibility impairing particulates. These discharges may have very little direct health impact. Clearly trade in goods that embody aesthetic pollution concerns could be welfare enhancing. While production is mobile the consumption of pretty air is a non-tradable.

The problem with the arguments against all of these proposals for more pollution in LDCs (intrinsic rights to certain goods, moral reasons, social concerns, lack of adequate markets, etc.) could be turned around and used more or less effectively against every Bank proposal for liberalization.

The basic ideas that Summers was proposing were that:

(a) Because people in poor countries earn less than people in rich countries, we should dump toxic waste in poor countries as less income will be lost from a poor person dying prematurely than for a rich person.

(b) Poor countries have less pollution than the rich so the rich should transfer their polluting industries to poor countries to 'share the pollution around'.

(c) Because people in poor countries have a shorter life expectancy than those in the rich countries, it is better to put polluting industries in poor countries as if it causes premature death then the poor were going to die sooner anyway so it doesn't matter as much.

There are many issues here that are important for our current purposes, including:

(a) The same issue as in the first two examples where harms are valued in terms of lost money, not for what they are – harms to people.

(b) The idea that harming the poor ‘costs less’. This links to some important issues of justice (which we will explore further in the next topic) where a well documented problem exists in our society (both locally and in the global context) where the rich tend to get the environmental and consumptive ‘goods’ and the poor get the environmental and consumptive ‘bads’. This also has an important connection to business and how businesses go about extending their supply chains and often locating ‘dirty’ industries in less developed countries (say, in Africa, South America, Asia, and Eastern Europe), or employing labour in countries with poor labour standards. Although the logic for these commercial supply chain decisions may not be based on the arguments Summers sets out in his memo, the effect is the same – the poor tend to get more of the ‘bads’, and the rich get the benefit of the consumed goods.

So what has all of this got to do with this Ethics and Justice topic? A lot really. It goes to the core of how our society values things, what we care about and why. Should we really reduce things of value – human health and wellbeing, the existence of an old-growth forest, the continued existence of the orang-utan, the maintaining of traditional cultures, and so on – to dollar values or are some things simply valuable in ways that money just cannot express? This is not to say that some things have an 'infinite' money value, they just cannot have a dollar-value put on them at all and to try to do so is seen by some as offensive and insulting.

Ackerman & Heinzerling (2004), in their book "Priceless: On Knowing the Price of Everything and the Value of Nothing", propose that CBA has a seriously negative impact on our society where we lose our sense of what is of value and what isn't – converting everything to money erodes our value system and blinds us to what really is of importance in the world. On CBA, the authors suggest that where good and bad things are in real hard dollar terms then yes, recognise that but other things – human wellbeing, species at risk, potential loss of forests or wetlands and so on – keep them in the decision making process for exactly what they are.

Ethical decision making and duties to the firm

Ethical decision making and the duties of company decision makers (Directors, management….) raises some interesting questions: this scenario brings one of these into focus: 

A firm’s decision makers (Management, Board) decide to not enter into a transaction that was legal and profitable (and the best deal on the table at the time), because for some reason that transaction had aspects that did not pass the ‘ethical test’. To stretch the scenario, the risks to the firm of some form of harm from the deal were minimal so on a risk basis, doing the deal was fine.

Are the firm’s decision makers right in taking such a decision based on their duties to the firm? Is there an inherent conflict in place where duties to a firm can override an ethical stance?  

This goes to the core of the basis of ethical decision making – that is where decisions are based on questions or right or wrong, not of right and wrong dependent on self-interest outcomes (in this case, the self-interest of the firm, it’s shareholders, and possibly some of its other stakeholders).

The first part of the equation in thinking about this is the legal position:

The duties of directors are owed to the company. However, in law the interests of the company are often regarded as the same as the interests of the shareholders. There have been a few cases where decisions of directors have been overturned because there was no benefit to the company, aka the shareholders, even though directors thought their decision was morally correct. A classic example of this is:

Parke v Daily News [1962] Ch 927 – in this case the company was going to cease operations and instead of giving back the surplus to shareholders the directors decided to make gratuitous payments to employees who at that time were not entitled to redundancy payments. The court found that the directors had acted contrary to the interests of the company: ”Stripped of all its side issues, the essence of the matter is this, that the directors of the defendant company are proposing that a very large part of its funds should be given to its former employees in order to benefit those employees rather than the company, and that is an application of the company funds which the law… will not allow… the proposal to pay compensation is one which a majority of shareholder is not entitled to ratify”

However, many now regard this case as rather old fashioned and have limited it to instances where the interests of a particular stakeholder group ie employees were allowed to trump the interests of the company. It is probably the case that these days the courts allow directors broad discretion to determine what might be in the interests of the company including from the perspective of what is the right thing to do. You may remember that the James Hardies’ directors raised the issue of shareholder interests apropos their initial decision not to fund the Asbestos Compensation Fund more than had previously been determined. Most commentators of the time regarded this as an excuse to try and rationalise what had occurred re: the underfunding rather than an actual legal constraint upon their decision making. Nonetheless the question remains open. England has since changed its law to allow directors to take account of stakeholder interests as part of their decision making (see s 172 Companies Act 2006 which explicitly requires directors to consider the interests of its stakeholders including employees and suppliers). Australia also considered something similar but ultimately rejected it. In Australia the question will turn on whether the directors:

• made the decision in good faith for a proper purpose;
• rationally believed the decision was in the best interests of the company after having made all reasonable inquiries necessary to inform themselves about the subject matter of the decision; and
  • made the decision while having had no personal interest in the matter.

The idea of businesses making decisions concerning whether a transaction will be entered in to, using criteria beyond the legality of the transaction and the returns to a firm, is common practice. An example is in the banking and finance area and the Equator principles to which certain banks have signed up to. When you look at the principles, notice that they talk of social and environmental risks, not financial risks to the lender: http://www.equator-principles.com/index.php/about-ep/about-ep . This doesn’t mean that the lender might not face flow-on financial risk if the principles were not adhered to in entering into a transaction; the point for our purposes is that the focus is on non-financial aspects of the project to which funding is being considered and a willingness to walk away from a transaction if the social and environmental risk criteria are not properly addressed.

The idea of businesses conducting themselves in an ethical way as a key basis for decision making can also be found in policy documents such as those of the ASX. Principle 3 of the ASX Corporate Governance Principles and Recommendations (see topic 10 of the course notes) states:

“Principle 3 – Promote ethical and responsible decision-making: Companies should actively promote ethical and responsible decision-making.”

In day-to-day business life, we also make decisions along the way of who we will work with and who we won’t. It’s not unusual to say “we don’t want to do business with this person/firm – they don’t live up to the standards we live by (or words to the effect)”.

So where does this all lead?

Do we really live in a world where in business, when faced with the cold hard reality of entering, or not entering, into a transaction based on ethical grounds despite the financial attractiveness of the deal, we must do the deal to meet the duties of acting in the interests of the firm? 

Well, no. We are not stuck in this space or, more correctly, we do not need to be stuck in it.

In real life, how often a firm’s decision makers would be confronted with a decision of material consequences where an ethical stance would not benefit the firm in some way (if not financially, then by way of reduced risk, improved social credibility, better employee morale, improved PR….) is probably few and far between, but the acid test of a business ethic is that it will hold up under these ‘no-win and possible cost’ scenarios.

The other point that is important is that any one decision (to not do a transaction due to ethical considerations) should be looked at in terms of the whole – that is, by acknowledging that at times some transactions will be walked away from, the overall effect of a strong ethical stance by the firm is better for all stakeholders – shareholders included.

So what to do?

There are 2 key parts to seeing this all come together nicely in an organisational setting

• First is to make sure the firm has a well drafted code of ethical conduct that puts ethical action at the core of all decision making, and for this to be a public document, embedded in organisational culture, and reinforced at AGMs. This way, all stakeholders (and all shareholders for that matter) are aware of the basis on which the firm operates and if a decision to invest in the firm is made, the rules under which the firm operates are known.
  This type of ethical structure is covered in Topic 3 of the course and is consistent with the idea behind the ASX Principle 3 referred to above.
• Second, where decisions are made that see transactions occur or not occur based on ethical considerations, then the decision making process should be fully documented so that, if at any time, questions were raised, the reasons can be demonstrated. The decision process should tie to the organisation’s code of ethics.

References

Ackermann, F 2008, Poisoned for Pennies - The Economics of Toxics and Precaution, Island Press, Washington D.C.

 Ackermann, F & Heinzerling, L 2004, Priceless: On Knowing the Price of Everything and the Value of Nothing, The New Press, New York.

 Bakan, J 2005, The Corporation, Constable & Robinson Ltd, London.

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

 Chan, GKY & Shenoy, GTL 2011, Ethics and Social Responsibility, McGraw Hill Education, Singapore.

 Cohan, JA 2002, '"I Didn't Know" and "I Was Only Doing My Job": Has Corporate Governance Careened Out of Control? A Case Study of Enron's Information Myopia', Journal of Business Ethics, vol. 40, pp. 275-299.

 Ellis, R 2008, 'The Bluefin in Peril', cientific American, vol. 298, no. 3, March 2008, pp. 70-77.

 Fisher, C & Lovell, A 2009, Business Ethics and Values, 3rd edn, Pearson Education Limited, Essex.

 Holbrook, D 2009, 'The Consequentialist Side of Environmental Ethics (reprint of Daniel Holbrook, 'Consequentialist Side of Environmental Ethics', in Environmental Values, 6, 1997, pp. 87-96).', in The Environmental Responsibility Reader, eds. M Reynolds, C Blackmore & MJ Smith, Zed Books, London.

 Ikeme, J 2003, 'Equity, environmental justice and sustainability: incomplete approaches in climate change politics', Global Environmental Change, vol. 13, no. 3, 2003/10, pp. 195-206.

 O'Neill, J, Holland, A & Light, A 2008, Environmental Values, Routledge, Abingdon, UK.

 Okereke, C 2006, 'Global environmental sustainability: Intragenerational equity and conceptions of justice in multilateral environmental regimes', Geoforum, vol. 37, no. 5, 2006/9, pp. 725-738.

 Riepenhoff, C & Radcliffe, M 2001, 'Maximizing the business value of sustainable development', Green@work - Corporate Sustainability Magazine; online article at http://www.greenatworkmag.com/magazine/corp_acts/01sepoct.html Sept/Oct 2001.

Introduction:

In topic 3, we looked at ethics and considered the basis on ethical decisions are made and how some ethical issues play out in the business setting (such as the drivers for unethical behaviour, and how a key business tool – CBA – might have characteristics to it that challenge some of the ethical principles we considered).

In this topic 4, we look at the issue of justice and consider how this also impacts on decision making in the business context.

Learning objectives:

1. Understand the different dimensions of justice and the basis on which justice obligations rest.
2. Understand how issues of justice impact on business decision making and the implications this may have in how firms go about their day to day activities.

Discussion:

Justice

What is ‘justice’? Terms such as equity, environmental justice, distributive justice, procedural justice and so on are used inconsistently in the literature (Ikeme 2003) so it can be hard at times to get a clear picture of what various authors are talking about.

Social notions of justice are in many ways the product of time and place. Some authors also see the dominant notions of justice within a given society at any time being those of the most powerful social actors (Purvis & Grainger 2004). In this sense, we need to be careful that we are not grounding our own views of justice in a view that is dominant as a consequence of it being socially constructed within the dominant societal power base and suited to the interests of the most powerful actors in society. We see this issue played out in the international scene where views of what is just/unjust can be quite at odds between the powerful industrialised nations as compared to what we often term the ‘developing’ or ‘least developed’ nations – the United Nations is a place where this conflict becomes very clear.

Justice theory is also most often considered in terms of the individual however groups can be seen as the realm in which individual justice issues are played out, and as a unit of focus themselves (Schlosberg 2007).

Justice is seen as mostly (or for some, fully) a matter of fair and equitable distribution in society (Barry 2003; Ikeme 2003). This distribution covers many things ranging from physical goods (food, possessions), to money, medical care, opportunities (say, to gain employment, or to study), access to fair treatment under the law, and so on.

Justice as distribution, that is mostly (or only) an issue of distributional equity, is seen by some to miss other key aspects of justice leading to a multi-dimensional approach to what justice has to do with. This broader view sees justice as comprising four dimensions (Schlosberg 2007; O'Neill, Holland & Light 2008):

• Distributional/Equity
• Procedural
• Recognition
• Capabilities

In practice, the idea of justice tends to embrace the four limbs (above) even though it may have a greater focus on the distributional limb in the literature (Schlosberg 2007).

Distribution

Equity is the distributional limb of justice (Ikeme 2003) and refers to the fair or just distribution of goods, resources, rights, liberties, wealth, opportunities etc in society (Attfield 1998; Schlosberg 2007). Equity issues can also be seen to apply between people of the current generation (intra-generational equity), between people of the current generation and of generations to follow (inter-generational) and, for some, between humans and non-human species (a between species issue) (Attfield 1998).
Equity is not the same as equality as there may be good reason why some receive different distributions of burdens and benefits (Beder 2006; Bell 2009) and an equitable distribution may take into account issues of merit, or performance, or needs or ability, depending on the principles of justice being applied (Westra 2006). Equity does however require that any difference in treatment is morally relevant - that is, it must be fair and impartial (Beder 2006).

Procedural

Procedural justice refers to fair and equitable institutional processes in decision making – it focuses on the process by which disputes are resolved and how things in society are distributed. It encompasses the idea of participation in decision making processes whereby parties are not excluded, or otherwise not treated impartially, in their ability to be heard and to participant in decision making.
Both maldistribution and misrecognition are played out in the participation realm where a lack of recognition means non-participation; non-participation shows lack of recognition. Participation is a tool to achieve distributional and recognition justice (Schlosberg 2007).

Recognition

Recognition is built on the idea that social and cultural differences exist. An injustice occurs where an individual or a social group, especially ones with privilege and power (where power can take a number of forms – political, economic, military etc) are dismissive of these social and cultural differences and fail to recognise them.
Misrecognition in the social and political realms is demonstrated by various forms of insults, degradation, and devaluation at both the individual and cultural level which inflicts damage to oppressed individuals and communities in the political and cultural realms (Schlosberg 2007).
Misrecognition is seen as the foundation for distributive injustice in that maldistribution happens for a reason and a lack of recognition is a key reason for this (Schlosberg 2007).
One claimed example of a lack of recognition is industrial agriculture where, by replacing local community farming, seed collecting, and seed exchange, not only is seed diversity destroyed but local culture built around agricultural and seed saving-swapping practices is also lost (Schlosberg 2007). The point is that these local cultural practices are often not recognised as valuable within the industrial agriculture model.
Another example is the case referred to in topic 1 where Banerjee (2008) discussed his work with the Aboriginal community – here is the quote again:

In my work with two indigenous communities in Australia I sought ‘stakeholder input’ about the presence of a mine on indigenous land. The response was unanimous: both communities wanted the mining company (a very, very, very large multinational company) to ‘clean up, pack up, leave and never come back’, to quote the words of one traditional owner. The company’s response was to hire an anthropologist to ‘consult’ with communities on how best to expand its operations. The fact that these ‘consultations’ take place under drastically unequal power relations remains unaddressed.  As Tatz (1982) points out, Aboriginal communities are the ‘receivers of consultation, that is, that Aboriginal people are from time to time talked to about the decisions arrived at’ (1982: 176, original emphasis). In every case involving ‘consultation’ with traditional owners in Australia, the focus was not whether or not mining should proceed but under what conditions should it be carried out. Royalties, promises of jobs, pitting one community against another are some strategies that have proved useful for mining companies.” (p. 64)

A recognition view of this case would propose that the values and beliefs of the local Aboriginal community were not recognised as they did not fit within the frame of reference of the mining company.

Capabilities

The capabilities limb of justice has to do with the transformation of things that are distributed in society into a fully functioning life and what it is that interrupts that process (Schlosberg 2007).

"Capabilities are about a person's opportunities to do and to be what they choose in the context of a given society; the focus is on individual agency, functioning, and well-being, rather than more traditional distributive indicators" (Schlosberg 2007, pp. 29-30).

The point is that ensuring people have an equitable distribution of things in society does not necessarily translate into seeing people lead a fully functioning life – the things that are distributed need to be utilised in a way that sees this life come about, hence the need to match distribution with capabilities to use what is distributed to see a fully functioning life come about.

Justice, and non-humans

Do issues of justice apply to the non-human world?

Some argue that justice is purely a human domain issue. This 'exclude the non-human world’ view holds that while it is true that harm can be done to non-human species and humans can act wrongly towards them, this is not an issue of justice between humans and non-humans as "justice and injustice can be predicated only on relations among creatures who are regarded as moral equals in the sense that they weigh equally in the moral scales" (Barry 2003, p. 488).

Schlosberg (2007), in commenting on this ‘exclude’ view proposes that the exclusion of Nature from issues of justice is culturally biased:

"……. classic liberal justice theorists such as Rawls or Barry would not include nature as a subject of, or partner in, justice. But note the lack of impartiality here: some cultures and cosmologies assume sentience, a soul, and consciousness to nature—both individual critters and the larger landscapes. Any theory of justice that excludes parts of the world from consideration that some cultures would include begins under a very partial cultural bias; and assuming one cultural bias over the other is not how one should ground an impartial theory of justice. (p. 108)".

On the ‘moral equals’ claim in the quote by Barry (above), Schlosberg goes on to propose that this as a weak claim:

"In reality, however, there is only very rarely an appearance of this language of equality. ……Taylor's Respect for Nature (1986), coming in the early years of environmental ethics, revived the idea that we can invoke a thorough consideration of nature without proclaiming human-nonhuman equality. We can make the claim for the moral consideration of nature as part of our extended community, and the inclusion of that nature in a theory of justice, without insisting that every part of nature has moral worth identical and equal to our own". (p. 118)

Schlosberg proposes (as do others) that there is no reason why all of the four dimensions of justice cannot be applied to the non-human world. He proposes for example that there is no logical reason to limit issues of recognition to merely humans and it applies equally to human relationships with Nature. The capabilities limb can also be equally applied to non-humans as they too have interests in the sense of what it is that contributes to their good and their flourishing. So delivering the things needed for this 'flourishing' is only as good as the capabilities of the non-human things to flourish. For participation, the inclusion of non-human interests in human decision making processes can be just as well applied as for human participation.

"Participatory parity for nature and political participation of the nonhuman would not strictly mean votes for animals; the goal is more broadly the recognition of the consideration of the natural world in human decision-making" (Schlosberg 2007, p. 158).

Inter-generational and intra-generational justice

It’s worth taking a moment to look at the issues of inter-generational and intra-generational justice, not only to help complete this general introduction to what justice is all about, but to set the scene for some of the things we will cover in the sustainable business topics to follow. The reason is that what it means for humanity to live sustainably is often defined in terms in terms of obligations within the current generation and, in particular, between this generation and those to follow. Dovers & Handmer (1993) for example propose that:

"Intergenerational equity, or justice between generations, is the ultimate moral principle behind the notion of sustainability" (p. 18).

Intergenerational justice

The terms intergenerational justice and intergenerational equity are used a little inconsistently in the literature although you will more often find the equity term used. Here are two definitions of the concept:

"Intergenerational equity is the principle that future generations have fair and equal right to the same standard of quality of life and environment as the present generation. This is a core principle of sustainable development" (ARIES 2008).

"Intergenerational equity refers to the need for a just distribution of rewards and burdens between generations, and fair and impartial treatment of future generations. Time of birth, in other words, has no more to do with how a person should be valued than do place of birth, tribe, nationality, religion, or gender" (Beder 2006, p. 80).

Intergenerational justice has to do with generations living at different times as opposed to justice between older and younger members of current society (Attfield 1998). This is not a clear-cut issue of considering future generations as those generations yet to be born, as younger members of society can be seen as a future generation in some respects (Attfield 1998). The issue of intergenerational justice can also be seen to embrace future generations of non-human species (as per the discussion above on the inclusion/exclusion of non-human species from issues of justice).

So what is the basis for intergenerational justice? Why should we care? There are a number of approaches to answering this question – here are some:

• Moral standing: If all current generations are considered to have moral standing, then it cannot be denied that future generations also have moral standing which carries obligations for them to be treated justly (Attfield 1998).
• Moral obligation: Those in the future have no say in decisions that are made in the present, so the current generation has a moral responsibility to those of the future on whom current decisions impact (Beder 1996).
• Community: Humans live in a form of community that stretches over time and obligations exist on each generation to act in the interests of this community, that is, community is spread over both time and place (Schlosberg 2007).
• Impartiality: The impartiality principle dismisses time of birth as morally relevant in considering how humans should be valued and the obligations humans have to one another (Beder 2006).
• Custodian: Each generation is really only a temporary custodian of the planet and the Earth’s ecological and cultural resources must be cared for for the benefit of future generations in addition to the current generation having a right to their use (Brown-Weiss 1990).
• Externalising to the future: Intergenerational justice may not need to be such a concern if all costs of actions made by any generation were fully internalised to that generation. This is not the case as the current generation pushes many of the costs of its behaviours into the future and as such current generations have an obligation to future generations as a consequences of this externalisation of harms (Frischmann 2005).
• Limited resources: In a world where resources are limited, equity and justice requires the fair sharing of those resources between both current and future generations (McLaren 2003).
• General obligation: Each generation has a general obligation of care for what it has inherited, and to pass on its inheritance in a reasonable condition to future generations (Turner 1992; Beder 1996; Frischmann 2005).

So if we have obligations to future generations, what are they? There are many views on this in the literature – here are a few which are not necessarily consistent with each other and not everyone necessarily agrees with them all (these will become increasingly relevant as we look at the sustainable business topics):

• Opportunity: To provide equal opportunity across generations to allow future generations to pursue their own meaning of a good life in their own way (Barry 2003).
• Per capita wellbeing: In the sustainability context (defined as sustainable development), it requires development that ensures at the least non-declining per capita wellbeing into the future (Pearce & Atkinson 1998).
• Prediction of future needs: It is possible for the current generation to reasonably predict some of the basic needs of future generation of humans and non-human species, and decisions can be made now to ensure resources are left to allow future generations to satisfy those needs (Attfield 1998).
• Population: Not to leave too many or too few humans so as to threaten the wellbeing of future generations or possible extinction of the human species (Attfield 1998).
• Resource and cultural base: Each generation must pass on a resource and cultural base which provides each new generation with sufficient options to solve its own problems and satisfy its own values (Brown-Weiss 1990)
• Earth condition
  Equal quality: To pass on to future generations an equally uncontaminated or pollution-free environment, or more generally an Earth/environment in at least as good a condition, as it received including the protection of biodiversity (Brown-Weiss 1990; Diesendorf 1997; Attfield 1998; Westra 2006, in reference to Brown-Weiss' view).
  Repair: Current generation to repair any damage done by it or by previous generations such that the 'as good a state' rule is not violated (Westra 2006, in reference to Brown-Weiss' view).
  Relative position: Future generations to inherit the Earth (and hence, current generation to pass on the Earth) in a condition that allows them to live lives in a state of wellbeing that is no less than that of the previous generation (Turner 1992; UNDP 1994; Pearce & Atkinson 1998).
• Compensation obligation: The current generation is to compensate future generations for any environmental degradations that are passed on as a result of use of the environment in the present (Brown-Weiss 1990). This compensation can be in the form of increased wealth including knowledge, technology, infrastructure, productive investments, institutions, and a more productive resource base (Brown-Weiss 1990).
• Non-predictive: The current generation should not try to be predictive of the preferences of future generations but rather provide them with the flexibility needed to achieve their own goals based on their own values (Brown-Weiss 1990).

Intra-generational justice

Intra-generational justice applies across a number of areas including across nations, to people and communities within nations (Diesendorf 1997), and for some, non-human species as well as to humans. Many of the issues considered in the above discussion on intergenerational justice (the basis for caring, what obligations arise to future generations) can be equally applied in the intra-generational context. For example, if we say we have certain obligations to future generations, then we similarly have obligations to members of the current generation as it is not morally relevant to discriminate based on whether someone is born in the current generation or a future generation.

One of the streams of thought in the intra-generational justice area that is of particular relevance to this course is that of Environmental Justice.

Environmental Justice has to do with the human domain in the sense that it is concerned with the distribution of environmental goods and bads in society and in particular the exposure of minority groups, non-whites, and the poor to environmental bads and as such, also captures ideas of environmental racism (Ikeme 2003; Schlosberg 2007; Bell 2009; Mascarenhas 2009). (An alternate stream of thought is concerned with ecological issues and the way humans act towards the natural environment and this stream of thought often goes under the name of ecological justice or environmental ethics – the terms can be a bit confusing!).

Environmental justice does however move beyond a fair-share of distribution of environmental goods and bads to an elimination of the bads at the source (Agyeman, Bullard & Evans 2003). It is seen to have its discipline roots in environmental sociology and the study of race relations (as compared to say, in philosophy or ethics) and has emerged from the civil rights movement as opposed to say, the environmental movement (Martinez 2003). Environmental justice is also strongly related to issues of inequality in wealth distribution and as such is concerned at broader notions of inequality than the final distribution of environmental goods and bads (Bell 2009).
Further, the concept has evolved from being concerned with issues of environmental justice within nations (especially within developed nations) to also being concerned with issues of environmental justice across nations especially between the North and South where the South is seen to carry a disproportionately higher share of environmental bads (Mascarenhas 2009).

Intergenerational and intra-generational justice – linkages

Intergenerational and intra-generational justice issues are seen to be necessarily linked (UNDP 1994; Schlosberg 2007). The point is that what happens now by way of unjust or inequitable behaviour spills over into the future - the lives future generations experience are impacted on by the way society functions in the present. As such, some authors claim that it is not really possible to talk of these two aspects of justice as separate issues – they go hand-in-hand.

References

Agyeman, J, Bullard, RD & Evans, B (eds) 2003, Just Sustainabilities: Development in an Unequal World, Earthscan, London.

ARIES 2008, Intergenerational Equity, Australian Research Institute in Education for Sustainability at Macquarie University, Sydney, viewed 23 Feb 2008, <http://www.aries.mq.edu.au/portal/about/glossary.htm/>.

Attfield, R 1998, 'Environmental Ethics and Intergenerational Equity.', Inquiry, vol. 41, no. 2, 1998/06, pp. 207-222.

Banerjee, SB 2008, 'Corporate Social Responsibility: The Good, the Bad and the Ugly', Critical Sociology, vol. 34, no. 1, pp. 51-79.

Barry, B 2003, 'Sustainability and Intergenerational Justice (reproduced from "Theoria" 1997)', in Environmental Ethics, eds. A Light & H Rolston, Blackwell Publishers Ltd, Oxford, UK., pp. 487-499.

Beder, S 2006, Environmental Principles and Policies: An Interdisciplinary Introduction, Earthscan, London.

Beder, S 1996, The Nature of Sustainable Development (cited at University of Wollongong: http://www.uow.edu.au/ ; Faculty of Arts; URL: http://www.uow.edu.au/arts/sts/sbeder/STS300/equity/meaning/integen.html ; Accessed 23/2/2008), Scribe, Newham, Vic.

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

Brown-Weiss, E 1990, 'In Fairness to Future Generations', Environment, vol. 32, no. 3, April, p. 6.

Diesendorf, M 1997, 'Principles of Ecological Sustainability', in Human Ecology, Human Economy, eds. M Diesendorf & C Hamilton, Allen & Unwin, Sydney, pp. 64-97.

Dovers, SR & Handmer, JW 1993, 'Contradictions in Sustainability', Environmental Conservation, vol. 20, no. 3, pp. 217-222.

Frischmann , BM 2005, 'Some Thoughts on Shortsightedness and Intergenerational Equity', Loyola University Chicago Law Journal, vol. 36, pp. 457-467.

Ikeme, J 2003, 'Equity, environmental justice and sustainability: incomplete approaches in climate change politics', Global Environmental Change, vol. 13, no. 3, 2003/10, pp. 195-206.

Martinez, J 2003, 'Mining Conflicts, Environmental Justice and Valuation', in Just Sustainabilities: Development in an Unequal World, eds. J Agyeman, RD Bullard & B Evans, Earthscan, London.

Mascarenhas, M 2009, 'Environmental Inequality and Environmental Justice', in Twenty Lessons in Environmental Sociology, eds. KA Gould & TL Lewis, Oxford University Press, New York, pp. 127-141.

McLaren, D 2003, 'Environmental Space, Equity and Ecological Debt', in Just Sustainabilities: Development in an Unequal World, eds. J Agyeman, RD Bullard & B Evans, Earthscan, London.

O'Neill, J, Holland, A & Light, A 2008, Environmental Values, Routledge, Abingdon, UK.

Pearce, D & Atkinson, G 1998, The Concept of Sustainable Development: An Evaluation of its Usefulness Ten Years After Brundtland, Centre for Social and Economic Research on the Global Environment, University College London and University of East Anglia: Working Paper PA 98-02.

Purvis, M & Grainger, A 2004, 'Future Perspectives: Developing Sustainable Development', in Exploring Sustainable Development, eds. M Purvis & A Grainger, Earthscan, London.

Schlosberg, D 2007, Defining Environmental Justice, Oxford University Press, Oxford.

Turner, KR 1992, Speculations on Weak and Strong Sustainability, Centre for Social and Economic Research on the Global Environment University of East Anglia and University College London, Working Paper GEC 92-26.

UNDP 1994, Human Development Report 1994, United Nations Development Programme.

Westra, L 2006, Environmental Justice and The Rights of Unborn and Future Generations, Earthscan, London.

Core (required) readings:

Benkler, Y. 2011. The Unselfish Gene. Harvard Business Review, 89(7/8): 76-85.

Banerjee, S. B. 2011. Embedding sustainability across the organization: a critical perspective. Academy of Management Learning and Education, 10(4): 719-731.

Kanter, R. M. 2011. How Great Companies Think Differently. Harvard Business Review, 89(11): 66-78.

Additional (optional) readings and resources:

• A different perspective on justice regarding distribution of environmental harms:
  
  
  
• Reading 4.2: Urkidi & Walter 2011 'Dimensions of Environmental Justice in Anti-gold Mining Movements in Latin America', Geoforum, vol. 42, pp. 683-695.
  This article further discusses the dimensions of justice covered in this topic and applies them to two mining cases. It is useful in giving some additional commentary on the justice principles this topic covers, plus an understanding these principles in the practical setting. 

• Reading 4.3: Schlosberg 2007 'Reconceiving Environmental Justice: Global Movements and Political Theories', Environmental Politics, vol. 13, no. 3, pp. 517-540.
  This article provides a condensed version of the key points in Schlosberg’s book (see reading 4.4). It can be a bit of a difficult at times but it gives some good depth to the issues we cover in this topic so is worth the read for those wanting to dig deeper into the justice topic.

• Reading 4.4: Schlosberg 2007 Defining Environmental Justice, Oxford University Press, Oxford.
  This book gives a detailed discussion on justice issues, in particular environmental justice, and is a good resource for those seeking a broad understanding of the issues covered in this topic.

• Reading 4.5: Web sites: These web sites give some examples of how issues of justice, as conceived within the environmental justice area, are being played out in various places around the globe. They also give an insight into how the corporate sector is linked to the issues in play.

Amazon watch:    (South America)

Navdanya:   (India)

Friends of The Earth International:   (global)

The next 4 topic areas look firstly at what it means for there to be a sustainable world, then how this flows through to the way the business sector, and individual firms within in it, might need to act in order for a sustainable world to come about.

The course material provides a lot to think about in this sustainable business space.

It would be true to say though that it is challenging to get the head around how ideas on what might need to be achieved to see a sustainable world materialise might be put into play in our own business setting and for what we do to make a meaningful difference.

We will work through some of these issues but I can’t promise answers for everything – you might instead come out with more questions than answers. There’s nothing wrong with this though. In the sustainable business space we are heading into new areas where it’s probably true to say many people haven’t ventured or, if they have, it has been in only a superficial way.

This isn’t meant to be a criticism as such, but more a claim that as a society we haven’t really got our heads around this issue of sustainable living as yet and have a steep learning curve ahead of us.

I’ll only make two quick points here and leave you to get on with the readings and activities.

The first is that the question of what it means for there to be a sustainable world is disputed space. There is no agreement on what it means and no one definition that clarifies what it means.

There is however a mainstream view, generally termed “sustainable development” and for the most, we look at sustainable business within this mainstream view. This isn’t to say this view presents the way society should go, or that if we followed the sustainable business formula to the letter a sustainable world would come about.

Some claim that in fact this mainstream formula will not work and is doomed to fail – and these counter narratives have a strong and well articulated voice in a number of established academic disciplines.

We do however need to give you things that you can take away with you and apply in your own business setting and this is where the mainstream focus comes in to play.

You will find though that we also present a number of criticisms and alternates to this mainstream view to help broaden your perspective on what sustainability is all about.

The other point is that, as mentioned in the introductory video, the Interface Global case is used over 3 topics that follow.

This is done to give you the opportunity to look closely at a firm that is considered a leader in sustainable business practice and not load you with a number of cases that don’t allow the time to dig into the detail.

The important thing to do here is to look for ideas and lessons that can be used in your own professional life – to take what Interface has done and plans to do, and consider you can learn from the virtues and problems of its sustainable business agenda.

Despite the one major case study being used, you will be presented with a number of other practical examples of firms doing things well, and doing them poorly, to help put a practical face on the subject matter.

Introduction:

Topics 5, 6, 7, and 8 all deal with the issue of what it means for humanity to live sustainably and the role of business in achieving this outcome.

In topic 5, we look at some of the social and ecological challenges society is facing. We then explore what it means for humanity to live sustainably and what the world might need to look like to see this outcome achieved.

Topic 6 then takes the concepts covered in topic 5 and applies them to the business setting. We consider what it means for a business to be a sustainable business, and how sustainability principles can be incorporated into organisational strategy.

Topics 7 & 8 then look at some specific approaches to how businesses pursue sustainability agendas and critiques these approaches to consider their merits and weaknesses.

Learning objectives:

1. Gain a general understanding of some of the key ecological and social challenges humanity is facing.
2. Understand the main approaches to what it means for there to be a sustainable world.

Discussion:

Social and ecological challenges

Despite the increased wealth many parts of society enjoy, this wealth comes at an ecological and social cost and is not shared by all. Absolute and persistent poverty continues to affect hundreds of millions of people (Rees 2008; Bell 2009), the resource-use gap between the rich and the poor is increasing (Rees & Westra 2003; Bell 2009), the Earth's ecosystems continue to deteriorate (UN 2005; UNEP 2007; Brown 2008), atmospheric green-house gas loads continue to rise driving increased global warming and ocean acidification (UNEP 2009; IPCC 2010; Science Daily 2010), and humanity's use of the Earth's renewable resource base continues to exceed its rate of regeneration, with this unsustainable rate of use accelerating (Rockström et al. 2009; Footprint Network 2010). What needs to be done to address there problems in order for humanity to be living sustainably – that is, for there to be a sustainable world – is an issue of significant debate, action, and inaction.

But if all of these ecological and social inequity problems exist, why is it that most of us (in the rich industrialised nations and wealthier sectors of nations that are not as far along the industrialisation path) do not experience any real shortage of things we need for a comfortable life? Andersson & Lindroth (2001) propose that the consequences of continued current ecological degradation are born by three main parties:

• the economically and politically weak, as the more powerful are able to better appropriate resources for their own use,
• non-human species, through human appropriation of resources to the detriment of these species, and
• future generations, through the running down of renewable natural resource stocks to support current generation consumption.

This all falls under the ‘externalisation of harms’ issue, something we will look into further later in this course. You will also notice a clear link between this issue of who bears the consequences of current ecological degradation and the discussion in topics 3 & 4 on equity and justice.

A sustainable world

Although the idea of humanity needing to live sustainably is something everyone seems to be aware of and agrees we need, when it comes to explaining exactly what this means, or describing what a sustainable world might look like, things get challenging. Whether talked of as sustainability, a sustainable world, sustainable development, or the various other terminologies we will come across, the concept of what it means for humanity to live sustainably remains pluralistic, contested, and grounded in different value systems and incommensurate world views (Gladwin, Kennelly & Krause 1995; Osorio, Lobato & Castillo 2005; Manderson 2006). Despite this contested ground, two main streams of thought as to what a sustainable world has to do with are evident in the literature, namely a reformist approach and a transformational approach. Clifton & Amran (2010) describe these as follows:

A Reformist approach (or Reformism) takes the view that the current dominant socio-economic system is sound and more than capable of providing what Reformism claims is the key sustainable world goal, namely, continued human development (or, more commonly, sustainable development). Under this model, the challenge humanity faces is to maintain the current dominant socio-economic system but to do so in ways that address the ecological and social harms that are currently being experienced. In short we need to 'green' the current system and make it more socially just. Reformism seeks strong consistent global GDP growth, supported by continuation of the current globalisation and free-trade agenda, to address problems of poverty and promote overall human wellbeing. It focuses on technological advance to improve resource use efficiency and to develop less (or for some, non) polluting production and consumption processes. Reformism sees a key role for business, multinational corporations (MNCs) in particular, in furthering this growth and technology agenda especially in assisting the South to develop sustainably.

A Transformational approach on the other hand claims that the current dominant economic, social, and institutional system is the root cause of current unsustainable behaviours and needs transformational change in order for a sustainable world to come about. This approach sees human wellbeing as best progressed through equitable and ecologically sustainable qualitative development and consumptive sufficiency, achieved through a steady-state economy (that is, one where resource throughput is non growing and contained within ecological limits). It has a preference for internationalisation not globalization, consumption from local production, and businesses that are smaller and locally embedded. Continued consumptive growth is seen as both unsustainable and a primary cause of ecological problems and poverty. Poverty is resolved through resource reallocation not more global-level through-put growth, with a key role for the economically and politically powerful, especially the industrialised North, to cease exploitation of the economically and politically weak (pp. 122-123). 

Despite their substantial differences, both the reformist and transformational approaches see a sustainable world as being concerned with:

“the flourishing of life on Earth over an indefinite time frame, incorporating human and ecological wellbeing, and with this wellbeing grounded in principles of intra- and inter-generational justice” (Clifton & Amran 2010, p 123).

We can call this summary statement the wellbeing+justice principle of a sustainable world. We can also see here the strong links between how a sustainable world is conceived and the equity and justice issues we discussed in topics 3 & 4.

Reformism is the current dominant sustainable world approach and is consistent with the sustainable development agenda promoted by the business sector, the United Nations and its related bodies, and by most, if not all, governments (Handmer & Dovers 1996; Gould & Lewis 2009; Clifton 2010). This does not mean that the transformational approach doesn’t have a strong and well established basis. To the contrary, various themes evident in the transformational approach are well established in a number of disciplinary areas, both at the academic level and in the general business/social space. For more on these different sustainable world approaches, see as examples:

Reformist:

Transformational:

An important point here is that although there are some common threads through these two main sustainable world approaches that can be applied in the business sector and sustainable business strategy, there are also substantial differences and it’s important to think though exactly what we believe is a credible pathway forward for humanity to be living sustainably, and how this translates into business activity. Which sustainable world approach should humanity be pursuing? This is something you will need to give some thought to and come to your own conclusions. We will present ideas supporting and criticising both approaches, but in the end, you will need to navigate your own way through the maze and find what you believe is a credible and responsible way forward for society.

Sustainability terminologies

One final point we will cover off in this discussion relates to the different sustainability terminologies you will come across in this and other courses, plus what you will hear in the broader public space. We set out what are possibly the most frequently used terminologies and their more common meaning, although a word of caution: these terms get used in many formal and informal contexts and what the person using them might mean (bearing in mind a person using the terms might not have a clear idea of what the term being used means!) could vary from what is set out here.

Sustainability and Sustainable Development.

These terms are often used interchangeably. Two main uses are evident. The first is where sustainability is the goal (as in ‘the goal is to see humans living sustainably’), with sustainable development as the process by which this goal is achieved (examples of this use include Doppelt 2003; Porritt 2005; Voigt 2005). What the goal of ‘humans living sustainably’ means is then open to discussion and debate, but generally fits into either the reformist or transformational categories we discussed earlier.

The second approach is where sustainability is defined as meaning the ‘sustaining of development’ (examples of this use include WCED 1987; Lele 1991; Gladwin, Kennelly & Krause 1995; Gallopin 2003). In other words, what we seek to sustain is continued human development, hence the sustainable development terminology. In this sense, sustainable development is more than a process; it is itself the goal. This of course raises the question as to what human development means. This is often talked of as some form of improvement in the human condition (WCED 1987; Holdren, Daily & Ehrlich 1995; Langhelle 1999; Gallopin 2003; Porritt 2005) – sustainable development is then ‘continued improvement in the human condition’. In practice, sustainable development is strongly linked to the reformist approach to a sustainable world and sees continued human development arising from the flow-on benefits of ‘green and just’ continued economic growth. A contrasting view of human development is proposed by Daly (1990) who differentiates between growth and development. For Daly, economic growth is seen as quantitative resource throughput and is subject to physical limits (as we live in a world of finite resources). He sees human development on the other hand as qualitative improvement (better educated, more personally fulfilled, greater cultural depth and social bonds etc) and here, no real limits exist.

Ecologically sustainable development

This is mostly an Australian term and has its origins from 1990’s in Federal Government discussion on sustainable development (Diesendorf 2000; Harding 2006). In practice, it means the same as sustainable development as used in either or both of the above two senses of the sustainable development term (Dovers & Handmer 1992; Diesendorf 2000; Harding 2006).

Ecological sustainability and environmental sustainability

In practice, there is no real difference in how these two terms are used, and both are used to refer to the sustaining of the Earth's ecosystems and the life supporting services they provide.

Social sustainability

This is an aspect of sustainability that focuses on sustaining the positive functioning of human society both at the individual and collective level with a view of achieving individual and social wellbeing.

Economic sustainability

This is concerned with sustaining the functioning of human economic systems, that is, systems of production and distribution of goods and services to further human wellbeing.

These last three terms (ecological/environmental, social, and economic) show a link to the triple-bottom-line approach we discussed in topic 2. The optional reading by Giddings, Hopwood & O'Brien is worth taking a few moments to browse through to get some greater insight into how these three elements of sustainability are depicted, and the merits of the different models that are often presented of this 3-element view of sustainability.

References

Andersson, JO & Lindroth, M 2001, 'Ecologically Unsustainable Trade', Ecological Economics, vol. 37, no. 1, pp. 113-122.

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

Brown, L 2008, Plan B 3.0, W. W. Norton & Company Inc., New York.

Clifton, D 2010, 'Representing a Sustainable World - A Typology Approach', Journal of Sustainable Development, vol. 3, no. 2, June 2010, pp. 40-57.

Clifton, D & Amran, A 2010, 'The Stakeholder Approach: A Sustainability Perspective', Journal of Business Ethics, vol. 98, no. 1, pp. 121-136.

Daly, HE 1990, 'Toward Some Operational Principles of Sustainable Development', Ecological Economics, vol. 2, no. 1, 1990/4, pp. 1-6.

Diesendorf, M 2000, 'Sustainability and Sustainable Development', in Sustainability: The Corporate Challenge of the 21st Century, eds. DC Dunphy, J Benveniste, A Griffiths & P Sutton, Allen & Unwin, pp. 19-37.

Doppelt, B 2003, Leading Change Toward Sustainability, Greenleaf Publishing, Sheffield, UK.

Dovers, SR & Handmer, JW 1992, 'Uncertainty, Sustainability and Change', Global Environmental Change, vol. 2, no. 4, 1992/12, pp. 262-276.

Footprint Network 2010, Ecological Footprint, Footprint Network web site at http://www.footprintnetwork.org/.

Gallopin, G 2003, A Systems Approach to Sustainability and Sustainable Development, United Nations Economic Commission for Latin America and the Caribbean: Sustainability Assessment in Latin America and the Caribbean project.

Gladwin, TN, Kennelly, JJ & Krause, T-S 1995, 'Shifting Paradigms for Sustainable Development: Implications for Management Theory and Research.', Academy of Management Review, vol. 20, no. 4, 1995/10//, pp. 874-907.

Gould, KA & Lewis, TL 2009, 'The Paradoxes of Sustainable Development', in Twenty Lessons in Environmental Sociology, eds. KA Gould & TL Lewis, Oxford University Press, New York, pp. 269-289.

Handmer, JW & Dovers, SR 1996, 'A Typology of Resilience: Rethinking Institutions for Sustainable Development', Industrial and Environmental Crisis Quarterly, vol. 9, no. 4, pp. 482-511.

Harding 2006, 'Ecologically Sustainable Development: Origins, Implementation and Challenges', Desalination, vol. 187, pp. 229-230.

Holdren, JP, Daily, GC & Ehrlich, PR 1995, The Meaning of Sustainability: Biogeophysical Aspects, United Nations University and The World Bank, Washington DC.

IPCC 2010, Intergovernmental Panel on Climate Change, Intergovernmental Panel on Climate Change at http://www.ipcc.ch/.

Langhelle, O 1999, 'Sustainable Development: Exploring the Ethics of Our Common Future', International Political Science Review, vol. 20, no. 2, pp. 129-149.

Lele, SM 1991, 'Sustainable Development: A Critical Review', World Development, vol. 19, no. 6, 1991/6, pp. 607-621.

Manderson, AK 2006, 'A Systems Based Framework to Examine The Multi-Contextual Application of the Sustainability Concept', Environment, Development and Sustainability, vol. 8, pp. 85-97.

Osorio, LA, Lobato, MO & Castillo, X 2005, 'Debates on Sustainable Development: Towards a Holistic View of Reality', Environment, Development and Sustainability, vol. 7, pp. 501-518.

Porritt, J 2005, Capitalism As If The World Matters, Earthscan, London.

Rees, WE 2008, 'Human Nature, Eco-footprints and Environmental Injustice', Local Environment, vol. 13, no. 8, December, pp. 685-701.

Rees, WE & Westra, L 2003, 'When Consumption Does Violence: Can There be Sustainability and Environmental Justice in a Resource-limited World?', in Just Sustainabilities: Development in an Unequal World, eds. J Agyeman, RD Bullard & B Evans, Earthscan, London.

Rockström, J, Steffen, W, Noone, K, Persson, A, Chapin, FS, Lambin, EF, Lenton, TM, Scheffer, M, Folke, C, Schellnhuber, HJ, Nykvist, B, de Wit, CA, Hughes, T, van der Leeuw, S, Rodhe, H, Sörlin, S, Snyder, PK, Costanza, R, Svedin, U, Falkenmark, M, Karlberg, L, Corell, RW, Fabry, VJ, Hansen, J, Walker, B, Liverman, D, Richardson, K, Crutzen, P & Foley, JA 2009, 'A Safe Operating Space for Humanity', Nature, vol. Vol 461, no. 24, September 2009, pp. 472-475.

Science Daily 2010, Ocean Acidification: 'Evil Twin' Threatens World's Oceans, Scientists Warn., Science Daily electronic news service, at http://www.sciencedaily.com/releases/2010/03/100330092821.htm.

UN 2005, Living Beyond Our Means - Millennium Ecosystems Report, United Nations.

UNEP 2009, Climate Change Science Compendium, United Nations Environment Programme, Nairobi.

UNEP 2007, Global Environmental Outlook 4, United Nations Environmental Programme, Nairobi, Kenya.

Voigt, C 2005, 'From Climate Change to Sustainability: An Essay on Sustainable Development, Legal and Ethical Choices.', Worldviews: Environment Culture Religion, vol. 9, no. 1, 2005, pp. 112-137.

WCED 1987, Our Common Future: World Commission on Environment and Development, Oxford University Press, Oxford.

Core (required) readings:

Sandhu, S. 2010. Shifting paradigms in corporate environmentalism: From poachers to gamekeepers. Business and Society Review, 115(3): 285-310.

Porter, M. E., & Kramer, M. B. 2011. Creating Shared Value. Harvard Business Review, 89(1/2): 62-77.

Rangan, K., Chase, L., & Karim, S. 2015. The Truth about CSR. Harvard Business Review, 93(1/2): 40-49.

Additional (optional) readings and resources

The UNEP Global Environmental Outlook reports (the GEO 5 Summary for Policy Makers and the GEO 5 For Business Executive Summary).

Note: You can get more information on these reports, and the GEO projects at the United Nations Environmental Program web site:  

These reports give a broad overview of some key social and environmental issues humanity is facing and their high-level business impacts, and helps set the scene for the drivers underpinning the moves to see business adopt sustainable business practices. When reading the reports, keep an eye out for a few themes that are particularly relevant to this course, such as:

• The link between environmental and social wellbeing.
• Issues of equity and justice (both intra-generational and intergenerational) that arise from the environmental and social issues the reports touch on.
• The role business might be playing in both the creation of the problems the reports identify, and what business might need to do to help remedy the problems.
• How some of the issues identified might impact on your own business, including:
  •   Direct environmental impacts (say, the implications of water shortages, climate change, etc).
  •   Impacts through the value chain your firm is involved in.
  •   Implications of various regulations and international agreements (current or future).

The reports also mention the Millennium Development Goals. Here is the link to the UN site that talks of these goals:  

The UN Global Compact site is also worth visiting:   The Compact is an initiative of the UN to engage the business sector in helping to progress the achievement of a number of UN promoted initiatives (human rights, labour, environment, and anti-corruption). These initiatives link to some of the issues covered in the GEO5 reports, the Millennium Development Goals, and the broader sustainable world agenda.

 UNEP 2014, Global Environmental Outlook 5: Summary for Policy Makers, United Nations Environmental Programme, Nairobi, Kenya.

UNEP 2014, Global Environmental Outlook 5: For Business - Executive Summary, United Nations Environmental Programme, Nairobi, Kenya. 

Social and ecological challenges

Rockström, et al, 2009, 'A Safe Operating Space for Humanity', Nature, vol. Vol 461, no. 24, September 2009, pp. 472-475.

web site: Footprint Network  

Other useful resources:

Global warming:

The scientific concensus: 

NASA: 

David Suzuki Foundation: 

A sustainable world 

Williams & Millington 2004, 'The Diverse and Contested Meanings of Sustainable Development.', Geographical Journal, vol. 170, no. 2, 2004/06, pp. 99-104.

Giddings, Hopwood & O'Brien 2002, 'Environment, Economy and Society: Fitting Them Together into Sustainable Development', Sustainable Development, vol. 10, pp. 187-196.

Introduction:

In topic 5, we looked at some of the social and ecological challenges society is facing and then explored what it means for humanity to live sustainably and what the world might need to look like to see this outcome achieved.

Topic 6 looks specifically at the business setting and considers what it means for a business to be a sustainable business, and how sustainability principles can be incorporated into organisational strategy.

Learning objectives:

1. Understand what it means for a business to be a sustainable business.
2. Identify the four levels of business strategy and how sustainable business principles can be incorporated into each of these strategy levels.

Discussion:

Sustainable business:

Both the reformist and transformational sustainable world approaches see the business sector as a (or the) major cause of ecological harms at local, regional and global scales and, as a consequence, this sector needs to play a key role in solving these problems (WCED 1987; Bruno & Karliner 2002). But what are the characteristics of an organisation that would see it make a positive contribution to achieving a sustainable world outcome? To gain some clarity on this, the phases model of Dunphy et al. (2003) can be helpful. The phases model, which is discussed in the Dunphy et al reading for this topic, provides a framework whereby an organisation’s approach to a sustainable world can be assessed depending on how it aligns with various sustainability strategies based on human and environmental practices and performance. The ideal phase, Dunphy et al. argue, is the sustaining corporation phase, where a corporation:

“[provides] an excellent return to investors…[but where its] fundamental commitment is to facilitate the emergence of a society that supports the ecological viability of the planet and its species and contribute to just, equitable social practices and human fulfilment “ (p. 16).

For Dunphy et al., a sustaining corporation is not only committed to making a positive contribution to human and ecological wellbeing in its own internal operations, but also actively advocates for change in the broader social context. The sustaining corporation is therefore one that also seeks to:

“exert influence on the key participants in the industry and in society in general to pursue human welfare, equitable and just social practices and the fulfilment of human potential of all…[It] tries to assist society to be ecologically sustainable and uses its entire range of products and services to this end,…[and] is prepared to use its influence to promote positive sustainability policies on the part of governments, the restructuring of markets and the development of community values to facilitate the emergence of a sustainable society” (p. 26).

A sustaining corporation is therefore committed to progressing the wellbeing+justice sustainable world principles we spoke about earlier, and to do so both within its internal operations and in the broader social context: it is to these ends that its various activities are directed. Whether the sustainable world approach that business should be advocating is one based on the reformist approach or the transformational approach discussed above is a separate question, but one that we cannot shy away from.

The sustaining corporation terminology of Dunphy et al. highlights two main ways in which the terms sustainability and the corporation are connected:

• The first is where the focus is on the corporation itself continuing as a going concern: what is sustained is the corporation.
• The second sees the focus of what is to be sustained in terms of the wellbeing+justice sustainable world principles, and the issue of interest is the role of the corporation in contributing to the achievement of these sustainable world goals.

Some authors see these two concepts as necessarily linked in that unless a corporation is actively progressing to sustaining corporation status, it will itself cease to be viable (Dunphy et al tend to this view). Others are somewhat sceptical of this linkage, pointing to various inconsistencies between corporate goals and sustainable world goals. Examples of these claimed inconsistencies include return on capital objectives which are often framed around net present value calculations over time frames that can be far removed from those appropriate to sustainable world considerations, and the continued financial prosperity of some corporations even where the products and/or services they produce are fundamentally at odds with sustainable world objectives (Van De Ven & Jeurissen 2005).

Here is an example of how the time frames we confront on a daily basis in the business sector, and the financial modelling tools we use in business to make decisions, can be at odds with sustainable world principles. In the quote shown below, we can substitute whales for any natural resource – forests, soils, water supplies – and the same principles apply:

"I was told by a Japanese newspaperman how the Japanese economists justify the continued wiping out of whale stocks by the whaling industry. I had said that I could not understand why the whaling industry would want to drive itself to extinction. He said "You are thinking of the whaling industry as an organisation that is interested in maintaining whales; actually, the whaling industry is better viewed as a huge quantity of capital attempting to earn the highest possible return. If it can exterminate whales in ten years and make 15 percent profit, but it could only make 10 percent with a sustainable harvest, then it will exterminate in 10 years. After that, the money will be moved to exterminating some other resource" (Ehrlich 1985, p. 63).

This distinction between the two ways in which the sustaining corporation/sustainable business term is used is important to recognise. The confusion in use is often used deliberately in greenwash (we discuss greenwash below) and policy debates. Some care is needed in identifying exactly what is meant when you hear or use terms such as sustainable business or sustaining corporation; ask yourself “so what is it that is really being sustained here?”

The sustaining corporation as described by Dunphy et al is however one that is seen to successfully combine corporate continuity and sustainable world objectives: it contributes positively to a sustainable world whilst sustaining itself in the process. In this course, when we talk of the idea of sustainable business, we are really referring to the idea of the sustaining corporation as we have discussed here. We will use the sustainable business term from hereon.

One other point is worth considering before we move on to talk of sustainable business strategy.

Is it possible for any business to be sustainable in its own right? This is part of a broader question of whether sustainability can only meaningfully be considered at a global level, or whether it does make sense to talk of a sustainable business, a sustainable industry, a sustainable nation, and so on. One way to think about this in the business sector is in relation to a set of ‘rules’ the ecological economist Herman Daly has presented as being necessary to adhere to if society is to live sustainably in ecological terms (for the sake of this exercise, we will not extend this discussion to the social justice dimensions of a sustainable world, although you may want also to think of how these Daly rules might have social justice implications).

Daly (1999) focuses on the base of natural capital: that is, the capital base of natural resources humanity needs to ensure long term wellbeing over an indefinite time frame, such as productive soils, fish stocks, forests, water, biodiversity, carbon cycles, and so on. He then proposes that the following rules need to be adhered to:

• Output rule

(a) Waste outputs must be kept within the natural absorptive capacities of the environment (that is, non-depletion of waste-sink services of natural capital such that wastes do not accumulate in the environment).

• Input rules

(b) Harvest rates of renewable natural resources should not exceed regeneration rates (that is, non-depletion of the source services of natural capital).

(c) For non-renewable natural resources, the rate of use must be paired to the rate of investment in renewable alternatives such that renewable alternatives are readily available once the non-renewable resource is depleted.

The idea here is that if every generation adhered to these rules, then the generations that follow would have a natural resource base that remains intact and able to provide the needed resources for continued wellbeing: like maintaining a level of capital in the bank and living only off the interest – the capital base is not depleted so the interest can keep funding a lifestyle effectively forever.

Can any one business meet the demands implied by these rules? For example, take the output rule. It might be possible for a business to reduce its carbon emissions, or its output of other pollutants to what might seem to be an incidental level and one that is a model for other businesses to follow. But whether the wastes that are still discharged meet Daly’s output rule depends on what every other business is doing: it is the collective result that matters. It is this issue that brings some authors to conclude that the concept of sustainability can only make sense when looked at from a global perspective, as the positive actions by any one person, business, community, or nation can easily be countered by others (Lamming, Faruk & Cousins 1999; Alcott 2008). Further, even apparently small ecological impacts of one firm can, when added to those of all other firms, add up to a collective major and unsustainable impact. This is particularly evident in the small business sector where any one business may see its own ecological impacts as minor and not worthy of attention. When all small business impacts are added however, the impact can be quite significant.

Some authors have put forward the idea of a generalisation principle to help think about whether any one unit of analysis (a business, a household, a community etc) can be seen as sustainable. The generalisation principle proposes that human behaviour at any sub-global societal level is inconsistent with a sustainable world if it is one that cannot be realistically attained by the rest of humankind (WCED 1987; Naess 1988; Daly 1996). The reason this is important for the strategy issues we address in this topic is that, without the broader global picture in mind, actions within any one business to pursue a sustainable business agenda might do little more than give a feeling of achievement that, in the big scheme of things, fails to address the core issues society needs to confront.

A simple example of this problem is the motor vehicle industry. Much is made these days of the drive for more environmentally friendly vehicles (electric, hybrid, bio-fuel, and so on) however, coupled with this attention to vehicle design is a marketing effort by auto firms to sell more cards globally – the China and India markets are often identified as areas for major vehicle sales growth. But we need to ask if an auto firm trying to make its vehicles more environmentally friendly in design will address core sustainability issues if, at the same time, the quest is to increase total vehicle numbers in the global space (and all this entails – more roads, increased sprawl, fragmented natural habitat, and so on). Is a sustainable business approach for an auto firm that focuses on product design really going to see a positive contribution to a sustainable world if, at the same time, the firm’s objective is sales growth to see car ownership as it is experienced in the highly industrialised nations replicated across the globe? Is ownership of a (claimed) ‘environmentally friendly’ car by say, 500 million people generalisable to all people on the Earth? If we answer ‘no’, then we have some serious questions to ask about the merits of a sustainable business strategy within an auto firm, and the industry as a collective, that fails to address this problem of the overall scale of vehicle use.

Sustainable business strategy:

How is the concept of sustainable business embedded into organisational strategy? In this section, we look at this question in terms of the four generic levels of strategy and then turn to a more detailed analysis in topics 7 & 8.

Organisational strategy is generally considered as applying at four levels (Banerjee 2001a, b; Moore 2001):

1. Enterprise strategy: This is the highest strategy level and has to do with a firm’s purpose for existing. Decisions made at this level deal with the role a firm plays in society and the parties for whose benefit the firm exists. Evident at this strategy level are statements of a firm’s vision, mission, and values.
   From a sustainable business perspective, we would expect to see sustainable world principles taking a prominent position in an organisation’s statement of purpose, and as a core element of it values, its vision, its mission, and its core objectives. There is however more to this than simply building sustainability wording into written statements, or displaying sustainability principles on an organisation’s web site. These high level purpose claims need to translate into action, whereby sustainability principles frame an organisation’s culture and are reflected in decision making throughout the other three levels of strategy (Banerjee 2001a; Bonn & Fisher 2011).
   Within an organisation, it is normally the Board of Directors that plays a key role in the formulation of enterprise strategy (Moore 2001), although the implementation is mostly delegated to the CEO. From a sustainable business perspective, this is important to acknowledge as without the needed skills set on the Board to allow the Board to effectively confront and deal with sustainability issues, then it may be challenging to gain traction within the organisation to steer it down the sustainable business path. This role of the Board is important in the discussions on corporate governance we cover in topics 9 & 10.

2. Corporate strategy: This has to do with the business lines a firm should participate in to meet its enterprise strategy goals. Decisions made at this level include: 

• Business portfolio makeup: the businesses the firm should be in, and how it enters and exits those businesses (such as a new start-up, merger, acquisition, alliance etc).
• How diversified the firm should be and how the firm can maximise value from its diversification activities.
• The geographic regions in which a firm operates.
• Financial structure: the firm’s debt-equity mix and how this structure is operationalised.

In looking at the corporate strategy level from a sustainable business perspective, we would expect to see an organisation addressing sustainable business issues in the types of businesses it participates in. Bonn & Fisher (2011) suggest that some of the questions that need to be asked at this strategy level include:

“1. Should we initiate changes to improve the sustainability of existing businesses or should we divest unsustainable businesses?

2. Should we add new sustainable businesses to our portfolio and, if so, should we develop these businesses or acquire them?

3. Should we establish strategic alliances to jointly build innovative businesses that focus on sustainable product and service development?” (pp. 9-10).

3. Business strategy: This is principally concerned with how a business competes in its particular business areas (for a diversified firm, it is concerned with how each business line competes in its market, or for a firm operating in only one market, how it competes in that market space). Decisions made at this level include which specific product lines to offer, market development, product distribution, manufacturing systems design, R&D, staffing, and finance.
   Looking at business strategy from a sustainable business perspective, Bonn & Fisher (2011) suggest that organizations need to focus on their actual products/services to either make them more sustainable, or to develop new products/services that satisfy sustainability criteria. Of particular importance in achieving a more sustainable product/service range are the technologies used in manufacture and delivery, and the design characteristics of the products/services themselves. It is the design and production technology decisions that influence issues such as the types of raw materials that might be used, the pollution and wastes that are produced, the durability of the products themselves, and the capacity to recycle products in an effective way. An important component of this focus on products/services is the use of Life Cycle Analysis (LCA) which looks throughout the entire value chain to address ecological and social wellbeing impacts. LCA starts at the point of original resource extraction of any inputs used in the product/services being offered, and continues through the production, packaging and distribution process, right through to the end-of-life point and recycling. Such an analysis might reveal many opportunities for improvement in sustainability practices, including a change in resource extraction processes to reduce and ultimately eliminate environmental and social harms, the elimination of harmful substances from the product/service design, the use of labour policies that provide fair pay and safe working conditions regardless of where in the value chain those workers are found, and the elimination of waste and pollutant discharge by designing these out of the product/service production and delivery process.

4. Functional strategy: This deals with the maximising of resource productivity to support the achievement of a firm’s higher-level strategies: it delivers the grass roots activity for effective execution of a firm’s business strategy. Decisions made at this level include operational procedures of, and coordination between, different functions such as marketing and research and includes issues such as pricing, promotion, production scheduling, stock control, and staff and labour policies.
   From a sustainable business perspective, we would expect to find sustainability principles embedded in each of the functional activities. Examples of how this might be achieved include:

• Human resources:
  Recruiting: building sustainable business competencies into recruitment criteria to build organisational skill sets and to ensure the value base of employees matches the firm’s sustainable business focus.
  Training: Providing ongoing training for all employees on sustainable business issues.
  Appraisal: Including sustainable business objectives in employee performance appraisal.
  Reward systems: Linking reward systems to criteria that embrace sustainable business objectives as opposed to basing rewards only on financial results. One approach might be to include ecological, social, and financial performance hurdles in reward structures.
• Marketing:
  Marketing initiatives need to support the organisation’s sustainability objectives and honestly promote the organisation’s products and services in ways consistent with the wellbeing+justice sustainable world principles we have discussed above.
• Finance and accounting:
  Finance and accounting systems play an important role in helping managers obtain the needed information to understand the magnitude of the sustainable business issues a firm may be confronting, plus provide data on how the firm is progressing in achieving its goals. Building sustainable business objectives into a firm’s management accounting systems plays a key role in collecting this data and providing the output to management and to other parties including regulators and the general public via a firm’s sustainability report (for more on sustainability reporting, see the Global Reporting Initiate web site at http://www.globalreporting.org/Home)

When talking of sustainable business strategy, one important issue to bring to front-of-mind awareness is that of greenwash and its colleagues deep greenwash and bluewash. The following example might help highlight the issue.
In December 2000, an article was published on the Corp Watch web site (the full article is available at http://www.corpwatch.org/article.php?id=219 ) commenting on the corporate image change of BP (British Petroleum) and the ‘beyond petroleum’ tag BP promotes. The article comments:

“Recently BP, the world's second largest oil company and one of the world's largest corporations, advertised its new identity as a leader in moving the world "Beyond Petroleum." Such leadership would benefit the world's climate and many of its communities immensely, according to British Petroleum. Sound too good to be true? Let's see.

BP says Beyond Petroleum means "being a global leader in producing the cleanest burning fossil fuel: Natural Gas." It's true that natural gas is not petroleum, but is it true that gas is a radical improvement over oil for our climate? In theory, natural gas emits somewhat less carbon dioxide than oil for the same energy produced. But when fugitive emissions, or leaks, are counted, the difference is slim to none. For the climate, natural gas is at best an incremental improvement over oil, and at worst a distraction from the real challenge of moving our societies away from fossil fuels.

That challenge is what is meant by "moving beyond petroleum" when used by environmental groups. Rainforest Action Network, for example, says their Beyond Oil campaign works to "move our societies out of our devastating dependence on fossil fuels and into renewable energy options..." BP's re-branding as the "Beyond Petroleum" company is perhaps the ultimate co-optation of environmentalists' language and message. Even apart from the twisting of language, BP's suggestion that producing more natural gas is somehow akin to global leadership is preposterous. Make that Beyond Preposterous.

BP's claim to be "the largest producer of solar energy in the world" is a little more serious. But being #1 for BP is so easy. It was achieved by spending $45 million to buy the Solarex solar energy corporation. That's a tiny fraction of the $26.5 billion it spent to buy ARCO in order to increase BP's production capacity for...oil. BP will spend $5 billion over five years for oil exploration in Alaska alone. And, according to one group of BP shareholders, BP spent more on their new eco-friendly logo last year than on renewable energy.

When a company spends more on advertising its environmental friendliness than on environmental actions, that's greenwash.”

The point to be made here is that a lot of what you might read and hear that is generated from corporate marketing and PR initiatives about what a firm is doing from a sustainable business perspective may give only part of the overall story about a firm's activities and strategic intent. These messages may instead be either greenwash, deep greenwash or bluewash, which refer to:

• Greenwash: This is the dissemination of misleading information by an organisation to conceal its abuse of the environment in order to present a positive public image. This is a common and well known problem in ‘green’ marketing (Beder 2002; Bruno & Karliner 2002; Parr 2009).
• Deep greenwash: This refers to the PR and lobbying activities of companies to influence the political and regulatory environment to favour corporate interests over those of the community and the environment. This is again a well known problem but one where the lobbying activities that give rise to the resulting public policy initiatives are mostly hidden from view (Bruno & Karliner 2002).
• Bluewash: This focuses on the human side of sustainability and refers to the misuse of the social and human rights legitimacy of the United Nations (UN) by corporations claiming to follow UN conventions, but where the corporations do not in fact adhere to the principles of these declarations. In effect, companies ‘wrap themselves in the UN blue flag’ to give credibility to their human rights pronouncements, without necessarily putting those pronouncements into practice (Bruno & Karliner 2002).

You can get a lot of information about greenwash and alternate perspectives on the otherwise positive images corporations present by simple doing an internet search <greenwash [company name]>. We will look further into these issues as the course progresses.

References

Alcott, B 2008, 'The Sufficiency Strategy: Would Rich-World Frugality Lower Environmental Impact?', Ecological Economics, vol. 64, no. 4, pp. 770-786.

Banerjee, SB 2001a, 'Corporate environmental strategies and actions', Management Decision, vol. 39, no. 1, pp. 36-44.

Banerjee, SB 2001b, 'Managerial Perceptions of Corporate Environmentalism; Interpretations from Industry and Strategic Implications for Organizations', Journal of Management Studies, vol. 38, no. 4, pp. 489-513.

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

Bonn, I & Fisher, J 2011, 'Sustainability: the missing ingredient in strategy', Journal of Business Strategy, vol. 32, no. 1, pp. 5-14.

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

Daly, HE 1996, Beyond Growth: The Economics of Sustainable Development, Beacon Press, Boston.

Daly, HE 1999, Ecological Economics and the Ecology of Economics, Edward Elgar, Cheltenham, UK.

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

Ehrlich, PR 1985, 'Extinctions and Ecosystem Functions: Implications for Humankind', in Animal Extinctions: What Everyone Should Know, ed. RJ Hoage, Smithsonian Institute Press, Washington DC, pp. 59-73.

Lamming, R, Faruk, A & Cousins, P 1999, 'Environmental soundness: a pragmatic alternative to expectations of sustainable development in business strategy.', Business Strategy & the Environment, vol. 8, no. 3, 1999/05, pp. 177-188.

Moore, JI 2001, Writers on Strategy and Strategic Management, Second edn, Penguin Books Ltd, London.

Naess, A 1988, 'Sustainable Development and the Deep Long-Range Ecology Movement', The Trumpeter, vol. 5, no. 4, pp. 138-142.

Parr, A 2009, Hijacking Sustainability, MIT Press, Cambridge, Massachusetts.

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

WCED 1987, Our Common Future: World Commission on Environment and Development, Oxford University Press, Oxford.

Core (required) readings:

Eccles, R. G., & Serafeim, G. 2013. Innovating for a Sustainable Strategy. Harvard Business Review 91(5): 50-60.

Esty, D. C., & Charnovitz, S. 2012. Green Rules to Drive Innovation. Harvard Business Review, 90(3): 120-123.

Hart, S. L. 1997. Beyond greening: strategies for a sustainable world. Harvard Business Review, 75(1): 67-76.

Additional (optional) readings and resources:

Web sites:

These web sites provide various resources on sustainable business issues from a reformist perspective:

• The World Business Council for Sustainable Development:   
• GreenBiz:   

These sites take a more critical look at the corporate sector and provide some alternate narratives on what might otherwise be presented by corporations on their own activities.

• CorpWatch:  
• Crocodyl:  

Introduction:

In topic 6 we considered what it means for a business to be a sustainable business, and how sustainability principles can be incorporated into organisational strategy.

In this topic 7, and also in topic 8, we look at some specific approaches to how businesses pursue sustainability agendas and critique these approaches to consider their merits and weaknesses.

Learning objectives:

1. Understand the different ways in which organisational strategy is conceived.
2. Understand and critique the main features of a compliance approach and an efficiency approach to sustainable business.

Discussion:

Although, as discussed in topic 6, strategy is often seen as applying at four levels in an organisation, what strategy is, and how it plays out in the organisational context, is not so easy to define. In simple terms, strategy is concerned with how an organisation goes about conducting its activities and achieving its goals, but beyond this general claim, the concept has many facets. Mintzberg (2003) for example presents five different ways in which strategy can be conceived;

• As a plan: where some sort of consciously intended course of action is taken to deal with a situation to steer an organisation in a particular direction – this is probably how we most commonly think of strategy.
• As a ploy: where a strategy can be seen as a specific manoeuvre to outwit a competitor (for example, a company threatening to expand production to discourage a competitor – the strategy is to threaten the competitor so they do not take a particular action, not to actually expand production: as such, the manoeuvre is a specific ploy). This contrasts to strategy as a more comprehensive and broader plan.
• As a pattern: which focuses on actual behaviour whether that behaviour was intended (that is, was a deliberate plan) or simply came about from the many decisions and actions that go on within an organisation (that is, is the pattern of behaviour that emerged from day to day activities without any overriding deliberate plan in mind).
• As a position: which has to do with where an organisation positions itself in the market place, through its particular ‘niche’ by way of product or service offerings. This positioning can be achieved through any or all of the plan, ploy and pattern strategy forms where, for example, an organisation may deliberately seek to position itself in a market space that has little direct competition in order to secure above average profits for as long as that niche can be sustained.
• As a perspective: which has to do with an organisation’s culture and way of doing things: it is a shared view within the organisation of what the organisation stands for and the way it goes about its business.

According to Mintzberg all of these different ways of viewing strategy are active within different organisations to various degrees and all play their part in determining how organisations function.

In this topic 7, we use the phases model introduced in topic 6 as a basis for considering the patterns of strategic behaviour that are evident in firms from a sustainable business perspective, regardless of whether these patterns are the result of a specific strategic plan, or have simply emerged in some way through any blend of the strategy forms Mintzberg identifies.

The phases model categorises organisational sustainability strategies into six phases based on both ecological and human wellbeing sustainability objectives as follows:

• Rejection: The rejection strategy displays an exploitative view of society, employees, and Nature. Profit is all that matters. Sustainability pressures are actively rejected.
• Non-responsiveness: This strategy is grounded more in an ignorance of issues concerning sustainability. Community and environmental issues are ignored where possible. Sustainability focused actions are seen as an unnecessary cost.
• Compliance: This strategy focuses on risk reduction from failing to meet minimum standards. Attention is given to sustainability issues that have the greatest litigation risk. Tighter regulations on environmental or social issue are mostly opposed, with any calls for action by business framed within a voluntary self-regulated approach.
• Efficiency: The efficiency strategy displays an increased awareness of sustainability practices. The focus is on efficiency and the resulting cost saving benefits to business.
• Strategic proactivity: For the strategic proactivity strategy, sustainability becomes part of core strategy. The focus is on gaining competitive advantage and long term profitability from sustainability initiatives.
• Sustaining corporation: For this strategy, sustainability values are fully internalised. The firm actively pursues ecological renewal, social equity, and human welfare at the firm, industry, social and political levels. People and Nature are valued for their own sake.

Dunphy et al propose that a firm can be in different strategic phases based on its ecological and human sustainability initiatives and, for both ecological and human issues, any one firm can exhibit characteristics of different strategic phases although one phase is likely to appear as dominant. Further, the strategic phases do not represent a linear progression where a firm might start at rejection and gradually work its way up to be a sustaining corporation. Rather, the strategic phases are seen as distinct positions and firms may move from one position to another (both forwards and backwards) depending on decision made and actions taken within the firm over time.

The first two phases, rejection and non-responsiveness, are not so much ones based on a firm’s sustainable business initiatives: they are instead ways in which a firm is not addressing these issues. We will therefore focus only on the last four strategic phases, compliance, efficiency, strategic proactivity, and the sustaining corporation.

Compliance phase

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

A compliance approach to sustainable business is fundamentally a risk management strategy. The core objective is to minimise a firm’s potential liabilities from any action it might take that impact on the environment or on the wellbeing of its employees or members of the boarder society on whom the firm might impact. Other activities that are unlikely to expose a firm to material risk of action against it are mostly ignored.

What types of risks are of importance here? We can think of risk in two main ways. First is the everyday use which has a somewhat imprecise meaning along the lines of 'something might happen, mostly something bad, but it is an unknown possibility' (say, the risk that your boss will find out that you were at the cricket on your supposed sick day off work). Then there is the more technical use which is based on firmer statistical measurement of the probability that something might happen (say, the risk of respiratory diseases associated with smoking which can be quantified in statistical terms). In the context of a compliance approach to sustainable business, both of these two views of risk are relevant, but the important question for current purposes is risks to whom?

Often, when looking at risk in an organisational setting, we think of risks to the firm: that is, things that may impact on the firm which may cause it some form of harm, mostly by way of reputation or financial loss, or both. But in the sustainable business context, of at least equal and probably of greater importance are risks of harm to others, to human wellbeing and to ecological wellbeing. Sometimes these two harms (that is, harms to the business and harms to other parties: human and non-human) are linked but they also may not be. One of the concerns about business activity which is seen as a major driver of unsustainable practices is the ability of a firm to externalise risks and harms and to limit its own exposure to the consequences of harms it might cause.

Although when thinking of compliance, the first thing that comes to mind is compliance with the law, a broader view of compliance is “doing what you are required or expected to do” (Dunphy, Griffiths & Benn 2003, p. 93), which sees compliance in terms of not only laws but of other areas such as voluntary codes of conduct, and social norms and expectations. A discussion on these three dimensions – regulation, voluntary codes, and social norms – now follows.

Regulation

Regulatory compliance is concerned with obeying the law and limiting the risks of harmful consequences to the firm that might result from breaching the law: fines, imprisonment, loss of licences that might be needed in order to operate (such as a financial services licence, or a liquor licence), or even media exposure of regulatory breach, together with the negative impacts this might have on a firm’s reputation. Although there is a clear need for a firm to comply with regulations in order to progress its sustainable business agenda, regulatory compliance, as it is conceived within this compliance strategy, is quite limited in its effectiveness: it is necessary but not sufficient for a business to be a sustainable business.

One reason for this limited effectiveness is that, for the compliance strategy a firm is said to adopt a general orientation to resist stronger regulation and instead advocate voluntary action to address sustainability issues. However, it is well known from formal academic research that regulation is one of the most, if not the most, important drivers for businesses to change and adopt sustainability strategies. Here’s how one author put it:

"As a bottom line, it is regulation itself …. or the threat of regulation that is the most powerful inducement to industry to negotiate credible environmental partnerships, either with the government of with environmental groups or with both. It is bargaining 'in the shadow of the law' that has achieved the best results”. (Gunningham 2002, p. 10).

This regulatory drive for firms to act in more sustainable ways can come in three main ways:

(a) actual regulations that are put in place:

(b) the threat of regulation (for example, calls for industry controls on the marketing of unhealthy foods with a threat of regulation if this is not done): and

(c) the expectation of regulation or stronger regulation (for example, the expectation of regulation, and increasingly stronger regulation, on carbon emissions).

An alternate view to this call for minimal regulation and voluntary action is proposed by Porter and van der Linde (1995) who, in a controversial article, call for stronger regulation to promote sustainability initiatives (in this case, focused on environmental issues) and to improve the competitiveness for firms, industries, and a nation’s business sector in general. This view of Porter and van der Linde is consistent with how we described the core features of a sustainable business in topic 6, where we referred to the role such a business plays in “promot[ing] positive sustainability policies on the part of governments”.

Another problem with a focus on regulatory compliance (which is to a degree picked up by other compliance issues of voluntary codes and social expectations which are discussed below, although as will be shown, these have their own set of problems) is that regulations are generally reactive: that is, regulations are made based on problems that have occurred, not predictive of problems that may occur:

"It is an unfortunate truth that a major incident is often the best stimulant for policy change, both in government and business. Too often policy is as good as the latest disaster was bad" (Winsemius & Guntram 2002, p. 111).

The final point we will cover here is that it is simply not possible to regulate everything. Ultimately, sustainability is a moral issue, one concerned with issues of justice within and across generations (note the link here with the ethics and justice topics we covered earlier). Rushton (2002) makes this point:

"I am very much of the view that ethics and values are at the foundation of sustainability. Successful global businesses will be those that integrate sustainable development, including social responsibility, into their business strategies. As the Brundtland Commission reported in 1987, ‘human survival and well-being could depend on the success in elevating sustainable development to a global ethic’" (p. 3).

In this sense, compliance with the law can be seen as merely a starting point for progressing sustainability principles within a firm as opposed to being a comprehensive strategy in its own right.

Voluntary codes of conduct

Voluntary codes of conduct are mostly industry based codes to which firms in that industry (or individual practitioners in some cases) agree to be bound. Often these codes require compulsory agreement to adhere to them in order to become a member of an industry association. The codes themselves are however, voluntary in the sense that they are established by the industry not by government regulation.

Voluntary codes of conduct have the potential to be a forceful tool in progressing sustainability principles in the business sector, especially in the light of the discussion we have had so far on the limitations of regulation in achieving this end. Whether these codes can achieve this outcome is of course another question and critics argue that these codes can, instead of advancing sustainability outcomes, thwart them (King & Lenox 2000; Barraclough & Morrow 2008; Landman 2008). There are a number of reasons for this view, some of the main ones being as follows:

(a) Voluntary codes are often used as a mechanism for warding off more stringent government regulation.
In this view, industry is seen to, in effect, put in place a voluntary code, designed by its own members suited to its own purposes, and uses this to demonstrate to government that regulation is not needed as the industry is addressing its own issues through its own internal processes. Further, having a voluntary code in place can give an industry group a seat at the negotiating table when regulations are being developed, providing the opportunity to dilute the impact of any regulations that might eventuate. Here is how one author describes this issue:

“Cigarette companies were among the first to understand the value of voluntary behavior codes in staving off more serious government regulation of their activities. This is as a result of the codes themselves acting as a block to government regulation, or the perceived credibility of industry bodies in having codes gives them a seat at legislative negotiations to help water down the strength of any regulations that might come into force” (Landman 2008).

(b) Voluntary codes can be used mostly as a means to improve the public image of an industry rather than to drive fundamental industry change to improve an industry’s social and ecological performance. Barraclough & Morrow (2008) make this point when commenting on the chemical industry’s ‘Responsible Care’ program, noting:

“internal documents show[ed] the campaign was fundamentally designed to improve its [the chemical industry’s] poor public image (second only to that of the tobacco industry) in order ‘to complement its policy goals of countering stricter regulations’” (p. 1786).

(c) There is a question of who monitors behaviour. The concern is that rather than the industry actively enforcing its code, the only monitoring of industry activity is by the public. Before anything is done by way of code enforcement, a public complaint is needed. This can mean that unless someone outside the industry acts as a watchdog, then violations of codes can continue with no action being taken. This problem is of even greater concern when firms are operating in countries with little public capacity to conduct this type of monitoring. As Landman (2008) notes:

“Few ordinary citizens, though, have the time or knowledge to monitor advertising and behavior for compliance with corporate codes, especially in less developed countries such as Malawi, Mauritius and Nigeria, where BAT [British American Tobacco] violated its own codes”.

(d) Who enforces the code and what penalties apply for breaches? Enforcement is mostly in the hands of the industry itself and critics claim that penalties are either not applied or, if they are, their impact on the violating firm is so minor as to be of little or no incentive to cease code breaches.

(e) By having a code of conduct in place, firms within an industry can use the code as a justification for their behaviour, turning the code into a defence shield claiming that ‘our firm was acting in full accordance with the industry code of conduct’. The point is that as industry codes are developed by industry for industry, it is quite possible that they only cover the issues the industry wants to address, not necessarily the broader set of social and ecological issues that firms in the industry need to confront. The code can then become a justification for not acting in ways consistent with sustainable business objectives, rather than a force driving such actions.

In summary, voluntary codes of conduct have the potential to drive significant progress in how the business sector contributes positively to the achievement of a sustainable world. However, unless issues such as those highlighted above are addressed, they can act as a barrier to progress rather than as a facilitator. We noted in topic 6 that a sustainable business should act to progress broader sustainability outcomes: that is, to “exert influence on the key participants in the industry and in society in general to pursue human welfare, equitable and just social practices and the fulfilment of human potential of all”. Being an advocate for strong and purposeful industry codes is one way in which a firm can influence the industry in which it participates to address sustainability issues.

Social expectations

The risks from social pressure come from the extent to which a firm’s public image – and from that, its reputation, product/service sales, and resulting financial performance – is impaired due to public reaction to behaviours of a firm that do not meet societal expectations. Exposure of a firm’s actions that may fail to meet public expectations can come from many sources: the general public, the press, activists groups, or even a competitor seeking to discredit a firm’s actions in order to gain an advantage in the market place.

Activism by non-government organisations (NGOs) is a particularly potent force on businesses to improve their performance in areas of ecological and human welfare. These NGOs range from well established global groups such as Greenpeace, the World Wildlife Fund (WWF), and Amnesty International, to small groups that focus on issues specific to the local community.

Activism doesn't need to actually be directed at a particular firm: just the threat of it is often enough to force firms to change. In addition, a firm may be targeted by activist groups for its association with another firm that is the primary target. For example, in 2007, Woolworths Australia was criticised for selling toilet paper which it claimed, without adequate grounding, was ‘environmentally, socially, and economically responsible’. A 2007 ABC news article (Alberici 2007), commented that:

“[the] ABC Radio's PM program has found at least two reports, plus an independent audit of the Indonesian company that supplies the pulp to Woolworths, that completely discredit that claim”.

The pulp supplier in question, Asian Pulp & Paper (APP) is cited in the article as having a well documented track record of environmentally damaging practices (clearing of virgin rainforest) and human rights abuses.

A key point here is that, regardless of the legality or otherwise of APP’s actions in the countries in which it operates, pressure placed on Woolworths by various activists groups and the ABC radio and news services resulted in a significant risk to Woolworths’ reputation and a need for it to take action to change its behaviour. Was Woolworths the primary target of the activists groups involved in the case? Partly yes. However, APP has been a long standing target of NGOs such as Greenpeace and the WWF. In this sense, taking action against firms such as Woolworths which have a high sensitivity to adverse public sentiment is an effective way to drive change deeper into the supply chains in which these firms operate.

The other example of social pressure issues we will address here has to do with practices that may be legal or even accepted as social norms in one country (say, a less developed country) but fall far short of what we might expect in our own home country. This is an important topic and one that is becoming increasing relevant as firms deepen their supply chains across the globe, and outsource materials supply, manufacturing, and services to countries far removed from where final goods and services are consumed. Is it right, for example, for a firm to move its manufacturing processes offshore (say, from Australia to a less developed country in Asia of Africa) and, in doing so, take advantage of environmental laws that are less onerous, and of laws governing workers that allow the firm to treat workers by way of pay and employment conditions that would be totally unacceptable here in Australia? There are many arguments surrounding these issues. The point for our current discussion however, is that firms who engage in this type of value chain behaviour face the prospect of having their activities (including those of their value chain participants) publically exposed, with possible negative consequences to the firm. Further, it raises many social justice questions that we touched on earlier in topic 4.

Conclusion

As is evident from the discussion above, a compliance strategy is important for any firm in order for it to progress its sustainable business agenda. This strategy, however, requires no foundation of sustainability issues within the business at any strategy level: it can be implemented as merely a risk control approach that may have little consequence to the bigger sustainability issues the firm, and society in general, needs to confront.  Further, firms that stay focused only on the compliance approach expose themselves to the risk of missing out on important trends and opportunities that more comprehensive sustainable business strategies may offer.

Efficiency phase

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

The basic idea behind the efficiency approach to sustainable business is that, by using resources more efficiently, and by reducing waste and pollutants, both the environment and the firm win: the environment benefits from less resource use and waste discharge, and the firm from a reduction in costs which flow through to improved financial performance.

Efficiency is a strong theme in the sustainable business literature, although discussions of the efficiency approach are mostly centred on ecological issues and we will stay focused on these issues in this current discussion. The main approaches to efficiency as a sustainable business strategy are picked up in the concepts of eco-efficiency and industrial ecology, and these are discussed in the readings for this topic. The Interface case study also provides a good example of how efficiency in resource use is important in providing a means for a firm to reduce its ecological impact and improve its bottom line.

Rather than repeating what is contained in the readings and case study on the benefits of the efficiency approach, our focus in this current discussion will be on considering if efficiency is a credible strategy for business in helping to achieve a sustainable world and if not, what else might be needed.

Efficiency in the context of the efficiency strategy covers two main issues. First is efficiency in the productivity of renewable natural resources: that is, we get more output from the resource base (like getting higher interest on money invested in a bank account). We will call this productivity efficiency (this is also referred to as optimisation efficiency or maximum sustainable yield in resource productivity). Note that we can also talk in terms of efficiency in terms of the efficient extraction of non-renewable resources (such as oil, minerals, coal etc – such as maximising the extraction of the target resource per unit of energy input) but for the purposes of this discussion we will stay focused on renewable natural resources as ultimately it is these resources that determine the sustainability or otherwise of life on Earth.

The second form of efficiency has to do with efficiency in the production and consumption process: a reduction in resource, waste and pollutants as products and services are made, delivered, and consumed. We will call this production efficiency (this is also referred to as technical efficiency). Examples include using less energy per unit of production, reducing waste in the production process by using resource inputs more efficiently, reducing pollutant output, recycling, reducing packaging, and so on.

So, despite the apparent benefits of the efficiency approach and the win-win claims it makes, will it help move society towards a more sustainable world outcome? There are a number of reasons to suggest that, on its own, it may not do so.

Productivity efficiency

The first issue has to do with productivity efficiency. Applying new technologies to increase the productivity of the Earth's natural resource base is an important part of the reformist agenda we spoke of earlier and includes things such as the use of modern industrialised agricultural practices, genetic engineering of plant and animal species, intensive livestock farming, and so on. Debates continue as to whether these technologies as they have developed to date genuinely have increased resource productivity in a way that can be sustained into the longer term. Some claim that this is clearly true while others are far from convinced and propose that this is only apparent if all negative externalities (use of fossil fuels, chemical and fertiliser pollution, long term soil degradation, biodiversity loss, displacement of people from their lands, destruction of cultures, etc.) are excluded from the analysis (for an example of this alternate view, see Shiva (2005)). But beyond this debate is the important issue of ecosystem resilience.

From a sustainability perspective, productivity efficiency must be linked to resilience. Resilience, in this context, is of two kinds: engineering resilience and ecological (or socio-ecological) resilience (Holling 1996; Peterson, Allen & Holling 1998; Walker & Salt 2006) (socio-ecological is the term we will use here for this second form of resilience). Engineering resilience has to do with the ability of a system to bounce back to its pre-disturbance state following some from of disturbance: for example, a personal illness and our ability to overcome it and get back to normal health, or a global financial crisis and the ability of the economic system to return to an upward growth path. Socio-ecological resilience on the other hand has to do with the ability of a system to continue to function despite exposure to disturbance. An example might be the ability of our society to remain cohesive, caring, and peaceful rather than possibly fall into a state of anarchy and violence in the light of the emerging implications of global warming (such as sea level rises, food shortages, and competition for resources). It is the socio-ecological form of resilience that is of key importance for a sustainable world: it has to do with continuing to meet the wellbeing+justice sustainable world criteria regardless of what disturbance and change might occur to ecological and social systems over time. In this sense, the concepts of a sustainable world and socio-ecological resilience are inseparable (Holling 1996; Walker & Salt 2006).

The key point here is that in the sustainable world context, an approach that seeks to maximise natural resource productivity to underpin continued economic growth as a means of achieving human wellbeing (as is the agenda of the reformist sustainable world approach) undermines the resilience of the very system on which it depends. This occurs for many reasons including (Meadows, Randers & Meadows 2004; Walker & Salt 2006):

(a) the removal of spare capacity as all natural resources are pulled into the field of production maximisation:

(b) the imposition of change at a faster rate than ecosystem feedback mechanisms can provide information concerning the consequences of this change: and

(c) in general, pushing ecosystems close to or beyond tipping points without society necessarily even knowing this may be happening and with, more often than not, very undesirable consequences.

Production efficiency

The second issue we will cover here is the claimed win-win that can come from more efficient use of resource inputs in the production process. If we assume a win for the firm, is there really a corresponding win for the environment and for a sustainable world?

Efficiency gains have long been recognised as a key means by which firms improve productivity, reduce costs, and increase wealth (Gould, Pellow & Schnaiberg 2008). In fact, this is why efficiency gains are so greatly prized by business. It has also been known for a long time that production based gains in resource efficiency lead to an increase in output and resulting consumption that can negate some or all of the resource use gains (rebound), or result in greater overall resource use (backfire) (Polimeni et al. 2009). Termed the Jevons paradox after the economist William Stanley Jevons, the extent of rebound or backfire in respect of gains in resource use efficiency varies from case to case however it is a well understood and recognised phenomenon (Polimeni et al. 2009). A quick thought experiment can help understand how this works.

Assume for a moment that you run a large manufacturing business. You hire an efficiency expert who shows that you can reduce your resource use per unit of production by 10% within 12 months resulting in a net improvement to your firm's bottom line profit of $1m per year. You enthusiastically put the plan into action and the following year, the $1m shows on the bottom line results. So what happens to the $1m? Well, it could stay in the firm as retained profits and be applied to ramping-up production and marketing efforts, possibly coupled with a cost reduction to consumers, with a result of higher overall sales. In this case efficiency gains are spent through increased sales and consumption. You could instead distribute the $1m to shareholders as an increased dividend but what would they do with the extra money? Most likely, they would spend it on some form of consumption. Maybe you decide to apply the $1m to paying your employees more. So what would they do with the money? Probably spend it just as the shareholders might. The point is that somehow, at some point in the economic system, increased efficiency of resource use that also creates increased wealth – a feature of the win-win argument – ultimately finds its way into increased consumption that negates to varying degrees the resource use gains that at first seemed to have been created. These consumption increases may be: (a) direct, where a firm increases sales based on the efficiency gains it has received: or (b) indirect, as the increased wealth the efficiency gains delivered filters its way through the economy via increased dividends, through increased wages, or through increased tax revenues and resulting government expenditures.

The other problem with the production efficiency approach to sustainable business that we will discuss here is that, initially, firms quite often find easy gains: ‘picking the low hanging fruit’, as it is often termed. After this, improvements in efficiency and achievement of a win-win become increasingly harder and the costs of efficiency improvements become increasing higher per unit of progress. This poses some substantial challenges for industry in making needed improvements in resource use and waste reduction/elimination, especially if coupled with a general opposition to regulation and reliance on voluntary initiatives as we discussed in the compliance section (above).

Conclusion

Baumgartner (2009) suggests that, in order for the efficiency strategy to be effective, it needs to find a base in a firm’s values and be part of corporate philosophy. In this respect, some commitment to sustainability principles would be expected to be found in enterprise strategy statements (especially in the firm’s statement of core values).

The efficiency strategy is, however, fundamentally an internal process strategy: it is one where the firm focuses its sustainability efforts on innovative processes, technology, and monitoring and reporting systems (these reside in the business and functional strategy levels) to maximise efficiency gains with a resulting improvement in the firm’s bottom line (Baumgartner, R, J. & Ebner 2010). As such it is, on its own, a strategy that does not address the broader set of issues that businesses need to confront in order for them to become sustainable businesses.

Despite the criticisms that have been made in our discussion of the efficiency strategy, using resources efficiently – especially in the production, distribution, and consumption process – is clearly important and is something that all businesses need to aggressively pursue if we are to transition to a sustainable world. The problem is that unless this is coupled with a means to prevent efficiency gains being spent on more resource-consuming production and consumption that negates the gains achieved, then we may be deluding ourselves into thinking that progress is being made.

References

Alberici, E 2007, Woolworths busted over 'environmental' toilet paper, ABC on-line news at http://www.abc.net.au/news/stories/2007/08/23/2013650.htm

Barraclough, S & Morrow, M 2008, 'A grim contradiction: The practice and consequences of corporate social responsibility by British American Tobacco in Malaysia', Social Science & Medicine, vol. 66, pp. 1784-1796.

Baumgartner, R, J. & Ebner, D 2010, 'Corporate Sustainability Strategies: Sustainability Profiles and Maturity Levels', Sustainable Development, vol. 18, pp. 76-89.

Baumgartner, RJ 2009, 'Organizational Culture and Leadership: Preconditions for the Development of a Sustainable Corporation', Sustainable Development vol. 17, pp. 102-113.

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.

Gunningham, NA 2002, Green Alliances: Conflict or Cooperation in Environmental Policy. , Working Paper Series. Australian Centre for Environmental Law, Australian National University, Canberra.

Holling, CS 1996, 'Engineering Resilience versus Ecological Resilience', in Engineering Within Ecological Constraints, ed. PC Schulze, National Academy Press, Washington, D.C., pp. 31-44.

King, AA & Lenox, MJ 2000, 'Industry Self-Regulation without Sanctions: The Chemical Industry's Responsible Care Program ', The Academy of Management Journal, vol. 43, no. 4, pp. 698-716.

Landman, A 2008, Absolving Your Sins and CYA: Corporations Embrace Voluntary Codes Of Conduct, Corpwatch, URL: http://www.corpwatch.org/article.php?id=15165.

Meadows, DH, Randers, J & Meadows, D 2004, Limits to Growth: The 30-Year Update, Chelsea Green Publishing Company, White River Junction.

Mintzberg, H 2003, 'Strategies', in The Strategy Process, eds. H Mintzberg, J Lampel, JB Quinn & S Ghoshal, Prentice Hall, New Jersey, pp. 2-9.

Peterson, G, Allen, CR & Holling, CS 1998, 'Ecological Resilience, Biodiversity, and Scale', Ecosystems, vol. 1, pp. 6-18.

Polimeni, JM, Mayumi, K, Giampietro, M & Alcott, B 2009, The Myth of Resource Efficiency, Earthscan, London.

Porter, ME & van der Linde, C 1995, 'Toward a New Conception of the Environment-Competitiveness Relationship.', Journal of Economic Perspectives, vol. 9, no. 4, 1995/Fall, pp. 97-118.

Rushton, K 2002, 'Business Ethics - A Sustainable Approach', Business Ethics: A European Review, vol. 11, no. 2, pp. 137-139.

Shiva, V 2005, Earth Democracy, South End Press, Cambridge, Massachusetts.

Walker, B & Salt, D 2006, Resilience Thinking: Sustaining Ecosystems and People in a Changing World, Island Press, Washington DC.

Winsemius, P & Guntram, U 2002, A Thousand Shades of Green: Sustainable Strategies for Competitive Advantage, Earthscan Publications, London.

Core (required) readings:

Sandhu, S., Smallman, C., Ozanne, L. K., & Cullen, R. 2012. Corporate environmental responsiveness in India: Lessons from a developing country. Journal of Cleaner Production, 35: 203-213.

Linnenluecke, M. K., Birt, J., Lyon, J., & Sidhu, B. K. 2015. Planetary Boundaries: Implications for Asset Impairment. Accounting and Finance, 55: 911-929.

Paquin, R. L., Busch, T., & Tilleman, S. G.2015. Creating Economic And Environmental Value through Industrial Symbiosis. Long Range Planning, 48: 95-107.

Additional (optional) readings and resources:

• Eco-efficiency:
  Here are some "quick and easy" guides to making eco-efficiency improvements in organisations
  There is an argument that, by finding small quick eco-efficiency wins, momentum can be gained in changing organisational mindset and committment to tackle the sustainable business agenda in more substantive ways - sometimes it just needs something to kick start it. 
  These ideas might help do that and, in a lot of cases, can be undertaken 'on-the-ground' as part of normal organisational activities.
  EcoBiz Qld - for offices  
  Eco-Biz Qld - for retail   
  Go green @ work   
  
  
  

Gibbs & Deutz 2007 'Reflections on implementing industrial ecology through eco-industrial park development', Journal of Cleaner Production, vol. 15, pp. 1683-1695.
This article discusses the concept of eco-industrial parks and gives a general overview of what these are and how the concept is developing in practice. Note the link to the efficiency issues we have discussed above and how eco-industrial parks seek to expand this concept of efficiency beyond the confines of any one firm to instead involve multiple firms.

Landman, A 2008, Absolving Your Sins and CYA: Corporations Embrace Voluntary Codes Of Conduct, Corpwatch,
This is the full article that is referenced in the discussion below on voluntary codes of conduct.

Hart, SL 2007, Capitalism at the Crossroads, 2nd edn, Pearson Education, New Jersey.
This book by Hart picks up on the models in the Hart & Milstein article and walks though various strategies firms might undertake that, in Hart’s view, will help advance the sustainable business agenda.

Media item Putting people at the heart of climate-friendly buildings   

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.

Core (required) readings:

Winston, A. 2014. Resilience in a Hotter World. Harvard Business Review, 92(4): 56-64.

Nidumolu, R., Ellison, J., Whalen, J., & Billman, E. 2014. The Collaboration Imperative. Harvard Business Review,92(4): 76-84.

Lowitt, E. 2014. How to Survive Climate Change and Still Run a Thriving Business. Harvard Business Review, 92(4): 86-94.

Wright, C., Nyberg, D., & Grant, D. 2012. “Hippies on the third floor”: Climate change, narrative identity and the micro-politics of corporate environmentalism. Organisation Studies, 33(11): 1451-1475. 

Additional (optional) readings and resources:

Esty, DC & Winston, AS 2009, Green to Gold, John Wiley & Sons Inc, Hoboken, New Jersey.

Lubin & Esty 2010 'The Sustainability Imperative', Harvard Business Review, May 2010, pp. 43-50.

Nidumolu, Prahalad & Rangaswami 2009 'Why Sustainability is Now the Key Driver of Innovation', Harvard Business Review, September 2009.

We now come to the last two topics of the course – dealing with governance.

Over two topic areas it is difficult to cover governance in a thorough way but then again, we don’t really set out to do that.

The main objective here is to explore how governance is linked to the ideas we have looked at in the previous topics.

So with the governance part of this course, we are really looking at governance along the lines of the OECD definition of “Corporate governance involves a set of relationships between a company’s management, its board, its shareholders and other stakeholders. Corporate governance also provides the structure through which the objectives of the company are set, and the means of attaining those objectives and monitoring performance are determined."

To do this, we are really concerned with 5 key things the 5 key things at the organisational level:

(1) If the organisation has a clear understanding of its purpose for existing, the parties it serves, and what it means to fulfil the interest of those parties. This mostly sits at the Enterprise level of strategy.

(2) If the organisation has a clear ethical and values framework around which it seeks to achieve its purpose and meet the interests of those whose interests it serves. This again sits at the Enterprise level by way of setting this ethical and values framework.

(3) If the organisation has a coherent strategy for fulfilling its purpose. This aspect is covered in detail in the MBA Strategy course although we certainly delve into this in the EGS course when we look at things like the Phases model, and discuss how an organisation might strategically position itself in the market by way of its reputation and/or sustainable business initiatives.

(4) If the organisation has an effective means for embedding the 3 items above in its operations and culture. The “How to build and ethical organisation” and the “Governance” worksheets both have items on them that look into this aspect, and both offer ways this embedding can be furthered.

(5) If the organisation has proper control and monitoring mechanism in place to identify if the 4 items above are being achieved, including control processes to identify wrong doing.

So when looking at governance in this way, what we cover in the EGS course can be applied to any organisation, even down to small family firms.

In short, topic 9 proposes that dealing with shareholder or broader stakeholder interests, ensuring an organisation operates ethically and treats people justly, and that a business becomes a ‘sustainable business’ in the sense of it contributing positively to a sustainable world, all hinges on good governance: without appropriate governance structures in place, then these other outcomes simply won’t come to pass other than by accident or pure luck.

This gives a much broader view of what governance covers in that it goes well beyond a historic focus on financial issues.

So when working through the topic 9 material, try and think about this broader view of governance and in particular, what it might mean in your own work setting.

In topic 10, we pick up on 3 corporate governance themes: governance for small and medium size businesses, for non-government organisations such as charities and activist groups, and the issue of board composition, in particular, gender.

The first two issues – SMEs and NGOs is done as a number of our MBA students come from these sectors and, even if you are not working in these areas, you are likely to encounter them in your professional lives regardless.

For example, it’s not unusual for larger firms to interact with NGOs by way of partnership or through charitable foundations so understanding governance issues in the NGO sector can be quite important here.

The subject of Board composition and gender has been included as it remains a highly topical issue in business and will likely do for some time.

The reading on this subject is also interesting in that it suggests a greater representation of females on Boards can help a firm better address issues we cover in earlier topics.

Introduction:

In topics 1 to 8, we have discussed the nature of the firm, its purpose for existence, ethics and justice, and sustainable business. If organisations have various obligations and behavioural expectations, who is ultimately responsible for ensuring these obligations and expectations are met, how should these parties go about their role, and what systems and processes need to be in place to see the desired outcomes achieved?

This is where the subject matter of topics 9 & 10 – corporate governance – comes in.

In topic 9, we overview what corporate governance is, how it links to the issues we have covered in the course so far, and also take a brief look at governance models in different parts of the world.

In topic 10 we look at some of the many aspects of the corporate governance topic, namely governance for SMEs, in the NGO sector, and the gender makeup of Boards with a focus on the presence of women on Boards.

Learning objectives:

1. Understand the general concept of corporate governance and its linkages to the issues covered in topics 1 to 8 of this course.
2. Gain a general understanding of governance models in different parts of the world.

Discussion:

What is corporate governance?

What is corporate governance? Here are a few ways in which this concept is described:

“The definition of corporate governance most widely used is "the system by which companies are directed and controlled" (Cadbury Committee, 1992). More specifically it is the framework by which the various stakeholder interests are balanced, or, as the IFC states, "the relationships among the management, Board of Directors, controlling shareholders, minority shareholders and other stakeholders"” (source: http://www.applied-corporate-governance.com/definition-of-corporate-governance.html).

"Corporate governance involves a set of relationships between a company’s management, its board, its shareholders and other stakeholders. Corporate governance also provides the structure through which the objectives of the company are set, and the means of attaining those objectives and monitoring performance are determined." (source: http://www.oecd.org/dataoecd/32/18/31557724.pdf).

“[Corporate governance is] the framework of rules and practices by which a board of directors ensures accountability, fairness, and transparency in a company's relationship with its all stakeholders (financiers, customers, management, employees, government, and the community). The corporate governance framework consists of (1) explicit and implicit contracts between the company and the stakeholders for distribution of responsibilities, rights, and rewards, (2) procedures for reconciling the sometimes conflicting interests of stakeholders in accordance with their duties, privileges, and roles, and (3) procedures for proper supervision, control, and information-flows to serve as a system of checks-and-balances.” (source: http://www.businessdictionary.com/definition/corporate-governance.html).

We can see from this, that corporate governance is a broad concept, based on the idea that certain parties (in the corporate setting, the Board of Directors) have a role in ensuring the organisation’s purpose, duties, and responsibilities are fulfilled. In addition, it has to do with the systems and processes in place that see this come about. Governance is more than simply a ‘where the buck stops’ discussion – it is an active process including duties, responsibilities, supervision, control, information flow, systems, and process.

The corporate governance term is also one that extends beyond the publically listed corporation to also include other organisational forms – privately held firms, charities, NGOs, clubs and associations….any organisation really.

Jamali, Safieddine & Rabbath (2008) propose that corporate governance can be seen in narrow and broad terms as to what it has to do with. The narrow view considers governance as dealing mostly (or only) as “an enforced system of laws and of financial accounting, where socio-environmental considerations are accorded a low priority” (p. 444). A broader view on the other hand, sees governance as addressing a “business’ responsibilities toward the different stakeholders that provide it with the necessary resources for its survival, competitiveness, and success” (p. 444).

Jamali et al go on to summarise good corporate governance as:

“ revolve[ing] around a set of universal attributes, including ensuring accountability to shareholders and other stakeholders…, creating mechanisms to control managerial behaviour…, ensuring that companies are run according to the laws and answerable to all stakeholders…, ensuring that reporting systems are structured in such a way that good governance is facilitated…, crafting an effective leadership/strategic management process that incorporates stakeholder value as well as shareholder value…, and enhancing accountability and corporate performance…. Leadership, direction, control, transparency, and accountability attributes thus lie at the heart of sound and effective CG” (p. 445).

Ethics, governance and sustainability

From the discussion so far, the linkages between the topic content we have covered so far in this course, and the topic of corporate governance, begin to unfold. Note for example the narrow and broad views of governance proposed by Jamali et al and how these link to the shareholder vs stakeholder approaches. The ‘good governance’ statement by these authors also opens the door to how the broader set of business ethics and sustainable business issues we have discussed fit in the ambit of good corporate governance.

Elkington (2006), proposes that the corporate governance agenda is progressively overlapping with the CSR and wider sustainable business agendas. For Elkington, the driver for this overlap is that, in his view, corporate governance is fundamentally about issues of what the purpose of a business is and in whose interests it should be run (back to the shareholder/stakeholder question plus the questions that enterprise strategy is concerned with). For Elkington, question of ethical behaviour of business (including ethical issues that flow through entire value chains), bribery and corruption, climate change, and sustainability are all finding there way to corporate boardrooms and are just as much a part of the governance agenda as are issues of financial integrity and control.

Governance in the global setting

So far we have spoken of the meaning of corporate governance and the purpose it serves. We have also proposed that, within organisations, there are parties who are ultimately responsible for ensuring the organisation’s purpose, duties, and responsibilities are fulfilled: these are the parties on whose shoulders corporate governance responsibilities ultimately fall.

Governance structures do, however, differ from country to country. In some countries, the approach followed in the corporate sector is a unitary Board of Directors where a number (sometimes the majority) of Directors are independent, a regulatory body is established to oversee many key corporate activities (in Australia, this is the Australian Securities and Investments Commission (ASIC): in the US, the Securities and Exchange Commission (SEC)), and certain obligations imposed on corporate behaviour through the stock exchange(s) on which their shares are listed. This model can be found in countries like Australia, the US, and the UK although there are differences within these countries when getting into the detail of how Boards are generally comprised and how laws impacting on the corporate sector are constructed (Tricker 2009).

In Japan, the keiretsu business model has a significant influence on governance structures, The classical keiretsu model sees Boards of Directors being quite large and in effect form the top layer of management with people often talking of seeking to be “promoted to the Board”. In this setting, independent and non-executive directors would be unusual. Although the classical keiretsu model is becoming less influential, it still remains prominent in Japanese business (Tricker 2009).

In China, where central government still plays a substantial role in corporate ownership and governance control, governance structures have developed to reflect this role of the State. In China, the current standard governance structure is one of a Management Board of Directors (with some independent outside Directors) and a Board of Supervisors (which includes both employee and employer members). Under this model, the power of the Supervisory Board is somewhat soft and tends to act more through influence than command (Tricker 2009). 

The important point to take from this very brief overview of how governance structures may vary across nations is that, when engaging in business in the international setting, these different structures will be encountered and will need to be confronted in how business dealings are conducted. In short, if you are doing business in another country, learn the governance structures of that country before stepping out!

References

Elkington, J 2006, 'Governance for Sustainability', Corporate Governance, vol. 14, no. 6, pp. 522-529.

Jamali, D, Safieddine, AM & Rabbath, M 2008, 'Corporate Governance and Corporate Social Responsibility Synergies and Interrelationships', Corporate Governance, vol. 16, no. 5, pp. 443-459.

Tricker, B 2009, 'Models of Corporate Governance', in Corporate Governance - Principles, Policies, and Practices, Oxford University Press, Oxford, pp. 181-216.

Core (required) readings:

Jamali, Safieddine & Rabbath 2008 'Corporate Governance and Corporate Social Responsibility Synergies and Interrelationships', Corporate Governance, vol. 16, no. 5, pp. 443-459.

Tricker 2009 'Models of Corporate Governance', in Corporate Governance - Principles, Policies, and Practices, Oxford University Press, Oxford, pp. 181-216.

Ponzen, R. C. 2010. The Case for Professional Boards. Harvard Business Review, 88(12): 50-58.

Additional (optional) readings and resources:

Elkington 2006 'Governance for Sustainability', Corporate Governance, vol. 14, no. 6, pp. 522-529.

• Videos: Look at these short videos on how a large investment fund in the USA approaches governance issues of the firms it invests in:
  Video 1: (2 min 37 sec): Why Corporate Governance Matters: Governance, Trust and Integrity 
  
  Video 2: (2 min 40 sec): Why Corporate Governance Matters: Sustainability and Risk Management  

Introduction:

In topic 9, we overviewed what corporate governance is, how it links to the issues we have covered in this course, and also looked at governance models in different parts of the world.

It is not possible in two weeks of topic content for this EGS course to explore the many facets of corporate governance. In this topic 10 however, we look at some specific areas of the corporate governance topic, namely governance for SMEs, in the NGO sector, and the gender makeup of Boards with a focus on the presence of women on Boards. Hopefully working through the readings and the case study for this topic 10 will provide some additional insights to help you in your own professional career in dealing with the many governance issues you will face.

Learning objectives:

1. Appreciate some of the governance issues that are particular to the SME and NGO organisational forms.
2. Appreciate some of the issues surrounding the gender makeup of Boards, in particular, the presence of women on Boards.

Discussion:

Although there is ample literature on issues of corporate governance, much (as does much of the management literature) focuses on larger corporations. In this topic, we try and open the door on some other perspectives of governance. This is only a small window view into the many aspects we could look at but the readings will hopefully offer many valuable insights that can provide a broader set of skills to deal with the governance issues you will face in your professional careers.

Here we briefly look at:

• governance for SMEs
• governance in the NGO sector
• the gender makeup of Boards with a focus on the presence of women on Boards.

Governance and SME’s

When dealing with SME’s and governance, one of the challenges is to consider the different firm structures that might exist in the SME space and how governance structures might need to vary to accommodate these structures. A simple example is the difference between, say:

• Privately own firms where shares are held by a close group of family members although even in this setting it is not unusual for there to be minority shareholders across different family units (say, where two friends set up a company and over time, spouses, children, partners of grown children, and so own end up holding shares).
• Public unlisted companies where shareholdings can spread over parties whose only connection is their business interests (say, a group of financial planning firms owning a business that provides services to all of the firms in question).
• A public company listed on a stock exchange.

An example of one approach to addressing the SME sector for SMEs listed on a stock exchange is the discussed by Clarke & Klettner (2009) in respect to the Australian Stock Exchange’s Corporate Governance Principles and Recommendations. These recommendations (shown below) apply to all companies listed on the ASX and work on a ‘comply or explain’ basis – if a company has not adopted a particular recommendation, it must explain why. This gives SME’s listed on the ASX the flexibility to comply or not comply, however noncompliance must be justified in some way.

The ASX web site has a section on corporate governance: here is the link: http://www.asx.com.au/governance/corporate-governance.htm
The principles set out in that report are as follows:

“Principle 1 – Lay solid foundations for management and oversight Companies should establish and disclose the respective roles and responsibilities of board and management.

• Recommendation 1.1: Companies should establish the functions reserved to the board and those delegated to senior executives and disclose those functions.
• Recommendation 1.2: Companies should disclose the process for evaluating the performance of senior executives.
• Recommendation 1.3: Companies should provide the information indicated in the Guide to reporting on Principle 1.

Principle 2 – Structure the board to add value: Companies should have a board of an effective composition, size and commitment to adequately discharge its responsibilities and duties.

• Recommendation 2.1: A majority of the board should be independent directors.
• Recommendation 2.2: The chair should be an independent director.
• Recommendation 2.3: The roles of chair and chief executive officer should not be exercised by the same individual.
• Recommendation 2.4: The board should establish a nomination committee.
• Recommendation 2.5: Companies should disclose the process for evaluating the performance of the board, its committees and individual directors.
• Recommendation 2.6: Companies should provide the information indicated in the Guide to reporting on Principle 2.

Principle 3 – Promote ethical and responsible decision-making: Companies should actively promote ethical and responsible decision-making.

• Recommendation 3.1: Companies should establish a code of conduct and disclose the code or a summary of the code as to:

the practices necessary to maintain confidence in the company’s integrity

the practices necessary to take into account their legal obligations and the reasonable expectations of their stakeholders

the responsibility and accountability of individuals for reporting and investigating reports of unethical practices.

• Recommendation 3.2: Companies should establish a policy concerning trading in company securities by directors, senior executives and employees, and disclose the policy or a summary of that policy.
• Recommendation 3.3: Companies should provide the information indicated in the Guide to reporting on Principle 3.

Principle 4 – Safeguard integrity in financial reporting: Companies should have a structure to independently verify and safeguard the integrity of their financial reporting.

• Recommendation 4.1: The board should establish an audit committee.
• Recommendation 4.2: The audit committee should be structured so that it:

consists only of non-executive directors

consists of a majority of independent directors

is chaired by an independent chair, who is not chair of the board

has at least three members.

• Recommendation 4.3: The audit committee should have a formal charter.
• Recommendation 4.4: Companies should provide the information indicated in the Guide to reporting on Principle 4.

Principle 5 – Make timely and balanced disclosure: Companies should promote timely and balanced disclosure of all material matters concerning the company.

• Recommendation 5.1: Companies should establish written policies designed to ensure compliance with ASX Listing Rule disclosure requirements and to ensure accountability at a senior executive level for that compliance and disclose those policies or a summary of those policies.
• Recommendation 5.2: Companies should provide the information indicated in the Guide to reporting on Principle 5.

Principle 6 – Respect the rights of shareholders: Companies should respect the rights of shareholders and facilitate the effective exercise of those rights.

• Recommendation 6.1: Companies should design a communications policy for promoting effective communication with shareholders and encouraging their participation at general meetings and disclose their policy or a summary of that policy.
• Recommendation 6.2: Companies should provide the information indicated in the Guide to reporting on Principle 6.

Principle 7 – Recognise and manage risk: Companies should establish a sound system of risk oversight and management and internal control.

• Recommendation 7.1: Companies should establish policies for the oversight and management of material business risks and disclose a summary of those policies.
• Recommendation 7.2: The board should require management to design and implement the risk management and internal control system to manage the company’s material business risks and report to it on whether those risks are being managed effectively. The board should disclose that management has reported to it as to the effectiveness of the company’s management of its material business risks.
• Recommendation 7.3: The board should disclose whether it has received assurance from the chief executive officer (or equivalent) and the chief financial officer (or equivalent) that the declaration provided in accordance with section 295A of the Corporations Act is founded on a sound system of risk management and internal control and that the system is operating effectively in all material respects in relation to financial reporting risks.
• Recommendation 7.4: Companies should provide the information indicated in the Guide to reporting on Principle 7.

Principle 8 – Remunerate fairly and responsibly Companies should ensure that the level and composition of remuneration is sufficient and reasonable and that its relationship to performance is clear.

• Recommendation 8.1: The board should establish a remuneration committee.
• Recommendation 8.2: Companies should clearly distinguish the structure of non-executive directors’ remuneration from that of executive directors and senior executives.
• Recommendation 8.3: Companies should provide the information indicated in the Guide to reporting on Principle 8.”

Clarke & Klettner noted from their research that the benefit to SMEs in adopting formal governance structures was the enforcement on Directors of some discipline rather than Directors simply “doing things their own way” with most of the firms participating in the research saying that the imposition of good governance structures leading “to a much higher level of professionalism and better decision making processes”.

Governance and NGOs

One problem in considering governance issues in the non-government organisation (NGO) sector is that this sector comprises many different organisations, established for different purposes, and funded in different ways. Weidenbaum (2008) discusses four types of NGOs that sit on a broader continuum:

• Scientific and professional organisations that focus on issues impacting on their respective professional and scientific areas (professional bodies in say, accounting, economics, and engineering fall into this category).
• Organisations that represent religious, consumer, and other such groups that advocate certain causes and take a position on those causes based on humanitarian or ethical grounds (organisations such as World Vision and the Red Cross fall into this category).
• Organisations that act as ‘think tanks’ and seek to develop ideas that impact on public policy (in Australia, organisations such as the Australia Institute and the Institute of Public Affairs fall into this category).
• Special interest and activist groups that tend to focus on shortcoming in the political and business space, or who seek to address what they see as injustices in the ecological and/or social space (organisations such as Greenpeace, Friends of The Earth, and Free The Slaves fit into this space).

Jepson (2005), in considering the governance issues for NGOs, suggests that

“Governance is about vision, oversight, process, independence and accountability and not the day-to-day running of operations. A key purpose of governance is to ensure that an organisation’s assets are managed and developed in a manner that will maximise delivery on its mission. The key asset of ENGOs [environmental NGOs], and indeed the ‘third sector’ in general, is public trust”. (p. 518)

In this sense, it is hard to argue against any NGO needing to have structures in palace that meet Jepson’s governance objectives.

Things get a little more challenging however as we move increasingly towards the activist form of NGOs and consider the extent to which governance structures, along the lines we might find in the corporate sector, should be imposed (say, by regulation) or adopted by these types of NGOs.

Jepson lists a number of pressures that are driving changes in governance structures in the ENGO space, including:

• Larger ENGOs are increasingly engaging with, and receiving funding from, the corporate sector and this sector is expecting the ENGOs to meet similar governance standards to their own.
• Critical literature on NGOs and governance that suggests good governance is beneficial for NGO growth, stability, and impact.
• Donors (especially larger foundations) are wanting evidence from the NGOs they support on how money is being spent and the extent to which objectives are being met.
• An unease within the field of NGO’s constituencies on the increasing role of managers recruited from outside the movement, and whether NGOs who are following this path of managerial makeup are remaining true to an organisation’s traditional ideology, values and goals.
• Pressure in the media and public space from questions raised about how some NGOs may not be operating under protocols that meet any reasonable expectations of good financial management.

Against these pressures for improvements in governance, Jepson lists 5 concerns within the NGO sector on the possible implications of imposing increasingly demanding governance processes on NGOs, namely:

• The increased costs and resource implications NGOs will face that distract from their core purpose.
• Governments may take quick ‘one size fits all’ responses that fail to take into account the issues that span across the full scope of NGO forms.
• Bringing governance discussions to the public forefront may expose (real or otherwise, and material or otherwise) weaknesses in NGO governance processes that may be seized on by organisations and groups that are the focus of NGO activism, as a means to try and curb the influence these NGOs have.
• Admitting weaknesses may jeopardise donor funding (the concern being that the weaknesses may not be a cause for ceasing funding by a donor – the concern is that the funding market is highly competitive and apparent weaknesses may be taken by donors as more problematic that they are, with significant implications to an NGO if funding is lost).
• The governance issues for NGOs are somewhat fuzzy and how this can be addressed in ways that are meaningful to NGOs and their supporters/constituencies is not as yet well addressed.

These concerns are not necessarily reasons to resist change and improvements in NGO governance structures. Jepson’s arguments are more ones of needing to proceed with caution and not simply impose change for change sake, or assume that governance structures developed in the corporate sector are suited to application in the NGO sector.

The gender makeup of Boards

The final issue we will discuss here (but far from the last of the many issues corporate governance presents) has to do with the gender makeup of Boards.

There is no doubt that women are, as a general rule, under-represented on corporate Boards (as is the case for senior management positions in the corporate sector).

There are many challenges to confront when thinking about the gender makeup on Boards, some being:

• Does it matter that males tend to dominate and if so, why?
• Should society seek to see a better balance of gender on Boards and if so, how can this be achieved?

To the first question, answers can follow a number of paths. For example, does it matter as a simple issue of fairness and justice in society? Is it right that our society is, in many ways, male dominated (think of the corporate sector, politics, pay rates etc) and in this sense the Board room is one of many areas where this domination should be overcome? Alternately, is it a case that women have certain attributes that improve Board functioning and decision making? Terjesen, Sealy & Singh (2009) for example note that Boards with women members tend to behave differently to all-male Boards, including having:

• An increased tendency to measure and monitor the implementation of strategy
• Higher levels of Board accountability
• More effective communication between the Board and shareholders
• A significantly increased focus on promoting non-financial measures (such as customer satisfaction, employee satisfaction, innovation, and CSR).

The answer to the second question is very challenging as the causes of underrepresentation on Boards by women are deeply rooted in how society functions and how roles for males and females in society are constructed. One approach driving change is through ‘positive discrimination’ where some form of obligation (say, government regulation) is placed on organisations to have a minimum number of females on their Boards.

Positive discrimination has the benefit of forcing change, and in situations where the drivers of discrimination in society are institutionalised and long standing, it can provide a means of progressively overcoming these problems. This approach has its critics. One criticism is that positive discrimination focuses on symptoms of a problem not the underlying causes. Supporters would argue however that positive discrimination can, given time, act as a force for change at the underlying cause level. Another criticism of positive discrimination is that cuts across principles of equality and merit. Under this argument, decisions on Board composition are not being made solely on merit, as some positions must be filled by women even if men are better qualified. A counter argument is that there may not in fact be a difficulty in finding well qualified and suitable women to fill Board rolls – the problem is that women tend to be overlooked through institutional gender bias, not lack of competency.

One final point to mention before finishing up. Terjesen et al make an interesting observation in their exploration of the ‘women on Boards’ issue. It has to do with the needing to be a ‘critical mass’ of females on a Board for the boardroom culture to change sufficiently for the role of women on the board to have an impact. The idea of ‘tokenism’ – say, adding one woman to a Board for the sake of showing diversity – simply maintains the male domination status keeping the one female Director at the margin. According to Terjesen et al, real change only occurs where there are three or more women Directors on a board.

References

Clarke, T & Klettner, A 2009, 'Governance Issues for SMEs', Journal of Business Systems, Governance and Ethics, vol. 4, no. 4, pp. 23-40.

Jepson, P 2005, 'Governance and accountability of environmental NGOs', Environmental Science & Policy, vol. 8, pp. 515-524.

Terjesen, S, Sealy, R & Singh, V 2009, 'Women Directors on Corporate Boards: A Review and Research Agenda', Corporate Governance: An International Review, vol. 17, no. 3, pp. 320-337.

Weidenbaum, M 2008, 'Who will Guard the Guardians? The Social Responsibility of NGOs.', Journal of Business Ethics, vol. 147-155, pp. 147-155.

Core (required) readings:

Barton, D., & Wiseman, M. 2015. Where Boards Fall Short. Harvard Business Review, 93(1/2).

Parsons, R. D., & Feigen, M. A. 2014. The Boardroom's Quiet Revolution. Harvard Business Review, 92(3): 99-104.

Baron, D. P., & Lyon, T. P. 2013. Environmental Governance. In P. Bansal, & A. J. Hoffman (Eds.), The Oxford Handbook of Business and the Natural Environment: 122-139. New
York: Oxford University Press.

Additional (optional) readings and resources:

• Reading 10.4: ASX 2007 Corporate Governance Principles and Recommendations - 2nd Edition, ASX Corporate Governance Council, Sydney. 

• Reading 10.5::Weidenbaum 2008 'Who will Guard the Guardians? The Social Responsibility of NGOs.', Journal of Business Ethics, vol. 147-155, pp. 147-155.

• Reading 10.6: Francis & Armstrong 2011 'Corruption and whistleblowing in international humanitarian aid agencies', Journal of Financial Crime, vol. 18, no. 4, pp. 319-335.
  This artilce is a discussion of some challenges humanitarian aid agencies face in trying to deliver aid in various places around the world. It raises a number of issues these agencies face, and proposes some possible steps to help address them.

These short articles might also be of interest:

• Boards and gender diversity (1) 
• Boards and gender diversity (2) 

Other items:

PWC Report (2013) - Advancing women leaders in financial services: 

These are the set cases for this course.

 Shell in the Niger Delta 

Shell is often referred to in academic and management literature as a firm that has demonstrated a strong commitment to sustainability practices and has gone a long way in addressing some of the darker practices of the past, two of which gained significant media attention namely the issues surrounding the disposal of the Brent Spar oil rig in the North Sea (around the mid 1990's) and Shell's actions in relation to the execution by the Nigerian Government of an anti-Shell activist, Ken Saro-Wiwa and 7 of his colleagues (1995) which also cost Shell many millions of dollars in a 2009 settlement.

Whether this "strong sustainability commitment" tag is warranted is another question - some argue it is very much not so but, for this case study, we will not focus on this broader debate but instead look specifically at Shell’s activities in the Niger Delta.

There is a lot of information on this case, so do some of your own investigations (an internet search is a good place to start) to build a picture of what has happened to date.

Here are some useful items to get started:

Video:   (CNN video - 3 min 6 sec)

 These follow-up articles add additional context to the issues covered in the videos:

http://www.foe.co.uk/resource/press_releases/shell_ordered_to_appear_by_11042006.html

http://www.independent.co.uk/news/world/africa/ken-sarowiwa-was-framed-secret-evidence-shows-2151577.html

It's also worth doing a YouTube search "Shell Niger Delta" to see some other perspectives on video.

Shell’s web site: http://www.shell.com.ng/

UN report on Shell’s activities in the Niger Delta: http://www.unep.org/nigeria/

Some news items on that report:

http://www.shell.com.ng/home/content/nga/environment_society/our_response/unep_response.html

http://www.guardian.co.uk/environment/cif-green/2010/aug/25/un-nigeria-oil-spill-shell

http://www.guardian.co.uk/environment/2010/aug/22/shell-niger-delta-un-investigation

http://www.amnesty.org.uk/news_details.asp?NewsID=19616

The Ken Saro-Wiwa case

http://topics.nytimes.com/topics/reference/timestopics/people/s/ken_sarowiwa/index.html

http://www.guardian.co.uk/world/2009/jun/08/nigeria-usa

http://www.shell.com.ng/home/content/nga/environment_society/ogoni/ken_saro_wiwa.html

Some other press items

http://www.reuters.com/article/2013/01/30/us-shell-nigeria-lawsuit-idUSBRE90S16X20130130

http://ens-newswire.com/2013/01/30/dutch-court-finds-shell-liable-for-nigeria-oil-damages/

http://www.amnesty.org/en/news/shell-s-false-claims-niger-delta-oil-spills-exposed-2013-11-07 

http://www.theecologist.org/News/news_round_up/2501331/niger_delta_oil_shell_ignores_horrendous_pollution.html

BATM in Malaysia

Read the case study article Barraclough, & Morrow 2008 'A grim contradiction: The practice and consequences of corporate social responsibility by British American Tobacco in Malaysia', Social Science & Medicine, vol. 66, pp. 1784-1796 (available via the eReader).

You might also like to try these additional resources (they are not required reading but may be useful for those wanting to dig a little deeper into the issues this case study covers):

• Tobacco company web sites:

British American Tobacco: www.bat.com
In particular, look at the “Sustainability” page: http://www.bat.com/group/sites/UK__9D9KCY.nsf/vwPagesWebLive/DO52AD7G?opendocument&SKN=1 

Philip Morris: www.pmi.com
In particular, look at the “charitable giving program” and “corporate contributions” area: http://www.pmi.com/eng/about_us/pages/about_us.aspx

• Article

Burton, & Rowell, 2002 'British American Tobacco’s Socially Responsible Smoke Screen', PR Watch, vol. 9, no. 4, pp. 6-11 (note: the full journal volume is provided in the eReader – the relevant article begins on page 6).
URL to the article: http://www.prwatch.org/files/pdfs/prwatch/prwv9n4.pdf 

This article also looks at BAT’s CSR initiatives as they were being developed back in the early 2000’s and adds another perspective to the story.

 Enron

Read the case study article: Cohan 2002 '"I Didn't Know" and "I Was Only Doing My Job": Has Corporate Governance Careened Out of Control? A Case Study of Enron's Information Myopia', Journal of Business Ethics, vol. 40, pp. 275-299 (available via the eReader).

This article covers a number of areas that relate to different topics in this course.

One point on this case study: The Enron case, and similar cases (WorldCom, HIH, etc), are sometimes discussed in terms of CSR and how the problems in these firms were CSR failures.
Greenfield 2004 discusses this issue and proposes that:

"These events are billed as examples of [the failure of] “corporate irresponsibility.” In fact, they are no such thing. They are instances of plain, old-fashioned theft and fraud, albeit on a grand scale." (p. 19)

"A close look at most of the scandals that generated our new focus on “responsibility” shows that the issues have little to do with the actual business of a corporation. The issues are the people who are operating the corporation. If the issues are about people, they are not related to CSR at all. Rather than being about “corporate responsibility” or “corporate irresponsibility,” the scandals are about criminality, conspiracy, and utter disregard by individuals for anyone other than themselves. The people who now run corporations are very like those who worked diligently through legal systems for more than a hundred years to minimize the individual risk assumed in owning and operating a company. Despite corporation-as-person rhetoric, there have to be live people who take responsibility for those organizations. That is the law. Because everyone has been focusing attention on the organizations, however, we have managed to miss this most obvious fact: People run corporations. (pp. 24-25)

In taking this a little further, a 2005 article in The Economist made the point that some issues that we tend to lump into CSR discussions do not really have a place there at all – they are not CSR matters but ones dealing with ethical behaviour and 'doing the right thing' (although as is evident from the discussion so far in this course, CSR and ethical behaviour are inseparable). Here's what the article had to say:

"At one end of the broad span of CSR lie corporate policies that any well-run company ought to have in place anyway, policies that are called for on any sensible view of business ethics or good management practice. These include not lying to your employees, for instance, not paying bribes, and looking farther ahead than the next few weeks, [these] practices do not need any special CSR defence: they can perfectly well justify themselves in simpler ways, either as meeting standards of ordinary decency, or as being necessary in any case if managers are to run a successful business. The issue here is not whether the activities themselves make sense, but whether they deserve to be dignified by the term “corporate social responsibility”—that is, whether they deserve the special praise which this label is intended to elicit.(The Economist 2005).

References

Greenfield, WM 2004, 'In The Name of Corporate Social Responsibility', Business Horizons, vol. 47, no. 1, pp. 19-28

The Economist 2005, The Union of Concerned Executives, The Economist, viewed 22 August 2005   

   Interface Global

Go to the Interface web site and review the organisations structure and sustainability strategies:   

When viewing the site, pay particular attention to how the firm is currently progressing on its "climb Mt Sustainability" journey and think through the challenges it may now be facing.   

Check out this video: (9 min 46 sec)  

When viewing the video, keep an eye out for these key points and what they might mean:

• Where did the initial motivation for change at Interface come from?
   
• How important do you think it was that Anderson had a change of mind set? What lessons are there in this for your own organisation?
   
• Do you think Anderson is right when he says that some products should not be made at all? What products can you think of that might fit into this category?
   
• Anderson thinks that "if we can't make carpets sustainably, we don't have a place in a sustainable world". Do you think this is right? What implications do you think this might have for your own industry?
   
• Anderson also states that no business is currently sustainable (in the 'sustainable world' context). Do you think this is right?
   
• A goal for business, according to Anderson, is to "do no harm". Another view is that this 'no harm' approach falls short and we should be looking to do things that are enriching to humanity and to the planet (this is one of the ideas in the 'sustaining corporation' phase Dunphy et al talk about). Do you think a 'no harm' vs 'positively enriching' mind set would really matter in the way we go about our lives and business activities? 

Rear this article:  

Also read the following articles: these come from various sources and from different time points that give some additional perspectives on the organisation and its approach to sustainability (all of these 4 readings are included in the eReader on the course Learnonline site). If you have any problems access the articles   :

• Source: FastCompany.Com
  

• Doppelt, B 2003, Leading Change Toward Sustainability, Greenleaf Publishing, Sheffield, UK, pp 54-56 & 239-241

• Hargroves, K & Smith, MH 2006, The Natural Advantage of Nations, Earthscan, London, pp 78-81

• Source: GreenBiz.com

Also try an internet search <Interface Global Sustainability> and browse through some of the search results.

You might also try these additional items:

• A more recent video:  
• A more recent article: Interface 20 years on