Success for the Long Run: Sustainable Companies Are the Winners
Strong sustainability strategies pay off. A recent study that compared companies that adopted environmental and social policies with companies that didn’t showed that the “high sustainability” companies performed better than the other companies over an 18 year time period in the stock market, return on assets and return on equity. Given these results, what company wouldn’t want to explore how sustainability strategies can support their long-term success? Yet we hear daily of companies that are either ignoring the trends or struggling to address them. Our recent global study How to Become a Sustainable Companypublished in the summer issue of the Sloan Management Review answers some of the questions that companies are asking about what they can do to succeed in becoming sustainable organizations. Based on our research that compared sustainable companies with traditional companies, we have found some specific organizational factors that differentiate the two groups.
First, the sustainable companies tend to reframe their identities through leaders at the top who are truly committed to drive the process. They take long-term views for building company success and they are willing to tolerate more risk in pursuit of sustainability than are the traditional companies. They have a strong business case for pursuing sustainable strategies and they integrate sustainability considerations into their decision-making.
A second way that these companies build a new identity is by reaching out across traditional boundaries to external stakeholders such as competitors, customers, NGOs and suppliers. In the words of Rob Frederick, V.P. of Corporate Responsibility at Brown-Forman, one of the largest American-owned companies in the spirits and wine industry, “We embrace the unusual suspects.” Rather than selecting suppliers solely based on cost considerations and then holding them at arm’s length, companies such as PepsiCo and Wal-Mart work closely with their strategic suppliers. David Walker, former senior director of beverage productivity at PepsiCo, said that they bring suppliers together to share best practices and engage in joint planning sessions. David Basson, the former CEO of organic apparel manufacturer Greensource Organic Clothing Company, says that they have supplied organic cotton products to big-box stores like Wal-Mart for the past 17 years. Basson says his customers want to achieve their sustainability goals without price increases that will affect the consumer. To achieve the price point its customers expect, Greensource must work closely and creatively across the supply chain to increase efficiencies, collaborating with its big-box customers as well as its own suppliers, such as the farm cooperatives. To be successful, Basson notes that players across the supply chain must plan together for the long term.
According to our research findings, once companies establish their new identity, they have to build support for it through employee engagement and embed it into the organization through mechanisms for executing. These steps make the newly framed identity a reality. The sustainable companies in our study have clear methods for engaging employees. They enable cross-functional communication and are quick to recognize the contributions of their employees to their success with sustainable strategies. They have enterprise-wide approaches to connect sustainability with their overall corporate strategy.
And underpinning all of their efforts is a culture of trust, a commitment to innovation and a strong capability of implementing large-scale change across the organization.
I have worked with a number of companies that are already strong leaders in the sustainability arena but desire to become great. What I find is that they are willing to identify their areas of strength and weakness and to be transparent about both. They are willing to listen to the concerns and differing perspectives of those who comprise their stakeholder groups and in fact create the opportunities for these discussions and debates. Sandy Nessing, the Managing Director, Sustainability & ESH Strategy & Design at American Electric Power (AEP), one of the nation’s largest generators of electricity – much of it with coal — says that their commitment to transparency with stakeholders has enabled them to tell their story and to create trust with the broader stakeholder community. “While we constantly try to find a balance between our stockholders needs and our other stakeholders’ concerns, it isn’t easy,” says Sandy. “We don’t always agree. Nevertheless, without this transparency and interest in hearing stakeholders’ perspectives, we might miss emerging trends, or issues that are affecting our reputation. Social media is a real game changer. We must pay attention.”
So what is the answer to how to become a sustainable company? It is complex and entails taking a long-term and innovative perspective on how to succeed in the market-place. It requires leadership resolve and employee engagement. And it demands the courage to create trust with many stakeholders through transparency and open communications.
Dr. Kathleen Miller Perkins is a psychologist and is the CEO and owner of Miller Consultants , a firm specializing in organizational development, executive coaching and change management founded in 1980. In addition to managing the company, she continues to remain active in assisting client organizations in assessing and addressing the organizational culture and leadership requirements for executing sustainability strategy. She has delivered services to over 100 public and private sector companies. Dr. Miller’s client list includes organizations such as IBM, Toyota, BC Hydro, Brown -Forman, General Electric, Ashland Chemical, Ernst and Young, Bristol Myers Squibb and Kindred Health Care.
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