Corporate Sustainability Management in the Energy Sector – An
Empirical Contingency Approach
vorgelegt von
Diplom-Wirtschaftsingenieur Oliver Salzmann
aus Sulzbach/Saar
von der Fakultät VIII – Wirtschaft und Management
der Technischen Universität Berlin
zur Erlangung des akademischen Grades
Doktor der Ingenieurwissenschaften
- Dr.-Ing. -
genehmigte Dissertation
Promotionsausschuss:
Vorsitzender: Prof. Dr. H. Hirth
Berichter: Prof. Dr. U. Steger
Berichter: Prof. Dr. A. v. Werder
Tag der wissenschaftlichen Aussprache: 25. Januar 2006
Berlin 2006
D 83
III
Acknowledgements
The completion of my thesis owes most to my “Doktorvater” Prof. Dr. Ulrich Steger for his
continuous guidance and encouragement, and, above all, his determination to read the final
product. I cannot thank him enough. I would also like to express my gratitude to my
secondary supervisor Prof. Dr. Axel von Werder for his advice and support.
Furthermore, I would like to thank the CSM team at IMD, Aileen Ionescu-Somers and Kay
Richiger, and the “BCS research team,” without whom this huge study would never have
been possible.
I am also extremely grateful to Albert Diversé and my brother Ralph for coaching and often
challenging me (thanks Albert!) on the statistics, and to Wolfgang Amann and Jochen
Brellochs for their repeated feedback and “pats on the back.” I would also like to thank those
who invested their time in this research effort by serving as interviewees or answering the
questionnaire.
Last, but not least, I would like to acknowledge the infinite patience, moral support and
understanding of my family and my girlfriend Petra. This achievement would not have been
possible without them.
Lausanne, April 2006 OLIVER SALZMANN
IV
V
Table of content
ACKNOWLEDGEMENTS .............................................................................................................................. III
TABLE OF CONTENT.......................................................................................................................................V
TABLE OF ABBREVIATIONS.................................................................................................................... VIII
TABLE OF FIGURES ...................................................................................................................................... IX
TABLE OF CHARTS........................................................................................................................................ XI
TABLE OF REGRESSION TABLES ............................................................................................................XII
1 INTRODUCTION.......................................................................................................................................1
1.1 RESEARCH FIELD ..................................................................................................................................1
1.2 STRUCTURE ..........................................................................................................................................2
1.3 INTENDED CONTRIBUTIONS ..................................................................................................................3
2 THEORETICAL FOUNDATION AND CONCEPTS.............................................................................6
2.1 CONTINGENCY THEORY........................................................................................................................6
2.2 CSM AND RELATED THEORETICAL FRAMEWORKS................................................................................6
2.2.1 Corporate social responsibility.......................................................................................................7
2.2.2 Corporate social performance (CSP) .............................................................................................7
2.2.3 Corporate sustainability ...............................................................................................................10
2.2.4 Discussion.....................................................................................................................................11
2.3 KEY CONCEPTS...................................................................................................................................12
2.3.1 Determinants of CSM....................................................................................................................13
2.3.1.1 Issues – the principle of public responsibility.....................................................................................13
2.3.1.2 Stakeholders – the principle of legitimacy..........................................................................................14
2.3.1.3 Managers’ attitudes – the principle of managerial discretion..............................................................15
2.3.1.4 Company-specific determinants – the principle of corporate discretion.............................................16
2.3.2 CSM ..............................................................................................................................................16
2.3.3 Outcome of CSM...........................................................................................................................18
3 REVIEW OF EMPIRICAL LITERATURE ..........................................................................................19
3.1 DETERMINANTS OF CSM....................................................................................................................20
3.2 CSM...................................................................................................................................................23
3.2.1 Strategic disposition......................................................................................................................23
3.2.2 Economic rationale.......................................................................................................................24
3.2.3 Implementation .............................................................................................................................26
3.3 OUTCOMES .........................................................................................................................................27
3.4 SUMMARY AND RESEARCH GAPS ........................................................................................................27
4 CONCEPTUAL RATIONALE AND RESEARCH QUESTIONS.......................................................28
5 METHOD ..................................................................................................................................................33
5.1 SELECTION OF SUITABLE METHOD......................................................................................................33
5.1.1 Contingency approach..................................................................................................................34
5.1.2 Selection of instruments ................................................................................................................35
5.2 INSTRUMENTS.....................................................................................................................................39
5.2.1 Data collection..............................................................................................................................39
5.2.1.1 Qualitative methods............................................................................................................................39
5.2.1.2 Quantitative methods..........................................................................................................................42
5.2.2 Data analysis ................................................................................................................................44
5.2.2.1 Qualitative methods............................................................................................................................44
5.2.2.2 Quantitative methods..........................................................................................................................44
5.2.2.2.1 Basic statistics ...............................................................................................................................45
5.2.2.2.2 Advanced statistics........................................................................................................................46
5.3 SYNERGISTIC FIT OF METHODS ...........................................................................................................53
5.4 EVALUATION......................................................................................................................................55
6 SECTOR CHARACTERISTICS.............................................................................................................58
6.1 CHARACTERISTICS AND ACTIVITIES OF COMPANIES............................................................................58
VI
6.2 TRENDS, DRIVERS AND COMPETITIVE FORCES ....................................................................................59
6.3 DISCUSSION........................................................................................................................................61
7 DATA COLLECTED ...............................................................................................................................61
7.1 QUALITATIVE DATA............................................................................................................................61
7.2 QUANTITATIVE DATA .........................................................................................................................62
8 EMPIRICAL EVIDENCE .......................................................................................................................66
8.1 ISSUES ................................................................................................................................................69
8.1.1 Qualitative analysis and basic statistics .......................................................................................69
8.1.1.1 Social and ethical issues......................................................................................................................71
8.1.1.2 Environmental issues..........................................................................................................................73
8.1.1.3 The relative importance of environmental and social issues...............................................................75
8.1.2 Advanced statistics........................................................................................................................79
8.1.2.1 Correlations ........................................................................................................................................79
8.1.2.2 Regressions.........................................................................................................................................86
8.1.3 Discussion.....................................................................................................................................87
8.2 EXTERNAL STAKEHOLDERS, INDUSTRY AND PARTNERSHIPS...............................................................90
8.2.1 Governments and regulators.........................................................................................................90
8.2.1.1 Qualitative analysis and basic statistics ..............................................................................................90
8.2.1.2 Advanced statistics .............................................................................................................................91
8.2.2 Public pressure groups .................................................................................................................94
8.2.2.1 Qualitative analysis and basic statistics ..............................................................................................94
8.2.2.2 Advanced statistics .............................................................................................................................96
8.2.3 Customers .....................................................................................................................................97
8.2.3.1 Qualitative analysis and basic statistics ..............................................................................................97
8.2.3.2 Advanced statistics .............................................................................................................................99
8.2.4 Financial community ..................................................................................................................100
8.2.4.1 Qualitative analysis and basic statistics ............................................................................................ 100
8.2.4.2 Advanced statistics ...........................................................................................................................102
8.2.5 Industry and partnerships...........................................................................................................105
8.2.5.1 Qualitative analysis and basic statistics ............................................................................................ 105
8.2.5.2 Advanced statistics ...........................................................................................................................107
8.2.6 Legitimacy and the relative importance of external stakeholders...............................................110
8.2.6.1 The role of legitimacy.......................................................................................................................110
8.2.6.1.1 Qualitative analysis and basic statistics.......................................................................................110
8.2.6.1.2 Advanced statistics...................................................................................................................... 112
8.2.6.1.2.1 Correlations...........................................................................................................................112
8.2.6.1.2.2 Regressions ...........................................................................................................................117
8.2.6.2 The relative importance of external stakeholders..............................................................................117
8.2.6.2.1 Qualitative analysis and basic statistics.......................................................................................117
8.2.6.2.2 Advanced statistics...................................................................................................................... 122
8.2.6.2.2.1 Correlations...........................................................................................................................122
8.2.6.2.2.2 Regressions ...........................................................................................................................123
8.2.7 Discussion...................................................................................................................................127
8.3 MANAGERS.......................................................................................................................................131
8.3.1 Qualitative analysis and basic statistics .....................................................................................132
8.3.2 Advanced statistics......................................................................................................................135
8.3.2.1 Correlations ......................................................................................................................................135
8.3.2.2 Regressions.......................................................................................................................................140
8.3.3 Discussion...................................................................................................................................142
8.4 COMPANIES ......................................................................................................................................143
8.4.1 Company-specific determinants..................................................................................................144
8.4.1.1 Qualitative analysis and basic statistics ............................................................................................ 144
8.4.1.2 Advanced statistics ...........................................................................................................................148
8.4.1.3 Discussion.........................................................................................................................................151
8.4.2 Strategic disposition....................................................................................................................154
8.4.2.1 Qualitative analysis and basic statistics ............................................................................................ 154
8.4.2.2 Advanced statistics ...........................................................................................................................159
8.4.2.2.1 Correlations .................................................................................................................................159
8.4.2.2.2 Regressions..................................................................................................................................162
8.4.2.3 Discussion.........................................................................................................................................164
8.4.3 Economic rationale.....................................................................................................................168
8.4.3.1 Importance and elements of the business case.................................................................................. 168
VII
8.4.3.2 Issue integration................................................................................................................................170
8.4.3.3 Building and quantifying the business case ......................................................................................173
8.4.3.4 Discussion.........................................................................................................................................175
8.4.4 Implementation ...........................................................................................................................184
8.4.4.1 Management tools.............................................................................................................................184
8.4.4.1.1 Qualitative analysis and basic statistics.......................................................................................184
8.4.4.1.2 Advanced statistics...................................................................................................................... 187
8.4.4.1.3 Discussion ...................................................................................................................................188
8.4.4.2 Structure............................................................................................................................................190
8.4.4.2.1 Qualitative analysis and basic statistics.......................................................................................190
8.4.4.2.2 Advanced statistics...................................................................................................................... 191
8.4.4.2.2.1 Correlations...........................................................................................................................191
8.4.4.2.2.2 Regressions ...........................................................................................................................194
8.4.4.2.3 Discussion ...................................................................................................................................195
8.4.4.3 Corporate initiatives..........................................................................................................................196
8.4.4.3.1 Qualitative analysis and basic statistics.......................................................................................196
8.4.4.3.2 Advanced statistics...................................................................................................................... 199
8.4.4.3.3 Discussion ...................................................................................................................................200
8.4.5 Outcome......................................................................................................................................201
8.4.5.1 Qualitative analysis and basic statistics ............................................................................................ 201
8.4.5.2 Advanced statistics ...........................................................................................................................202
8.4.5.2.1 Correlations .................................................................................................................................202
8.4.5.2.2 Regressions..................................................................................................................................204
8.4.5.3 Discussion.........................................................................................................................................207
9 SYNOPSIS ...............................................................................................................................................209
9.1 FINDINGS..........................................................................................................................................209
9.2 SIGNIFICANCE OF THE STUDY ...........................................................................................................216
9.2.1 Implications for theory................................................................................................................216
9.2.2 Implications for practice.............................................................................................................217
9.3 LIMITATIONS AND SUGGESTIONS FOR FURTHER RESEARCH ..............................................................220
9.4 CONCLUSION ....................................................................................................................................224
APPENDICES...................................................................................................................................................227
APPENDIX A – INTERVIEW SAMPLES...............................................................................................................227
OG sector ..................................................................................................................................................227
UT sector...................................................................................................................................................229
External stakeholders................................................................................................................................230
APPENDIX B – KEY FINANCIALS OF SECTOR SAMPLES ....................................................................................231
APPENDIX C – HYPOTHESES AND OBJECTIVES OF IMD RESEARCH PROJECT ...................................................232
APPENDIX D – OPERATIONALIZATION OF KEY CONCEPTS ...............................................................................234
APPENDIX E – PAIRWISE CORRELATION ANALYSIS .........................................................................................237
Pairwise correlation – Total sample.........................................................................................................237
Pairwise correlation – UT sample ............................................................................................................238
Pairwise correlation – OG sample............................................................................................................239
APPENDIX F – REGRESSION MODELS...............................................................................................................240
APPENDIX G – REGRESSION DIAGNOSTICS......................................................................................................244
APPENDIX H – INTERVIEW GUIDELINES ..........................................................................................................245
APPENDIX I – QUESTIONNAIRES .....................................................................................................................253
Questionnaire – GM Version ....................................................................................................................253
Questionnaire – SO Version......................................................................................................................258
APPENDIX J – AUTHOR’S CONTRIBUTION TO CROSS-INDUSTRY RESEARCH PROJECT.......................................263
BIBLIOGRAPHY.............................................................................................................................................265
VIII
Table of abbreviations
BCS Business case for sustainability
CS Corporate sustainability
CSM Corporate sustainability management
CSP Corporate social performance
CSR Corporate social responsibility
EHS Environmental, health & safety
ESP Environmental/social performance
GM General manager
IEA International Energy Agency
NGO Non-governmental organization
OG Oil & gas
OPEC Organization of Petroleum Exporting Countries
RoI Return on investment
SME Small and medium-sized enterprise
SD Sustainable development
SO Sustainability officer
TQM Total quality management
UNEP United Nations Environment Programme
UT Electric/gas utility
WBCSD World Business Council for Sustainable Development
WEC World Economic Forum
WRI World Resources Institute
IX
Table of figures
FIGURE 1-1: STRUCTURE OF THE CONTENT..............................................................................................................3
FIGURE 2-1: STRUCTURE OF SECTION 2 ...................................................................................................................6
FIGURE 2-2: WOOD’S CORPORATE SOCIAL PERFORMANCE MODEL – BASED ON WOOD (1991)................................9
FIGURE 4-1: CORPORATE SUSTAINABILITY PERFORMANCE MODEL........................................................................30
FIGURE 5-1: STRUCTURE OF SECTION 5 .................................................................................................................33
FIGURE 5-2: VISUALIZATION OF CONTINGENCY APPROACH...................................................................................34
FIGURE 5-3: VISUALIZATION OF CONCURRENT TRIANGULIZATION DESIGN (BASED ON CRESWELL, CLARK,
GUTMANN, & HANSON, 2004, P. 236)..........................................................................................................37
FIGURE 5-4: PROCESS OF ISSUE INTEGRATION BASED ON SALZMANN (2003A, P. 24).............................................40
FIGURE 5-5: SYSTEMIZATION OF VALUE DRIVERS AND VALUE CONSTRUCTS.........................................................41
FIGURE 5-6: INTRA- AND CROSS-SECTOR COMPARISONS........................................................................................45
FIGURE 5-7: VARIABLES THAT ARE SUBJECT TO CORRELATION ANALYSIS.............................................................47
FIGURE 5-8: ROADMAP FOR REGRESSION ANALYSIS – TESTED DETERMINANTS OF CSM INTENT ..........................49
FIGURE 5-9: ROADMAP FOR REGRESSION ANALYSIS – TESTED DETERMINANTS OF CSM SUCCESS ........................49
FIGURE 5-10: SYSTEMIZATION OF MODELS PREDICTING CSM INTENT...................................................................51
FIGURE 5-11: SYSTEMIZATION OF MODELS PREDICTING CSM SUCCESS ................................................................51
FIGURE 5-12: COMPLEMENTARITY OF CORRELATIONS AND REGRESSIONS.............................................................53
FIGURE 5-13: SYNERGISTIC FIT OF METHODS.........................................................................................................54
FIGURE 7-1: SAMPLES – DIMENSIONS OF COMPARISON..........................................................................................63
FIGURE 8-1: STRUCTURE OF SECTION 8 .................................................................................................................67
FIGURE 8-2: ISSUES AND STAKEHOLDERS ACROSS THE VALUE CHAIN (OG) – BASED ON INTERVIEWS AND
CORPORATE REPORTS/WEBSITES ..................................................................................................................70
FIGURE 8-3: ISSUES AND STAKEHOLDERS ACROSS THE VALUE CHAIN (UT) – BASED ON INTERVIEWS AND
CORPORATE REPORTS/WEBSITES ..................................................................................................................70
FIGURE 8-4: CORRELATIONS – ENVIRONMENTAL ISSUE SIGNIFICANCE..................................................................80
FIGURE 8-5: CORRELATIONS – SOCIAL ISSUE SIGNIFICANCE..................................................................................80
FIGURE 8-6: DETERMINANTS OF ISSUE SIGNIFICANCE............................................................................................88
FIGURE 8-7: CORRELATIONS – GOVERNMENTS’ SD ROLE......................................................................................92
FIGURE 8-8: CORRELATIONS – PUBLIC PRESSURE GROUPS’ SD ROLE.....................................................................96
FIGURE 8-9: CORRELATIONS – CONSUMERS’ SD ROLE ..........................................................................................99
FIGURE 8-10: CORRELATIONS – CAPITAL MARKETS’ FUTURE SD ROLE ...............................................................103
FIGURE 8-11: CORRELATIONS – INDUSTRY’S SD ROLE........................................................................................107
FIGURE 8-12: CORRELATIONS – PUBLIC-PRIVATE PARTNERSHIPS’ SD ROLE........................................................109
FIGURE 8-13: CORRELATIONS – IMPORTANCE OF LEGITIMACY............................................................................112
FIGURE 8-14: CORRELATIONS – DAMAGE TO LEGITIMACY ..................................................................................114
FIGURE 8-15: DETERMINANTS OF OUTSIDE PRESSURE .........................................................................................129
FIGURE 8-16: CORRELATIONS – BBB (“BUSINESS OF BUSINESS IS BUSINESS”) ATTITUDE....................................136
FIGURE 8-17: CORRELATIONS – WW (”CSM IF THERE ARE WIN-WIN SITUATIONS”) ATTITUDE...........................136
FIGURE 8-18: CORRELATIONS – CA (“CSM TO GAIN LONG-TERM COMPETITIVE ADVANTAGE”) ATTITUDE........137
FIGURE 8-19: CORRELATIONS – UCA (“CSM DESPITE UNPROVEN COMPETITIVE ADVANTAGE”) ATTITUDE.......137
FIGURE 8-20: SYSTEMIZATION OF BARRIERS TO CSM.........................................................................................151
FIGURE 8-21: CORRELATIONS – SD FAMILIARITY ...............................................................................................159
FIGURE 8-22: CORRELATIONS – FUTURE SD IMPORTANCE..................................................................................160
FIGURE 8-23: CORRELATIONS – CSM INTENT .....................................................................................................160
FIGURE 8-24: CORRELATIONS WITH STRATEGIC DISPOSITION..............................................................................161
FIGURE 8-25: DETERMINANTS OF CSM INTENT...................................................................................................166
FIGURE 8-26: PROCESSES OF ISSUE INTEGRATION (SALZMANN, 2003B, P. 15).....................................................171
FIGURE 8-27: MAPPING THE BUSINESS CASE FOR SUSTAINABILITY (SALZMANN, 2003B, P. 11)...........................174
FIGURE 8-28: DIFFERENT CASES FOR CORPORATE SUSTAINABILITY ....................................................................177
FIGURE 8-29: THE COMPLEXITY OF THE BUSINESS CASE FOR SUSTAINABILITY....................................................178
FIGURE 8-30: CONCEPTUAL FRAMEWORK (SALZMANN ET AL., 2005B, P. 6) .......................................................179
FIGURE 8-31: THE BUSINESS CASE AND ITS DETERMINANTS ................................................................................182
FIGURE 8-32: CORRELATIONS – CROSS-DISCIPLINARY COLLABORATION ............................................................191
FIGURE 8-33: CORRELATIONS – CROSS-DISCIPLINARY POTENTIAL .....................................................................192
FIGURE 8-34: CORRELATIONS – CSM SUCCESS ...................................................................................................203
FIGURE 8-35: DETERMINANTS OF CSM SUCCESS ................................................................................................208
FIGURE 9-1: CROSS-SECTOR DIFFERENCES ..........................................................................................................215
FIGURE 9-2: INTEGRATION OF THE BUSINESS CASE INTO THE CONCEPTUAL FRAMEWORK ...................................222
X
FIGURE 9-3: DEVELOPED FRAMEWORK – THE BUSINESS CASE FOR SUSTAINABILITY AND ITS DETERMINANTS ....223
XI
Table of charts
CHART 7-1: REGIONS OF OPERATION – OG GENERAL MANAGERS .........................................................................64
CHART 7-2: REGIONS OF OPERATION – UT GENERAL MANAGERS..........................................................................64
CHART 7-3: NATIONALITIES – OG GENERAL MANAGERS.......................................................................................64
CHART 7-4: NATIONALITIES – UT GENERAL MANAGERS.......................................................................................64
CHART 7-5: REGIONS OF OPERATION – OG SUSTAINABILITY OFFICERS .................................................................65
CHART 7-6: REGIONS OF OPERATIONS – UT SUSTAINABILITY OFFICERS................................................................65
CHART 7-7: NATIONALITIES – OG SUSTAINABILITY OFFICERS ..............................................................................65
CHART 7-8: NATIONALITIES – UT SUSTAINABILITY OFFICERS...............................................................................65
CHART 8-1: ISSUES – OPEN-ENDED QUESTION (GENERAL MANAGERS – OG).........................................................76
CHART 8-2: ISSUES – OPEN-ENDED QUESTION (GENERAL MANAGERS – UT).........................................................76
CHART 8-3: MOST IMPORTANT ISSUES (SUSTAINABILITY OFFICERS – OG)............................................................77
CHART 8-4: MOST IMPORTANT ISSUES (SUSTAINABILITY OFFICERS – UT) ............................................................77
CHART 8-5: SIGNIFICANCE OF ENVIRONMENTAL AND SOCIAL ISSUES (GENERAL MANAGERS AND SUSTAINABILITY
OFFICERS) ....................................................................................................................................................78
CHART 8-6: CAPITAL MARKETS’ FUTURE SD ROLE AND SUMMARY STATISTICS ..................................................101
CHART 8-7: IMPORTANCE OF LEGITIMACY...........................................................................................................111
CHART 8-8: DAMAGE TO LEGITIMACY IN THE PAST THREE YEARS.......................................................................111
CHART 8-9: CONTRIBUTION OF DIFFERENT GROUPS TO SUSTAINABLE DEVELOPMENT (GENERAL MANAGERS – OG)
...................................................................................................................................................................118
CHART 8-10: INCIDENTS DAMAGING BRAND VALUE AND REPUTATION (GENERAL MANAGERS – OG)................119
CHART 8-11: INCIDENTS DAMAGING BRAND VALUE AND REPUTATION (SUSTAINABILITY OFFICERS – UT).........119
CHART 8-12: BARRIERS (SUSTAINABILITY OFFICERS – OG)................................................................................120
CHART 8-13: BARRIERS (SUSTAINABILITY OFFICERS – UT) ................................................................................120
CHART 8-14: BARRIERS (GENERAL MANAGERS – OG)........................................................................................121
CHART 8-15: BARRIERS (GENERAL MANAGERS – UT) ........................................................................................121
CHART 8-16: BARRIERS (SUSTAINABILITY OFFICERS – OG)................................................................................133
CHART 8-17: BARRIERS (SUSTAINABILITY OFFICERS – UT) ................................................................................133
CHART 8-18: BARRIERS (GENERAL MANAGERS – OG)........................................................................................134
CHART 8-19: BARRIERS (GENERAL MANAGERS – UT) ........................................................................................134
CHART 8-20: PROMOTING FACTORS (SUSTAINABILITY OFFICERS – OG)..............................................................134
CHART 8-21: PROMOTING FACTORS (SUSTAINABILITY OFFICER – UT)................................................................134
CHART 8-22: PERSONAL ATTITUDES TOWARDS CORPORATE SUSTAINABILITY (GENERAL MANAGERS) ...............135
CHART 8-23: PROMOTING FACTORS (SUSTAINABILITY OFFICERS – OG)..............................................................145
CHART 8-24: PROMOTING FACTORS (SUSTAINABILITY OFFICER – UT)................................................................145
CHART 8-25: BARRIERS (SUSTAINABILITY OFFICERS – OG)................................................................................146
CHART 8-26: BARRIERS (SUSTAINABILITY OFFICERS – UT) ................................................................................146
CHART 8-27: BARRIERS (GENERAL MANAGERS – OG)........................................................................................147
CHART 8-28: BARRIERS (GENERAL MANAGERS – UT) ........................................................................................147
CHART 8-29: SD FAMILIARITY AND CSM INTENT ...............................................................................................155
CHART 8-30: FUTURE SD IMPORTANCE...............................................................................................................156
CHART 8-31: VALUE DRIVERS (OG SUSTAINABILITY OFFICERS) .........................................................................168
CHART 8-32: VALUE DRIVERS (UT SUSTAINABILITY OFFICERS)..........................................................................168
CHART 8-33: TOOLS AND SYSTEMS RELATED TO CORPORATE SUSTAINABILITY (GENERAL MANAGERS – OG)....185
CHART 8-34: TOOLS AND SYSTEMS RELATED TO CORPORATE SUSTAINABILITY (GENERAL MANAGERS – UT) ....185
CHART 8-35: TOOLS AND SYSTEMS RELATED TO CORPORATE SUSTAINABILITY (SUSTAINABILITY OFFICERS – OG)
...................................................................................................................................................................185
CHART 8-36: TOOLS AND SYSTEMS RELATED TO CORPORATE SUSTAINABILITY (SUSTAINABILITY OFFICERS – UT)
...................................................................................................................................................................185
CHART 8-37: RESPONSES TO ENVIRONMENTAL AND SOCIAL ISSUES (GENERAL MANAGERS – OG) .....................197
CHART 8-38: RESPONSES TO ENVIRONMENTAL AND SOCIAL ISSUES (GENERAL MANAGERS – UT)......................197
CHART 8-39: CORPORATE INITIATIVES (GENERAL MANAGERS – OG) .................................................................198
CHART 8-40: CORPORATE INITIATIVES (GENERAL MANAGERS – UT)..................................................................198
CHART 8-41: PROGRESS IN ADOPTING MORE SUSTAINABLE BUSINESS PRACTICES ...............................................202
XII
Table of regression tables
REGRESSION TABLE 8-1: CSM INTENT – ISSUES (REDUCED CLUSTER MODELS)....................................................86
REGRESSION TABLE 8-2: CSM INTENT – IMPORTANCE OF AND DAMAGE TO LEGITIMACY (EXPANDED SUBMODELS)
...................................................................................................................................................................117
REGRESSION TABLE 8-3: CSM INTENT – SD ROLE OF EXTERNAL STAKEHOLDERS (EXPANDED SUBMODELS).....124
REGRESSION TABLE 8-4: CSM INTENT - INCIDENTS THAT DAMAGED LEGITIMACY(EXPANDED SUBMODELS).....125
REGRESSION TABLE 8-5: CSM INTENT – EXTERNAL BARRIERS (REDUCED SUBMODELS) ....................................126
REGRESSION TABLE 8-6: CSM SUCCESS – EXTERNAL BARRIERS (REDUCED SUBMODELS)..................................126
REGRESSION TABLE 8-7: CSM INTENT – ALL VARIABLES RELATING TO INFLUENCE FROM EXTERNAL
STAKEHOLDERS (REDUCED CLUSTER MODELS)..........................................................................................127
REGRESSION TABLE 8-8: CSM INTENT – MANAGERS’ PERSONAL ATTITUDES (EXPANDED CLUSTER MODELS)....141
REGRESSION TABLE 8-9: CSM SUCCESS – MANAGERS’ PERSONAL ATTITUDES (EXPANDED CLUSTER MODELS)..141
REGRESSION TABLE 8-10: CSM INTENT – BARRIERS (EXPANDED SUBMODELS)..................................................149
REGRESSION TABLE 8-11: CSM INTENT – BARRIERS (REDUCED SUBMODELS)....................................................149
REGRESSION TABLE 8-12: CSM SUCCESS - BARRIERS (REDUCED SUBMODELS) ..................................................150
REGRESSION TABLE 8-13: CSM INTENT – SUMMARY MODELS............................................................................163
REGRESSION TABLE 8-14: CSM SUCCESS - CSM TOOLS (REDUCED SUBMODELS) ..............................................187
REGRESSION TABLE 8-15: CSM SUCCESS – CORPORATE STRUCTURE (EXPANDED SUBMODELS).........................195
REGRESSION TABLE 8-16: CSM SUCCESS – CORPORATE INITIATIVES (REDUCED SUBMODELS) .........................199
REGRESSION TABLE 8-17: CSM SUCCESS – ALL CORPORATE DISCRETIONARY FACTORS (REDUCED CLUSTER
MODEL)......................................................................................................................................................205
REGRESSION TABLE 8-18: SUMMARY MODELS - CSM SUCCESS ..........................................................................206
1
1 Introduction
1.1 Research field
The history of corporate social responsibility and other related concepts can be traced way
back to ancient Mesopotamia and Greece (and probably even further), where businessmen
were punished for negligence that harmed workers and the general public. However, it is
obvious that the industrial revolution at the end of the 19th century substantially increased the
significance of businesses and thus also their scope to behave more or less responsibly within
society. Because there was no legislation in this area at that time, history mentions several
businessmen who postulated that business should serve society and took corresponding
initiatives (Balza & Radojicic, 2004; Wren, 1979). With the emergence of labor unions and
legislation (on minimum wages, disability compensation etc.), the concept of the social
responsibility of the businessman gained importance over the following decades.
After World War II, social concerns were increasingly incorporated into management
education and legislation (foremost social security systems). Between 1960 and 1980, rapid
economic growth and its social and environmental effects (including incidents such as e.g.
Aberfan, Wales in 1966 and Seveso, Italy in 1976) triggered several initiatives such as the
Club of Rome and the Brandt Report as well as new regulatory standards in industrialized
countries, e.g. the US Environmental Protection Act (Mohan, 2003).
Obviously the growing acceptance of businesses’ social and environmental responsibility was
intensively discussed among scholars and practitioners. The best-known contribution to this
debate is undoubtedly Milton Friedman’s claim that “few trends could so thoroughly
undermine the very foundation of our free society as the acceptance by corporate officials of a
social responsibility other than to make as much money for their stockholders as possible”
(Friedman, 1962). Consequently scholars increasingly built a stronger and more logically
grounded case for corporate social responsibility (CSR). For example Johnson (1971)
presented several views of social responsibility, among them utility maximization (rather than
profit maximization) as the prime motivation of companies. He postulated that socially
responsible managers maximize utility by extending their interest beyond their own well-
being to their fellow employees and citizens.
In the 1980s and 1990s a plethora of further definitions and frameworks were developed and
refined (Arlow & Gannon, 1982; Carroll, 1999; Davenport, 2000; Moir, 2001). Furthermore,
the notion of sustainable development, initially defined in the Brundtland Report by the World
Commission on Environment and Development (1987), gained more and more importance.
However, the inflated use of terms such as corporate social responsibility, corporate
sustainability and corporate citizenship led to significant skepticism and cynicism, particularly
in civil society.
So far empirical research essentially only produced a plethora of instrumental studies yielding
inconclusive evidence for a sound business case, and failed to describe corporate
sustainability management (CSM) and its economic rationale comprehensively (Griffin &
Mahon, 1997; Morsing, 2003).1 In particular, sector-specific and comparative approaches are
missing although the contingent character of CSM and related concepts such as social
responsiveness was diagnosed as early as the 1970s (Arlow et al., 1982, p. 235; Carroll, 1979;
Sethi, 1975). Understandably skepticism has not ebbed away (Walley & Whitehead, 1994).
1 The term “corporate sustainability management (CSM)” essentially means corporate responsiveness to
environmental and social issues; the term “business case for sustainability” refers to the economic rationale for
corporate sustainability (i.e. positive net economic benefit). Both concepts will be defined in detail below.
2
The present study’s objective is to fill these gaps by empirically examining the main external
and internal determinants (i.e. drivers or barriers) of CSM, companies’ approaches to CSM in
terms of both strategic disposition and implementation, and the economic rationale for their
approaches and their outcome – the individual research questions are laid out in detail in
section 4. The study adopts a clear descriptive contingency approach that is based on data
collected from two groups of managers, namely sustainability experts and non-sustainability
experts, in two different industry sectors (integrated oil and gas vs. electric utilities) and
several geographical regions of operations.
1.2 Structure
The study is divided in nine blocks (see Figure 1-1). In the introductory section the author
elaborates on the study’s research field and objectives as well as its structure and intended
contributions.
Section 2 deals with existing different theoretical frameworks for CSM and related concepts.
It also defines the key concepts used in this study.
In section 3 the author assesses empirical studies and data to provide a comprehensive
benchmark for the present study.
In section 4, the author elaborates on every detail of the study’s conceptual rationale and focus
– based on the theoretical and empirical gaps identified beforehand. Section 5 presents and
evaluates the research method chosen. More specifically, it explains (1) why and how the
design and instruments of this study were selected, and (2) how the data were collected and
analyzed.
Section 6 presents an analysis of the main characteristics of both sectors (corporate activities,
drivers, trends, etc.) from a non-sustainability perspective to provide the context for a
comprehensive and holistic discussion of CSM. Obviously companies’ activities and business
environments (regulation, competition) greatly determine the degree to which they can engage
CSM.
In section 7 the author describes the samples on which the study is based. In particular he
elaborates on the distribution of respondents’ management functions, their regions of
operations and their nationalities.
3
Section 1: Introduction
Section 2: Theoretical foundation and concepts
2.2 Corporate sustainability
management and related
theoretical frameworks:
• Corporate social responsibility
• Corporate social performance
• Corporate sustainability
2.3 Key concepts:
• Determinants
• Corporate sustainability
management
•Outcomes
Section 3: Review of empirical literature
3.1 Empirical studies on
key concepts
3.2 Sector-specific
empirical studies
Section 4: Conceptual rationale and research questions
Section 5: Method
Section 8: Empirical evidence
Section 9: Synopsis
8.4
Companies
8.3
Managers
8.2 External
stakeholders,
industry and
partnerships
8.1
Issues
Section 6: Sector characteristics
Section 7: Data collected
2.1 Contingency theory
Figure 1-1: Structure of the content
Section 8 presents and interprets of the empirical evidence collected. Finally section 9 features
the author’s key findings, an assessment of the study’s significance and suggestions for
further research.
1.3 Intended contributions
The present study is largely deductive and explanatory in nature, since it aims to
comprehensively analyze and explain companies’ approaches to CSM and their outcome.
Since the economic rationale for CSM is an area in which descriptive empirical studies have
4
not been undertaken to date, the author will analyze this subconcept in a more inductive and
exploratory way, namely the analysis of the economic rationale for CSM.2
It should be noted that the study does not include any normative discussion about how “much”
CSM companies should engage in to resolve existing environmental and social issues. It is
based on the assumption that companies are economic entities whose primary objective is the
maximization of expected profits (Lankoski, 2000, p. 5)
Contributions can be expected in three areas that comprise (1) the conceptual framework
developed for and tested in this study, (2) the method, and (3) the data.
Conceptual framework
To data a theoretical framework for corporate sustainability performance (that incorporates
CSM as a key concept) does not exist as such. Corporate social performance models (Wood,
1991) are largely adequate to capture the complexity of corporate sustainability performance.
However, they exhibit several shortcomings. This study’s conceptual framework for corporate
sustainability performance (see section 4) builds on the strengths of Wood’s (1991) model of
corporate social performance. It is innovative insofar as it takes a sequential (process-
oriented) perspective of CSM. It includes the determinants of CSM, companies’ strategic
disposition to and implementation of CSM and the outcome. Thus it is also designed to
examine causal effects between the key concepts defined. Its heuristic value (Bortz et al.,
2002, p. 17) should be significant, since it not only explains variations in CSM and its
outcome but is also able to anticipate future events and developments. Furthermore, unlike
competing models of corporate social performance (Wood, 1991), it explicitly differentiates
between four motivating principles of CSM and takes into account both its social and
environmental dimension. Finally, it incorporates the economic rationale for CSM.
Method
Empirical literature on CSM or related concepts has largely ignored its contingent nature
(Salzmann, 2002). Early studies by Buehler (1979), Abouzeid (1978) and Shetty (1979) as
well as more recent research by Henriques and Sadorsky (1996), Banerjee (2003) and
Lankoski (2000) focus on a narrower research domain, i.e. on a subset of concepts analyzed in
the present study, and consider other and fewer contingencies such as organizational resources
and industry.
Based on the premises of contingency theory that companies’ strategies, structures and
performance – whether in a general or a specifically social/environmental context - are
determined by situational (both internal and external) variables (Greening & Gray, 1994, p.
491; Luthans & Steward, 1977, p. 183; Wood, 1991, p. 700), the present study takes a
multiple contingency perspective by describing corporate sustainability management, its
determinants and its outcome across:
- two groups (or disciplines) of managers in
- two industry sectors and
- various regions of operations.
Thus it allows for (1) a sector-, management group- and region-specific analysis that ensures
clear interpretability (internal validity), and (2) comparative analysis that yields more
generalizable results (external validity).3
2 A combined inductive and deductive approach is not uncommon in empirical research (Bortz & Döring, 2002,
p. 35), since studies are often based on known theoretical frameworks but also offer modifications to them.
3 See e.g. Bortz (2002, p. 37) on the need for internal and external validity of research results.
5
The validity and the scope of results is further increased through the study’s mixed method
design that combines both qualitative and quantitative instruments of data collection and
analysis and thus makes a complementarity and triangulation of findings possible (Teddlie &
Tashakkori, 2003, p. 17).
Data
It is surprising how few descriptive studies on the business case for sustainability management
are available to date (see Epstein & Roy, 2003 as a rare exception), particularly if one takes
into account that a plethora of instrumental studies produced largely inconclusive evidence
regarding its existence (Salzmann, 2002). This study is the first of its kind to include a
comprehensive description of the economic rationale for CSM as it is perceived by managers.
Furthermore the dataset on which this study relies is new, unique and – considering that this is
not a cross-sectional study – relatively large. Thus the study provides an extensive and current
benchmark for a so far unmatched variety of dimensions of CSM. It should be noted,
however, that due to its broad scope, it cannot provide detailed analyses of the individual
dimensions.
6
2 Theoretical foundation and concepts
In this section, the author provides an overview of existing theoretical frameworks and
definitions that relate to the study’s research objective and key concepts (see Figure 2-1).
Section 2: Theoretical foundation and concepts
2.2 Corporate sustainability
management and related
theoretical frameworks:
• Corporate social responsibility
• Corporate social performance
• Corporate sustainability
2.3 Key concepts:
• Determinants
• Corporate sustainability
management
•Outcomes
2.1 Contingency theory
Figure 2-1: Structure of section 2
2.1 Contingency theory
Contingency theory was popularized in the 1960s in particular (Dessler, 1976; Fiedler, 1967).
It states that management and organizational life are situational and subject to contingencies.
The theory has a wide range of applications, such as e.g. in organization design as well as
leadership and behavior (Luthans et al., 1977, p. 183).
It implies that the strategies, structures and practices of an organization depend on the way in
which environmental variables become relevant to it (Longenecker & Pringle, 1978). Luthans
and Stewart (1977) attempted to develop a general contingency theory of management and
defined the contingency approach as identifying and developing functional relationships
between environmental (e.g. culture, technology, raw materials), management (e.g. planning,
leadership) and performance variables. They also offered a detailed classification of the
variables they incorporated (p. 184). However, their theory has several shortcomings. Most
importantly it is very complex and lacks a description of the functional relationships between
the variables. Hence it is not a general theory in a strict sense (Longenecker et al., 1978, p.
681; Luthans & Todd, 1978, p. 685).
It is obvious that contingency theory also applies to the domain of corporate social
responsibility and performance. Early empirical studies in that area pointed to the need to
examine corporate social performance and responsiveness contingently upon factors such as
organizational size, relevance of issues and industry characteristics (Abouzeid et al., 1978;
Arlow et al., 1982; Buehler et al., 1979; Holmes, 1977, 1978; Shetty, 1979). However,
theoretical foundations in the domain only emerged much later: Husted (2000) presented an
issue-contingent model, arguing that a better fit of corporate strategies and structures with
social issues increases social performance. Furthermore, Greening and Gray (1994) presented,
based on their empirical analysis, a model that incorporates institutional pressure, managerial
discretion and firm size as the key determinants of corporate issues management structures.
The author will describe both studies (Greening et al., 1994; Husted, 2000) in more detail in
section 2.2.2 Corporate social performance.
2.2 CSM and related theoretical frameworks
An assessment of the current academic literature quickly reveals that the term “CSM” is only
rarely used. Scholars have focused more strongly on other concepts such as corporate
sustainability and in particular corporate social responsibility and corporate social
7
performance. In the following paragraphs the origins, meanings and links of the different
terms will discussed in more detail.
2.2.1 Corporate social responsibility
The origin of corporate social responsibility (CSR) can be traced back to the first half of the
last century or even further to the industrial revolution. During the 1950s and 1960s, the
notion gained more importance through contributions from authors such as Bowen (1953) and
McGuire (1963) who reacted to emerging social issues of employee and human rights in the
US. A comprehensive scholarly framework developed virtually exclusively in the US through
contributions from authors such as Carroll (1979), Wartick and Cochran (1985), Wood
(1991), Swanson (1999) and McWilliams (2001).
Studies mainly searched for principles to guide business in terms of its role in society, i.e.
factors that motivate business to certain levels of responsiveness to social and environmental
issues, and discussed several theories such as agency theory (Friedman, 1970), stakeholder
theory (Freeman, 1984) and corporate social performance models (Carroll, 1979; Wartick et
al., 1985; Wood, 1991). Overall, the concept of corporate social responsibility varies greatly
across the different management and academic disciplines. Probably the most significant
contribution comes from Carroll (1979) with his definition of four categories of social
responsibility. He defined the four categories – economic, legal, ethical and discretionary
responsibility – as hierarchical but not mutually exclusive concepts and argued that they could
serve as principles for managers selecting adequate corporate responses to a specific issue.
Carroll acknowledged companies’ economic responsibility to generate profits as the
fundamental organizing principle and thus defused arguments relating to the priority of
economic over social responsibility (Friedman, 1970). The remaining three principles are
defined as follows: The legal responsibility of business is compliance with existing regulation;
the ethical responsibility refers to fulfilling society’s expectations or avoiding causing harm;
the principle of discretionary (also later called philanthropic) responsibility refers to actions
that are not expected by society or those that bring about social benefits.
The 1980s mainly saw empirical instrumental studies investigating the economic effects of
different levels of corporate social responsibility. Since then scholars have partly refocused on
theoretically sound and practical principles for corporate social responsibility (Carroll, 1999;
Whetten, Rands, & Godfrey, 2002, p. 381). Wood’s (1991) formulation of three fundamental
principles as part of her reformulated corporate social performance model remains one of the
most significant contributions to date. The model comprises the institutional principle of
legitimacy (proper use of power), the organizational principle of public responsibility
(responsibility for outcomes related to the primary and secondary activities of businesses) and
the individual principle of managerial discretion (managers’ responsibility to exercise the
discretion available to them to contribute to socially responsible outcomes) (Wood, 1991, p.
696). It will be discussed in more detail in sections 2.3.1.1 to 2.3.1.3.
2.2.2 Corporate social performance (CSP)
The concept of corporate social performance refers to corporate behavior rather than to
principles that guide the behavior. The first key theoretical contributions originated in the
1970s: Sethi (1975) argued that corporate social performance is culturally and temporally
determined and presented a three-state schema for classifying corporate behavior, which
comprised (1) social obligation (proscriptive), (2) social responsibility (prescriptive), and (3)
social responsiveness (anticipatory and preventive). Subsequently, Carroll (1979) introduced a
three-dimensional corporate social performance model. It comprised (1) social responsibility
encompassing the four categories referred to above, (2) social issues that change over time
8
and differ between industries, and (3) social responsiveness that stands for “an action phase of
management responding in the social sphere“ (Carroll, 1979, p. 502).
Wartick and Cochran (1985) continued with Carroll’s three-dimensional CSP model. They
discussed three key challenges to the concept of social responsibility:
- The concept of economic responsibility attacks both basic premises of corporate social
responsibility: (1) the social contract that implies a set of rights and obligations that
business operation must follow, and (2) the idea of moral agency postulating an alignment
between the values of business and society.
- The concept of public responsibility (Preston & Post, 1975) calls for a discussion of which
issues are relevant or irrelevant and how responsibilities may be realized.
- The challenge of social responsiveness demands a shift of emphasis away from social
obligations to the process of social responsiveness.
They synthesized the challenges and existing models. First, both economic responsibility and
public responsibility were subsumed in one model. Second, social responsiveness was
included as a separate process dimension of corporate social performance. Third, corporate
social performance was based on the policies of (social) issues management (as a direct
extension of social responsiveness). Thus the authors created a principle/process/policy model
of corporate social performance. Corporate social performance was defined as “the underlying
interaction among the principles of social responsibility, the process of social responsiveness,
and the policies developed to address social issues” (Wartick et al., 1985, p. 758).
Wood (1991) revisited the model of corporate social performance and synthesized
formulations from several authors such as Carroll (1979) and foremost Wartick and Cochran
(Wartick et al., 1985). She addressed the following issues in existing theoretical literature
(Wood, 1991, p. 692):
1. The term “performance” refers to actions and outcomes – rather than interactions and
integration as conceptualized by Wartick and Cochran (1985). Hence an action component
needed to be added to the model of corporate social performance to facilitate the definition
of corporate social performance as such. Wood’s (1991) model features a process view of
social performance rather than an outcome-oriented approach as presented by Wood and
Jones (1995).
2. There are various facets of social responsiveness. Hence it is essential to see it as a set of
processes (e.g. stakeholder management, environmental assessment) rather than a single
process.
3. The outcome component of Wartick and Cochran’s (1985) model, namely policies, is too
restrictive. A comprehensive corporate social performance model should incorporate
additional dimensions of outcome such as programs and other observable outcomes (e.g.
social impacts of corporate behavior).
4. Corporate social performance is a “neutral” concept in the sense that it is not limited to
responsible companies: It can be positively or negatively evaluated.
Wood (1991, p. 693) defined corporate social performance as a company’s “configuration of
principles of social responsibility, processes of social responsiveness, and policies, programs,
and observable outcomes as they relate to the firm’s societal relationship” (see Figure 2-2 for
a visualization of the model): It is process- rather than results-oriented: Corporate social
performance is seen as a configuration of drivers, processes and outcomes, rather than as an
outcome only.
9
She also suggested that the three guiding principles of social responsibility – public
responsibility, legitimacy and managerial discretion (discussed in more detail in 2.3 Key
concepts) – should not be understood as absolute standards, but as “analytical forms to be
filled with the content of explicit value preferences that exist within a given cultural or
organizational context and that are operationalized through the political and symbolic
processes of that context” (Wood, 1991, p. 700).
Corporate social performance
as business organization's configuration of
Principles of social responsibility
Processes of social responsiveness Outcomes of corporate behavior
Public
responsibility Legitimacy Managerial
discretion
Environmental
assessment
Stakeholder
management
Issues
management
Social
impacts
Social
programs Social policies
Figure 2-2: Wood’s corporate social performance model – based on Wood (1991)
Wood discussed three processes that are interlinked and partly overlap: environmental
assessment (analysis of the company’s business environment), stakeholder management (the
management of stakeholder relationships), and issues management (minimizing surprises,
crisis management, public affairs). Outcomes of corporate behaviors were categorized into the
social impacts of corporate behavior (although not explicitly named, environmental incidents
such as oil spills were also accounted for), corporate social programs (investments of
resources in some course of action) and corporate social policies to guide decision-making
(Wood, 1991, p. 709). It should be noted that – unlike social programs and social policies –
social impacts exist both within and beyond the organization (hence the white rather than the
blue box in Figure 2-2 – in contrast to the other outcomes and the processes of social
responsiveness). It is important to note that Wood (1991) primarily presents a “classificatory
device” rather than a theory, as the nature of the relationships between the elements of her
model remain unclear.
Since Wood’s refinement, research has increasingly focused on measurement and theoretical
development (Collins & Starik, 1995; Greening et al., 1994; Griffin, 2000; Griffin et al., 1997;
Husted, 2000; Moore, 2001; Simpson & Kohers, 2002; Swanson, 1999; Wood et al., 1995).
As Carroll (1999, p. 292) also pointed out, revised or adapted frameworks have not emerged
distinct from existing frameworks and are unlikely to do so in the future. Nevertheless two
subsequent models of corporate social performance will be discussed in more detail, as they
also – like the present study – incorporate a contingency approach.
10
Based on empirical analysis, Greening and Gray (1994) presented a contingency model for
corporate social performance that incorporates both institutional theory and resource
dependency theory. Partly in alignment with Wood (1991), they concluded that corporate
social performance is driven by issues management structures which are in turn motivated by
external institutional pressures, i.e. legitimacy, and organizational response capabilities (Gray,
1994, p. 491).
Husted (2000) formulated an issue-contingent model of corporate social performance as “a
function of the match between the social issues and the varieties of response that are available
to the firm” (p. 25). His model implies that aligning strategies and structures to social issues
will lead to greater social performance. In contrast to Wood’s (1991) model, it is results-
oriented, as he defines corporate social performance “as the extent to which stakeholders’
expectations regarding the firm’s behavior with respect to those same or other relevant
stakeholders are satisfied or exceeded” (p. 31). He continued to present several hypotheses
about which strategies (computation, discovery, inspiration, bargaining) and structures
(bureaucratic, collegial, organized chaos and representative) should be used to achieve the
alignment between the firm and its environment most effectively, depending on the nature of
the existing social issue, which he defined in terms of different kinds of expectational gaps
between the company and its stakeholders (see also section 2.3.1.1)
2.2.3 Corporate sustainability
Corporate sustainability was “born” with a slight environmental emphasis at the end of the
1980s. It is based on the normative since multigenerational concept of sustainable
development.4 In general, compared to corporate social responsibility, it is seen as the broader
organizing principle, because it differs from the traditional management paradigms of growth
and profit maximization by incorporating a societal three-dimensional (economic,
environmental and social) goal of sustainability for corporations, governments and civil
society (Wilson, 2003). Business responded to the “call” of the Brundtland Report (World
Commission on Environment and Development, 1987) with the Business Charter for
Sustainable Development (1990) and Changing Course (Schmidheiny, 1992) which was
endorsed by the then Business Council for Sustainable Development. Both argued for a
synergistic rather than dualistic relationship between economic performance on the one hand,
and environmental and social performance on the other.
Corporate sustainability was subsequently refined by several authors (Marrewijk, 2003;
Marrewijk & Werre, 2003; Starik, 1995, p. 916). Alongside sustainable development, Wilson
(2003) identified three key constituents of corporate sustainability:
- Corporate social responsibility, which offers ethical arguments for managers’ and
companies’ engagement in sustainable development.
- Stakeholder theory which provides the necessary business arguments, as it suggests that
more sustainable business practices will improve companies’ relationships with their
stakeholders.
- Corporate accountability, which complements corporate social responsibility by referring
to companies’ duty to explain and justify corporate activities rather than to the need to
engage in them.
4 There are a variety of definitions for the term sustainable development. The most common one originates from
the Brundtland Report (World Commission on Environment and Development, 1987), in which sustainable
development is defined as a development that meets the needs of present generations without compromising the
ability of future generations to meet their needs.
11
As these more recent contributions show, improving the theoretical basis of corporate
sustainability remains a challenging task, since the underlying normative concept of
sustainable development is more complex than that of corporate social responsibility due to its
multi-dimensional and multi-generational nature. It is also obvious that any theoretical
foundation of corporate sustainability will to a certain extent “fall back” on the already
existing frameworks for corporate social responsibility and social performance.
2.2.4 Discussion
A review of existing theoretical frameworks reveals significant differences in terms of two
criteria:
1. Comprehensiveness: Both corporate social responsibility and corporate social
performance feature a strong and conclusive theoretical basis. In contrast, corporate
sustainability is hardly theoretically grounded.
2. Focus: Corporate social responsibility and corporate sustainability are conceptualized as
principles that motivate corporate behavior. In contrast, models of corporate social
performance are a lot broader: Alongside motivating principles, i.e. drivers of corporate
behavior, they include corporate behavior as such (processes of social responsiveness) and
its outcome. Furthermore, the notion of corporate social responsibility tends be more
narrow and less strongly focused on environmental (more strongly on social) effects of
corporate activities than corporate sustainability (Marrewijk et al., 2003). The meanings of
both concepts have increasingly converged (Wheeler, Colbert, & Freeman, 2003, p. 2),
and are nowadays often considered synonyms.
Since the present study aims to analyze the determinants of and resulting approaches to CSM,
the theoretical framework of corporate social performance is best suited. To date, the models
of Wood (1991), Greening and Gray (1994) and Husted (2000) represent the most stringent
theoretical foundations. As the author will illustrate in the following, they differ in terms of
their strengths and weaknesses.
Lack of differentiation between social and environmental issues
Wood (1991, p. 708) focuses on the short-term social impacts of corporate behavior (factory
disasters, illegal payments, etc). Here it is necessary to broaden the framework to explicitly
differentiate between social and environmental issues, and thus take into account the pure
environmental, i.e. biophysical, constraints (see section 2.3.1.1 Issues – the principle of public
responsibility) of economic activities (Starik & Rands, 1995, p. 909). Similarly, Greening and
Gray (1994) and Husted (2000) fail to distinguish between the two issue dimensions.
Inadequate process-orientation: From motivating principles to strategy,
implementation and outcome
As pointed out earlier, Wood’s (1991) model is a classificatory device that does not describe
functional theory-based relationships between its elements. Furthermore, its systemization of
processes (e.g. stakeholder management) and outcomes (e.g. social programs) does not lend
itself to an analysis of how external and internal determinants influence companies’ strategic
disposition to CSM, which in turn influences the implementation of CSM and eventually the
outcome (i.e. actual social and environmental effects) of CSM.
Husted (2000) takes a systems approach to social issue strategies, based on which the “nature
of the social issue determines ideal strategy and structure that must be used to achieve an
alignment between the firm and its social environment” (p. 34). He links certain strategies and
structures to higher satisfaction of relevant stakeholders’ demands (p. 36). His process
orientation is very specific – clearly too specific for the present study, which was designed to
12
detect commonalities and differences between industries across the “entire process”, i.e. from
motivating principles to outcome.
Greening and Gray’s (1994) model also incorporates a process view of external and internal
determinants that influence the choice of corporate responses and resulting corporate social
performance. However, their framework primarily relates to issues management structures
and does not differentiate between strategic disposition and implementation.
Partial ignorance of company-specific determinants
Wood’s (1991) framework does not account for company-specific determinants of CSM, a
concept the author defines – following the terminology of managerial discretion – as corporate
discretion. Corporate discretion has been referred to – even if not explicitly – in the context of
two other motivating principles, legitimacy and managerial discretion: Davis (1960) states
that the social responsibility of businessmen is influenced by the cultural framework,
objectives and policies of their companies. Wood (1991, p. 700) notes that the principle of
managerial discretion focuses on the “options and opportunities available to individual actors
within their organizational and institutional contexts.” The author of this study postulates that
internal drivers such as corporate culture, tools and processes are significant motivating
factors that influence (and are influenced by) managerial discretion: Managers’ proactive
attitudes are more likely to result in corresponding behavior (i.e. decision-making) when their
working environment is “in tune” with them. Nevertheless, a differentiation between
corporate and managerial discretion is clearly meaningful, because, for example, personal
attitudes and corporate culture do not necessarily match.5
Whereas Greening and Gray (1994) separately and explicitly consider corporate discretion –
under the label of resource dependencies/firm capabilities – and top management discretion
(p. 491), Husted’s (2000) model implicitly incorporates them into the different issue types.
For example, Husted’s (2000) type 2 social issue may involve an incongruence between the
firm’s perception of corporate vision/purpose and its external stakeholders. This incongruence
may be partly caused by both corporate and managerial discretion (p. 32).
Lack of consideration of economic rationale
Wood largely neglects the economic rationale for processes of social responsiveness, although
its importance is implicit (Freeman, 1984; Wilson, 2003, p. 4): Without profits, a firm
neglects its economic function, its first and foremost social responsibility (Carroll, 1979, p.
500), and thus risks losing the license to operate from several stakeholders such as owners and
employees. Greening and Gray (1994) include both corporate social and financial
performance as an outcome component in their model. Husted (2000) implicitly takes into
account the economic rationale, as he defines corporate social performance in relation to the
(profit-driven) satisfaction of stakeholders. Overall, however, the business case for corporate
sustainability is only marginally discussed in any of the frameworks presented.
2.3 Key concepts
Having discussed the existing theoretical frameworks relevant to this study, in this section the
author introduces the corresponding key concepts that comprise:
- the determinants of CSM
- CSM and the individual subdimensions of strategic disposition, the economic rationale
and implementation
5 In fact, corporate discretionary factors such as investment in human resources directed at environmental issues
have already been tested empirically under the label of the managerial discretion (Henriques & Sadorsky, 1995).
13
- and the outcome of CSM.
2.3.1 Determinants of CSM
The determinants of CSM comprise the three principles of social responsibility that feature in
Wood’s (1991) model of corporate social performance: public responsibility (issues),
legitimacy (stakeholders) and managerial discretion (managers). As stated above, Wood’s
model does not account for company-specific determinants such as corporate culture. In the
present study they are explicitly accounted for. In analogy to Wood’s three original principles,
company-specific determinants are summarized under the principle of corporate discretion.
2.3.1.1 Issues – the principle of public responsibility
The principle of public responsibility refers to the “functions of organizational management
within the specific context of public policy” (Preston et al., 1975, p. 10). It postulates that
“businesses are responsible for outcomes related to their primary and secondary areas of
involvement with society” (Wood, 1991, p. 697).
Hence, it does not allow a definition of corporate responsibility through personal preferences
and the social connections of firms’ top executives. However, it leaves room for managerial
interpretation of the relevance of problems (Wood, 1991, p. 698). It targets companies at the
organizational level but does not require them to solve all of society’s social and
environmental problems (Wood, 1991, p. 697).
Wartick and Mahon (1994, also cited in Husted, 2000, p. 32) classified social issues based on
different kinds of expectational gaps: (1) a cognitive conflict due to disagreements about the
reality (e.g. different perceptions of environmental problems), (2) a conflict of vision and
purpose (e.g. different perceptions of the legitimacy of producing a potentially harmful
product), and (3) goal incongruence, e.g. conflicting goals and purposes between a company
and its stakeholders (i.e. clash with a competitor’s different corporate strategy).
Along these lines, the author of the present study defines an issue as any kind of social or
environmental problem that is caused through companies’ primary and secondary activities
(also a lack of engagement), and which may eventually lead to expectational gaps between the
company and its stakeholders. However, he will not differentiate between the different kinds
of gaps described above, but rather between the environmental and social nature of issues.
Issues can differ across several dimensions that are interdependent and influence the strength
of the underlying motivating principle: scope (global vs. local), sensory visibility (sight,
smell, etc.), certainty (determinability of impacts), transparency (determinability of cause) and
emotivity (Bansal & Roth, 2000; Bowen, 2000, p. 100).
The principle of public responsibility is empirically supported by various studies (e.g. Agle &
Mitchell, 1999; Bansal et al., 2000; Cordano & Frieze, 2000; Henriques et al., 1996;
Lawrence & Morell, 1995; Rondinelli & Berry, 2000; Winn, 1995). It is also linked to the
principle of legitimacy: Obviously, the significance of an issue to a company depends on the
existence of at least one stakeholder who is willing to reward or punish corporate activities
that do or do not address the issue, i.e. the stakeholder’s demand links the issue to financial
threat or opportunity.
Scholars began discussing the significance of social issues relatively early – in fact
environmental issues were treated as being of a social and an economic nature (Throop,
Starik, & Rands, 1993, p. 66). Environmental issues were only recognized very late by
strategic management theories, despite their biophysical and thermodynamic significance as is
briefly illustrated in the following two paragraphs:
14
- The law of entropy states that disorder in any closed physical system is always increasing.
Localized reduction of entropy within human organizations and other biological systems is
only possible “at the expense of much greater amounts of disorder in the surrounding
environment” (Throop et al., 1993, p. 72). This means that economic activities are
inherently linked to increases in entropy, e.g. through the use of fossil fuels.
- Carrying capacity stands for the maximum population an environment can “sustain”
without incurring long-term damage. For the human species, lifestyles play a significant
additional factor since they determine intensity of consumption. Current levels of
consumption are believed to be approaching or even exceeding the thresholds of global
carrying capacity (Starik et al., 1995, p. 910).
Obviously environmental issues are largely sector-specific. In the energy sector they span a
growing range of pollutants, hazards and ecosystems, but are also due to several factors such
as population growth, economic development and lifestyles that are partly beyond the energy
industry’s control (e.g. air emission from mobility sector). They are mainly associated with
the production and consumption of fuels, and most importantly include acid precipitation
(through SO2 and NOx emissions associated with the use of fossil fuels), stratospheric ozone
depletion (NOx emissions), global climate change (mainly through CO2 emissions), the
emission of nuclear substances and the direct destruction of ecosystems through extractive
activities (Dincer, 1999).
Social issues primarily comprise fuel poverty, particularly in rural areas of developing
countries – also referred to as the North-South energy divide (World Energy Council, 1999).
They also include relocations due to large hydropower or surface mining projects (Khagram,
2003; Suzman, 1998) and fair allocation of oil revenues between often totalitarian national
governments and the local communities around extraction and production projects (Fritz,
2003; Gavin, 2003).
2.3.1.2 Stakeholders – the principle of legitimacy
The institutional principle of legitimacy originates from Davis (1960)’ Iron Law of
Responsibility. Davis defines social responsibility as “businessmen’s decisions and actions
that are taken for reasons at least partially beyond the firm’s direct economic or technical
interests (Davis, 1960, p. 70), and influenced by the cultural framework, objectives and
policies of their companies. He states that people have historically been concerned with
balancing power and responsibility. The Iron Law of Responsibility suggests that power and
responsibility are co-equal: Avoidance of social responsibility has led to the reduction of
power, since other societal groups, most importantly governments will assume the necessary
responsibilities. Society can amend or revoke a company’s charter to exist (i.e. license to
operate), if it does not use its power in a way that society considers responsible (Davis, 1973
p. 314). Thus the principle of legitimacy can be phrased as follows:
Society grants legitimacy and power to business. In the long run, those who do not use power
in a manner which society considers responsible will tend to lose it (Davis, 1973, p. 314 cited
by; Wood, 1991).
The principle of legitimacy is supported by several significant theoretical development such
as Freeman’s stakeholder theory – according to which firms should be responsible to “those
groups who can affect or are affected by the achievement of an organization’s purpose”
(Freeman, 1984, p 49), and legitimacy theory (Suchman, 1995). The latter transcends early
management theories that understood organizations as rational, social machines that
efficiently transform inputs to outputs. The underlying rationale is based on the concept of
organizational legitimacy, which Suchman defines as a “perception or assumption that the
actions of an entity are desirable, proper, or appropriate within some socially constructed
15
system of norms, values, beliefs and definitions” (Suchman, 1995, p. 574). Suchman
concludes that companies and their managers have significant room for maneuver to ensure
organizational legitimacy.
Numerous studies also empirically confirm the principle of legitimacy (Bansal et al., 2000;
Greening et al., 1994; Lawrence et al., 1995; Winn, 1995). The importance of stakeholders in
driving CSM depends on two factors: (1) their power to revoke a company’s license to operate
and (2) their demand for CSM. The latter factor is influenced by the legitimacy and the
urgency of the demand (Agle et al., 1999, p. 508).
It is also meaningful to differentiate between two kinds of licenses to operate: the formal and
the informal. The former is obviously granted by governments and regulators, the latter by
non-regulatory stakeholders such as capital markets, NGOs and customers. Since both kinds
are granted by different stakeholders, they can be amended or revoked for varying degrees of
corporate environmental and social effects, depending on each stakeholders’ individual
agenda. The informal license to operate includes intangible concepts such as brand value and
reputation, employee satisfaction (i.e. the goodwill of non-regulatory stakeholders). It is a
significant moderating factor of CSM for the following reasons. First, every company has to
have a formal license to operate. Hence a greater importance of the informal license to operate
is associated with a risk premium. Second, legislative processes are relatively slow compared
to possible ad hoc reactions from customers, NGOs or employees, which can affect the
informal license to operate immediately (e.g. brand damage due to consumer protests,
discontinued operations through strikes) (Steger, 2003, p. 73).
2.3.1.3 Managers’ attitudes – the principle of managerial discretion
The principle of managerial discretion focuses on the level of the individual. It states that
socially responsible action is not carried out by an abstract organization but by managers
who have an individual’s right and responsibility to act responsibly within a given economic,
legal and ethical framework (Wood, 1991, p. 698).
The principle is based on the premise that society and companies provide managers with a set
of choices (Ackermann, 1975, p. 32). Job description and corporate procedures leave
managers’ significant room to act more or less responsibly as individuals. Individual decisions
are determined by several factors such as personal attitudes and values, which may vary
according to different cultural backgrounds, levels of experience, etc (Wood, 1991, p. 700).
As Dutton et al. (1983) state in their framework on strategic issue diagnosis, managers also
have significant impact on how issues are organized and explored – i.e. on developments that
precede the actual managerial decision – through their cognitive maps and political interests
(p. 10) which influence cause-effect understandings, predictive judgments, language and
labels.
A theoretical principle of socially responsible human action has been missing for a long time.
Whereas literature on corporate social responsibility primarily emphasized organizational
reaction to external demand, business ethics was to some extent more concerned with the
action of individuals within the organization (Whetten et al., 2002, p. 382). Models of ethical
and unethical behavior in companies were largely absent until the end of the 1980s, when
Bommer et al. (1987, p. 265) developed a model that explains decision-making through the
individual problem situation or dilemma and several environmental (such as social,
professional and personal) factors.
The importance of the principle of managerial discretion has been empirically confirmed by
various authors (Andersson & Bateman, 2000; Bansal et al., 2000; Cordano et al., 2000; Egri
& Herman, 2000; Greening et al., 1994; Morris, Rehbein, Hosseini, & Armacost, 1990;
Sturdivant & Ginter, 1977; Winn, 1995).
16
2.3.1.4 Company-specific determinants – the principle of corporate discretion
The principle of corporate discretion is not an explicit part of Wood’s framework, although it
is interlinked with managerial discretion. In analogy to the latter, it states that
companies have the potential and responsibility to provide an adequate organizational and
institutional context for the mindset and activities of its employees
through e.g. corporate cultures, corporate objectives and policies (Davis, 1960; Wood, 1991,
p. 700). Company-specific factors constitute important determinants of how strongly
companies exercise their discretionary powers to resolve social and environmental issues:
“Though external factors create incentives and expectations for firms, intrafirm dynamics are
likely to influence how managers perceive, interpret and translate these external pressures into
actionable items” (Griffin, 2000, p. 485). Bommer et al. (1987, p. 271) also argue that
corporate goals, policies and culture “strongly influence managers’ decisions on whether to
act ethically or unethically.” Furthermore, Fredrickson (1986) suggests that – in addition to
the undisputed “structure follows strategy” – structure has a significant effect on strategy,
particularly when strategy is not sufficiently institutionalized (p. 295). This is likely to be
particularly relevant to CSM if strategy lacks – as it is often the case (Morsing, 2003) –
institutionalization and integration into business strategies.
Several empirical studies have confirmed the importance of corporate discretion, although the
authors never explicitly referred to the principle as such. In fact Henriques and Sadorsky
(1995) tested and partly confirmed firms’ financial positions and investments in human
resources as determinants of environmental responsiveness under the explicit label of
“managerial discretion.” Other authors ascertained the role of corporate structures (Lawrence
et al., 1995, p. 116; Swinth & Raymond, 1995), corporate tools (Kolk & Levy, 2001),
corporate culture (Cruz Deniz-Deniz & Garcia-Falcon, 2002) and organization size (Greening,
1995, p. 487) in influencing individual dimensions of CSM such as climate change strategies,
emission reductions, issue management structures and social programs.
2.3.2 CSM
As outlined above, a widely accepted definition of corporate sustainability is missing in the
theoretical literatures to date. The notions of corporate sustainability and sustainable
development are rather abstract and constitute rather guiding principles for corporate activities
(Marrewijk, 2003; Marrewijk et al., 2003; World Commission on Environment and
Development, 1987).
In most corporate social performance models, the notion of responsiveness provides “an
action counterpart to the principled reflection of social responsibility” (Wood, 1991, p. 703).
This action counterpart, which corresponds to the meaning of CSM in the present study, has
been systemized in different ways (Ackermann, 1975; Strand, 1983; Wood, 1991). However,
none of them differentiated between strategy and implementation. The author argues that this
differentiation is meaningful, because it takes into account that corporate responsiveness
through processes such as environmental assessment, stakeholder management and issues
management (Wood, 1991, p. 703) is contingent upon:
- a more or less conscious strategic decision to react to the motivating principles, i.e.
drivers, more or less strongly and systematically (strategic disposition). This decision
obviously relies on how companies recognize and evaluate drivers, and how they perceive
the financial effect of responding to them, i.e. how strong and sound their economic
rationale is.
- and a company-specific approach to implementing this strategic decision through different
means such as management tools, structures, etc. (implementation).
17
In this situation it appears obvious to go beyond existing notions of corporate social
responsiveness, also to consider both social and environmental issues. The resulting definition
refers to CSM as:
The strategic and profit-driven corporate response to environmental and social issues that are
caused through the organization’s primary and secondary activities. It incorporates a certain
level of strategic disposition to respond, is based on a more or less elaborated economic
rationale and implemented through tools, structures and initiatives.
The first part of this definition is rather close to that of issues management which has been
described as a firm’s identification, analysis and response to social and – in the case of
strategic issues management as defined by Dutton (1987) – purely competitive issues
(Greening et al., 1994). However, the author intentionally refrained from using this
terminology to dissociate the concept of CSM from the usual “dangerous” connection of
issues management with public relations and crisis management (see also p. 26).
The attribute “strategic” emphasizes the need for a systematic and integrated approach, the
attribute “profit-driven” stresses the importance of a sound economic rationale for resolving
issues under consideration and thus acknowledges economic responsibility as the fundamental
organizing principle: A firm can only successfully resolve issues associated with its activities
if it generates profits in the mid to long term.
CSM as defined above incorporates three important subconcepts, namely strategic disposition,
economic rationale and implementation. Since none of them has been described and defined
in the context of corporate social responsiveness or related concepts before, the author
provides definitions in the following paragraphs.
Strategic disposition
The strategic disposition to CSM refers to
companies’ willingness to integrate social and environmental issues systematically and
persistently into their business strategies.
Thus it represents the strategic component of corporate social and environmental
responsiveness. It is influenced by the four motivating principles described above: public
responsibility, legitimacy, managerial discretion and corporate discretion.
Economic rationale
The economic rationale for CSM has been conceptualized through the notion of the business
case for sustainability (Epstein et al., 2003; Holliday, Schmidheiny, & Watts, 2002; Perceval,
2003; Reed, 2001).6 If a significant positive economic net effect of integrating an
environmental or social issue into business strategies or operations can be clearly diagnosed,
one usually speaks of a strong business case for sustainability. Obviously, the stronger the
business case (e.g. improved reputation and process efficiency), the greater the motivation for
CSM (Bansal et al., 2000).
It should be noted that the term “business case for sustainability” is still rarely used among
scholars who, particularly in the US, refer rather to a positive financial-social performance
link (e.g. Griffin et al., 1997; Preston & O'Bannon, 1997; Stanwick & Stanwick, 1998a). This
link is also at the root of the major frameworks building a theoretical business case for
sustainability. They primarily comprise the social impact hypothesis (Cornell & Shapiro,
1987) and the good management hypothesis (Waddock & Graves, 1997). Several authors have
6 To fully adhere to the terminology used in the present study, one would have to use the term “the business case
for CSM.” However the author has stuck with the original notion, since it is already relatively commonly used
today.
18
also explicitly discussed a non-linear, inverted U-shaped relationship between environmental
or social and financial performance (Alanen, 1998; Lankoski, 2000; Salzmann, 2002;
Schaltegger & Synnestvedt, 2001; Steger, 2004). An inverted U-shaped relationship not only
explains the largely inconclusive empirical evidence on the link between environmental or
social and financial performance, but is also intuitively appealing since “exaggerated”
improvements of environmental or social performance (e.g. towards a zero emission goal) are
extremely costly, and would most certainly damage corporate profits.
A business case for sustainability can only be built systematically through a process that
recognizes relevant social and environmental issues and the economic potential of resolving
them and integrates them into strategies.
This process, in the following text referred to as issue integration, should not be confused with
the notion of issue management, which still largely has a connotation of issue shaping through
public relations, crisis management, etc. (Ansoff, 1975; Arrington & Sawaya, 1984).
Implementation
Applying contingency theory to organization design suggests that there is no best way to align
organization to a strategic decision, but all alternatives are not equally suitable (Galbraith &
Kazanjian, 1986, p. 9). Various “soft” (e.g. corporate culture) and “hard” (e.g. structure)
means exist to fulfill this task. They comprise inter alia management tools such as e.g.
incentive systems, tasks and initiatives (i.e. concrete actions depending on how the strategy is
operationalized) and structures (e.g. cross-disciplinary, cross-business teams) (Hussey, 1996,
p. 8; Maxwell, Rothenberg, Briscoe, & Marcus, 1997, p. 120).
In the present study, three dimensions of the implementation of CSM are considered:
1. The portfolio of management tools that companies use to ensure that the strategic
disposition is implemented
2. The portfolio of initiatives that companies carry out to resolve environmental and
social issues. It should be noted that – to narrow the already immense scope of the
study – initiatives for stakeholder interaction (Wood, 1991, p. 704) will not be
accounted for, even though they constitute a significant component of sustainability
management.
3. The corporate structures and degree to which they facilitate collaboration between
sustainability experts and general managers (in the following referred to as cross-
disciplinary collaboration).
The third component is meaningful, because structures strongly determine companies’
information processing and learning capabilities (Steger, 1998, p. 232). Collaboration may
occur for a finite period of time in ad hoc cross-functional teams (Ford & Randolph, 1992, p.
272; Lawrence et al., 1995) or continuously in permanent management structures that have
been established for e.g. goal setting (Maxwell et al., 1997, p. 120). In any case, closer
collaboration between general management and (environmental or sustainability) experts
indicates a higher level of implementation, since it illustrates that the experts take a greater
role as advisors or change agents.
2.3.3 Outcome of CSM
Wood (1991) divides the outcome of corporate social performance into three types: social
impacts of corporate behavior, programs used to implement responsiveness and policies to
handle issues and interact with stakeholders (p. 708). She considers corporate social
performance a configuration of motivating principles, processes and outcomes. In contrast to
her process-oriented perspective, Greening and Gray (1994) and Husted (2000) prefer a
19
“results orientation” in their frameworks, i.e. the outcome of a corporate response is some
level of corporate social performance, defined as the extent to which stakeholders’
expectations are satisfied or exceeded (Husted, 2000)
As already elaborated above in section 2.2.4, for the purposes of this study it is more adequate
to define outcomes of CSM
as a change in the social and environmental effects of a company’s primary and secondary
activities, which results from undertaking social and environmental initiatives and affects the
company’s financial performance.
The definition is kept neutral, since the outcome of corporate initiatives is not necessarily
positive, particularly since it features three dimensions (environmental, social and financial),
which cannot – as discussed above – be expected to have a consistently synergistic
relationship (see also Griffin et al., 1997; Salzmann, 2002).
3 Review of empirical literature
In this section, the author will review the relevant empirical literature. He will begin with an
overview of empirical studies undertaken on both sectors (see Table 3-1). This overview will
be brief and concise to on the one hand provide some insight into research foci to date but on
the other to avoid redundancies: Any sector-specific research that is relevant to the present
study will be discussed in more detail in the coming subsections, in which previous research
in the study’s key concepts will be reviewed.
It is apparent that much more research has been done on the OG sector than on the UT sector,
largely due to its great visibility, the sheer scale of its operations, its financial power, and
environmental effects. Empirical studies on the two sectors primarily focus on:
- environmental issues (climate change in particular) and their external costs; as well as
stakeholder management (with a clear focus on the OG sector)
- corporate strategies and management paradigms (here the OG sector is clearly a more
frequent subject of studies)
- major drivers and trends in both markets such as supply security, consolidation through
mergers and acquisitions, market liberalization (in the UT sector only), etc.
20
Studies on the oil & gas (OG) sector Studies on the electric/gas utilities (UT) sector
Environmental issues in
general, in particular
those associated with
extractive activities and
emissions.
Dincer (1999), Garcia
(2003)
Market trends and
liberalization
Birnbaum (2002)
Corporate
responsiveness and
strategies
Sharma (1999), Perceval
(2003)
Climate change Asmus (2002)
Climate change
strategies
Asmus (2002), Kolk
(2001), Rowlands (2000),
Skjaerseth (2001),
Reinhardt (2001)
Nuclear power Stoett (2003), OECD
(2002)
Changing industry
structure through
mergers and acquisitions
e.g. Ernst (1999)
Management paradigms Adelman (1995), Pollio
(1999)
Long and short-term
stability of supply and
possible economic and
political implications
Tempest (1993), Moran
(1981)
Stakeholder and crisis
management
Steger (1997), Lawrence
(2002)
External cost of power
generation
Söderholm (2000),
Folland (2000)
Table 3-1: Empirical studies on OG and UT sector
Overall this leaves vast research areas such as a comprehensive analysis of the determinants
and outcome of CSM untouched. Sharma and Vredenburg’s (1994) and Perceval’s (2003)
contributions are rare exceptions but are merely qualitative in nature.
3.1 Determinants of CSM
In general, research taking a contingency perspective to examine various influential factors is
– despite several early studies in this domain – limited. This is because those studies only
focused on narrow aspects of CSM, e.g. changes in corporate structures (Holmes, 1978),
corporate preferences for social activities (Holmes, 1977) and corporate goals (Shetty, 1979).
Holmes (1978) found that structural alterations in large corporations in order to become more
socially responsive were industry-specific. She also identified industry-specific preferences
for certain kinds of social activities (Holmes, 1977): Whereas oil, gas and mining companies
were particularly inclined to reduce pollution, utility companies (alongside transportation and
communication firms) were more strongly focused on donations and recruiting racial and
ethnic minorities (p. 436). Shetty (1979) similarly concluded that industry-specific strategic
issues and company size influenced the (also socially-oriented) configuration of corporate
goals.
Studies on managers’ attitudes toward corporate social responsibility are relevant for two
reasons. First, they point to the principle of managerial discretion, particularly since they have
been able to link managers’ attitudes to corporate responsiveness (e.g. Sturdivant et al., 1977).
Second, they provide complementary evidence for the contingent character of CSM, since
they detected several significant determinants of attitudes:
- Organizational activity: Leaders in nonprofit environmental organizations are more pro-
environment and more receptive to transformational leadership (i.e. fundamental
21
transformation of mission, structure, culture, etc.) than leaders in for-profit environmental
product and service organizations (Egri et al., 2000)
- Management level: Marz et al. (2003) found that mid-level and female managers exhibited
higher social orientation than their low-level and male counterparts.
- Age: Collins and Ganotis (1973) detected an “unexpected” lowest sense of personal
responsibility among young managers.
Country influences appear to be less important. Quazi and O’Brien (2000) tested the validity
of their two-dimensional model of CSR across two national cultures (Australia and
Bangladesh) and found that differing cultural and market settings were found to have little
effect on managers’ CSR concepts. Similarly, Maignan and Ferrel’s (2000) cross-national
study (US, France) on a four-dimensional model of corporate citizenship revealed only a few
differences between the samples.7
Another set of studies examined determinants of varying concepts of corporate social or
environmental responsiveness. Since virtually all of these studies analyze a set of several
determinants, a detailed determinant-specific discussion would become rather opaque. It
should be noted that the empirical findings of all studies have been respectively briefly
referred to already in sections 2.3.1.1 to 2.3.1.4 above in the context of the corresponding
determinant. However, in the following the author will only discuss the most significant
contributions in more detail:
Greening and Gray (1994) analyzed differences in corporate structures for issues management
and their determinants within similar macro-institutional environments. Based on their
empirical testing of hypotheses incorporating both institutional and resource dependency
theories, they developed a contingency model of corporate social performance, which includes
– consistent with Wood’s (1991) model – societal demands and organizational response
capabilities (Greening, 1994, p. 491). They concluded that a combination of institutional
pressure, managerial discretion and firm size determines variations in issues management
structures. The authors also controlled for possible industry influences in their data and found
that oil and gas companies as well as utilities were less likely than food processing companies
to employ committees for issues management activities.
Winn (1995) studied the determinants of innovative environmental policy changes through
interviews she conducted in four US firms. Firms surveyed (American Airlines, Bank of
America, Patagonia Inc., and StarKist Tuna Company) were selected to represent a wide
range of different companies in terms of age, size, ownership structure and industry sector.
Winn identified “changing legitimacy demands by various pressure groups in conjunction
with the presence of a management champion” as the most significant drivers of policy
changes.
In their survey of 400 large Canadian firms, Henriques and Sadorsky (1995) quantitatively
examined the determinants of environmental responsiveness (operationalized through a
formulated plan for dealing with environmental issues). Regression analysis indicated that
environmental responsiveness was positively influenced by several company-specific factors
(such as having a person responsible for environmental issues, the existence of an issue
committee, sizable assets due to high level of managerial complexity and public visibility),
environmental issues that were seen as very important, and outside pressure from
shareholders, customers, regulators (due to high cost of non-compliance). A firm’s
7 Attitudes towards CSR were also investigated by e.g. Arlow et al. (1982), Bowman (1977) Holmes (1976) and
Rojsek (2001).
22
profitability and information-related investments had no influence. In another paper based on
the same data, the authors adopted a different statistical approach and detected significant
effects of outside pressure, a firm’s sales-to-asset ratio8, the importance of environmental
issues and industry sectors: Compared to the manufacturing sector, the natural resource sector
was more, and the service sector less environmentally responsive (Henriques et al., 1996).
Lawrence and Morell (1995) analyzed environmental management practices and their drivers
through case-study research in eight US manufacturing firms. Facilities were selected based
on previous significant progress in reducing hazardous chemical emissions, achieved through
excellence in environmental management. The authors identified a complex interaction of
four factors leading to proactive environmental practices: Motivation (through regulation,
competitive advantage, top management), opportunity (defined as a recognized occasion for
change such as the introduction of a new product), resources (financial, technical and
informational) and processes (such as line management involvement, cross-functional team,
TQM processes, environmental audits and incentive systems).
Sharma et al. (1999) analyzed corporate environmental strategies in the Canadian oil and gas
industry in terms of issue interpretation and organizational context elements. The authors
conducted 19 interviews with senior executives and middle managers in seven different
companies. Based on this multi-case study approach, they were able to differentiate between
reactive and proactive strategies, which were driven by risk reduction and the creation of
competitive advantage, respectively. They found that leaders appeared to adopt proactive
opportunity-based approaches, whereas laggards exhibited more reactive and threat-based
strategies (p. 94). Differences in strategies were additionally attributed to the following
dimensions of organizational context: timing of response, issue legitimation through top
management, information flow and control (incentive) systems.
Bansal and Roth (2000) identified the following motivations for ecological responsiveness
(defined as a set of corporate initiatives aimed at reducing environmental impact) through a
qualitative study on two large UK firms: (1) the potential to improve long-term profitability
(competitiveness) from improved reputation, process efficiency, etc. ; (2) legitimation in order
to avoid undermining the license to operate or long-term survival; and (3) ecological
responsibility. Although motivations were found to be mixed, firms were largely driven by
legitimacy, less by competitiveness, and even less by ecological responsibility.
Skjaerseth and Skodvin (2001) discussed differences in the climate policy strategies of Shell
and Exxon Mobil based on two models. The corporate actor model explains strategic choice
through company-specific factors (in this study: environmental risk, environmental reputation
and organizational learning); the domestic politics model suggests that differences in climate
policy strategies are due to country-specific societal demands and governmental pressure. The
authors concluded that observed differences in strategies cannot be explained through
company-specific features, but rather through the variation in societal and political context.
Kolk and Levy (2001) analyzed developments in oil companies’ climate change strategies and
identified several explanatory factors. These included the location and timing of changes in
strategies (socio-cultural and regulatory context), companies’ economic and market position,
and internal organizational factors (degree of centralization, position of CEO, corporate
culture).
Dunn (2002) compared corporate climate change strategies and their drivers. He identified
three major determinants of climate policy risk, which vary across industry sectors and
8 A high ratio is seen as an indicator of firms that work close to capacity, and thus may be more concerned with
reengineering and restructuring than environmental issues (Henriques et al., 1996).
23
countries, and drive corporate climate change strategies (technology, economics and policy).
Since the perceived risk of climate policy is relatively high among electricity and energy
suppliers, they exhibit relatively active climate change strategies. Dunn also specifically
points to cross-functional variation in terms of involvement in government trading schemes
and investment in long-term energy sources, and a transatlantic divide of corporate positions
due to different government policies and public opinion.
Banerjee et al. (2003) empirically examined antecedents of corporate environmental
orientation and environmental strategy. Based on multigroup path analysis of data from 243
North American managers, they concluded that public concern, regulatory forces, competitive
advantage and top management commitment constitute important drivers of corporate
environmentalism. Furthermore, they found that several of these effects are moderated by
industry type. Whereas high environmental impact industries are mainly driven by public
concern, followed by regulations, sectors causing moderate environmental effects mainly
react to competitive advantage, followed by regulatory forces.
Buysse and Verberke (2003) analyzed the environmental strategies of 197 Belgian firms from
different industries in terms of their stakeholder management perspective. They found that
companies with (rather reactive) pollution prevention strategies considered regulators most
important, whereas those exhibiting more proactive leadership strategies aimed to “actively
manage the changing norms and expectations of various stakeholders, other than regulators”
and perceived the primary stakeholders (employees, shareholders, customers and suppliers) as
particularly important (p. 476).
3.2 CSM
Empirical studies on CSM have focused on a wide range of different topics such as strategies
(Tapon & Sarabura, 1995), stakeholder management practices (Morris, 1997), business
planning (Dechant & Altman, 1994), and reporting (Rondinelli et al., 2000).9
In the following sections, empirical studies that relate to the subconcepts of CSM, namely
strategic disposition, economic rationale, and implementation will be reviewed. It should be
noted that several studies examined several concepts simultaneously (e.g. Arlow et al., 1982;
Rondinelli et al., 2000).
3.2.1 Strategic disposition
Studies that examined companies’ strategic disposition to or different conceptualizations of
corporate social and environmental responsiveness (e.g. changes in policies, introduction of
environmental plans) primarily focused on the determinants of responsiveness (e.g. Banerjee
et al., 2003; Henriques et al., 1995). Studies on strategic disposition as such could not be
found in the literature, obviously because an isolated examination of this concept only
provides limited scope for research.
The author presents two empirical studies that deal with corporate strategies, their link to
CSM and operationalization. They are featured to illustrate:
- how corporate strategies are influenced by motivating principles of CSM, i.e. “green
concerns,” in a sector (the chemical sector) that is as process-oriented as the OG and UT
sectors (Tapon et al., 1995).
- that the complex requirements of the concept of sustainable development or corporate
sustainability tend to overburden companies in general, and are clearly dominated by
financial goals (Mathieu, 2002).
9 Other relevant studies include those of Elkington (1994), Mathieu (2002) and Dunn (2002).
24
Tapon and Sarabura (1995) discussed the impact of green concerns on corporate strategies in
the chemical industry. Three key elements of green strategies were identified: (1) transparency
to build and maintain trust through strategic intent, adequate corporate cultures, environmental
audits and customer/public relations; (2) process and product redesign; and (3) waste
handling.
Mathieu (2002) examined the role of sustainable development in German companies through
31 interviews with experts, managers and members of industry associations. She discussed
problems associated with the complexity of the term “sustainable development” (SD), SD
dimensions and their integration into corporate goals, operationalization and implementation,
and measures and instruments. According to her findings, SD (as a three-dimensional
concept) plays only a minor role in most companies. The economic dimension dominates the
social and environmental ones. Furthermore, most companies followed internal guidelines for
implementing SD. Due to a clear lack of specifically SD-related measures and instruments,
companies mostly relied on “conventional” tools of environmental management (p. 223).
3.2.2 Economic rationale
Studies that deal with the economic rationale for CSM can be broadly assigned to three
categories: (1) instrumental studies on the financial effects of CSM; (2) descriptive studies on
how the economic rationale is built in companies; and (3) studies on the process of issue
integration.
Instrumental studies
Qualitative approaches such as case studies are dominated by anecdotal evidence on
successful pollution prevention projects and cost savings but also refer to other issues such as
risk avoidance and corporate sustainability as part of operational excellence (Dechant et al.,
1994; Elkington, 1994). Furthermore, a plethora of quantitative studies based on various
different methodologies10 did not find a simple relationship between environmental and social
performance on the one hand and financial performance on the other. This is obviously – as
pointed out in several empirical research reviews (Griffin et al., 1997; Pava et al., 1996;
Wagner & Schaltegger, 2001) – because:
- The relationship is dynamic and contingent on situational, company-specific, country-
specific and plant-specific11 factors. Industry and plant effects appeared to reflect factors
within corporate control (e.g. organizational capabilities) and beyond it (e.g. imperfect
markets, government interventions) (Lankoski, 2000; Reinhardt, 1999, p. 10).
- There were several shortcomings in the methodologies such as the use of a wide variety of
sometimes poor social performance (SP) measures, a lack of control variables,12
insufficient empirical testing of definitions and concepts, and inadequate sampling
techniques (Griffin et al., 1997; Orlitzky, 2001).
The wide majority of studies are focused on large multi-industry US samples, leaving a vast
research area untouched. Given the substantial amount of instrumental research undertaken, it
10 Methodologies comprised correlation, regression and portfolio analysis (e.g. Bowman & Haire, 1975;
Bragdon & Marlin, 1972; Campbell & Soderstrom, 1996; Davidson III & Worrel, 1990; Dowell, Hart, & Yeung,
2000; Hillman & Keim, 2001; Kiernan, 2001; McGuire, Sundgren, & Schneeweis, 1988; Pava & Krausz, 1996;
Preston et al., 1997; Ruf, Muralidhar, Brown, Janney, & Paul, 2001; Stanwick & Stanwick, 1998b; Stanwick et
al., 1998a; Verschoor, 1999, 2002), and event studies (Frooman, 1997; Innovest, 2002a).
11 Lankowski also found firm level effects almost forty times as important as industry-level effects.
12 Several control variables were proposed, including the national level and approach of environmental
regulation, firm size, and industry market structure (Wagner et al., 2001)
25
is particularly unfortunate that to date only few studies have taken a more differentiated
contingency perspective: They focused on one particular industry (Greening, 1995; Moore,
2001; Simpson et al., 2002), adopted a comparative approach across several industries and/or
plants (Klassen & McLaughlin, 1996; Lankoski, 2000) and examined additional factors that
could possibly confuse the relationship. Probably the most significant study to date is
Lankoski’s analysis of the determinants of environmental profit (Lankoski, 2000).13 Overall
the evidence of instrumental studies reviewed reveals considerable uncertainty among
scholars about the robustness of a business case for sustainability.
Descriptive studies
Very few studies so far have dealt with the economic rationale on a more specific
organizational level, i.e. how companies build and present their business case for
sustainability. Epstein and Roy present a sustainability linkage map that helps managers
operationalize corporate sustainability strategies. The framework incorporates five
components comprising corporate and business unit strategies, sustainability actions,
sustainability performance, stakeholder reactions and long-term corporate financial
performance (Epstein & Roy, 2001, p. 589). They acknowledge the difficulty of a broad
identification and assessment of stakeholders, issues and related performance, but argue that
“few costs can be considered purely external” in the long term. Furthermore, they note that
only a few companies have quantified the link between sustainability and financial
performance. Some engage in sustainability actions as the right things to do. In both cases,
sustainability actions are vulnerable to “swaying public opinions, changing corporate
leadership and financial cycles” (Epstein et al., 2001, p. 603). In a corresponding analysis of
20 external corporate reports, they examined companies’ use of systems and measures that
link sustainability actions to long-term financial performance. They distinguished between
environmental, health & safety, community- and employee-related elements of sustainability
actions. Examples of a full link to corporate financial performance were numerous for the
environmental dimension but typically limited to the direct benefits of cost reduction (Epstein
et al., 2003, p. 84). The authors did not find any full linkages between corporate financial
performance and community relations or employee management. Consequently they advocate
the use of corporate performance models that illustrate companies’ underlying assumed
motivations for sustainability actions, and point to the need for more specific guidance about
trade-offs and causal relationships through appropriate metrics and data gathering.
Ruud (1995) assessed the rationality of the corporate environmental actions of transnational
corporations involved in bauxite mining. The author argues for a distinction between two
factors relevant to corporate decision-making: the individual decision-maker and the firm. In
the case of reclamation of bauxite mines, the decision-makers’ belief that their firm should
engage in more sustainable business practices is suggested to be rational from both the
individual’s moral and the company’s profit-maximizing point of view: The beyond
compliance behavior has several economic advantages, such as the standardization of global
activities; better access to new, neighbor mines through reclamation; enhanced licenses to
operate and image; and the reduction of future liabilities. Although morally phrased projects
can be (ex post) explained by their profitability, the promotion of more sustainable practices
can be “severely hampered if the proposed projects are presented in times of financial
difficulties, particularly if the project has purely cost creating character in the short term (p.
18).
13 Environmental profit was operationalized as overcompliance, i.e. a perceived win-win situation, measured as
the percentage share of actual effluent discharges in the permitted effluent discharges.
26
Similarly few studies provide more “technical” assistance on how to build and quantify the
BCS. WWF-UK (2001) has published a route map toward the business case, designed as a
guideline for senior managers aiming to build their company-specific business case. The route
map has 6 steps – from identifying significant impacts to determining preferred actions for
inclusion in a business case. Repetto (2000) presents a tool that is primarily targeted at the
financial sector (but also managers). It is designed to quantify and benchmark environmental
exposure and risks and identify the financially most effective investments to reduce
environmental risk. The underlying methodology is scenario-based and uses standard
techniques of financial analysis.
Issue integration
Hainsworth and Meng (1988, p. 27) argued that issue management can be seen as
“proactionary rather than reactionary,” since it is used to influence the development of issues
that may have an impact on corporate activities. However the terminologies used in most
empirical (and theoretical) studies suggest that issue management refers to a more reactive
approach of managing surprises at an operational level rather than the active search for
important issues whose integration into business strategies can be based on a sound economic
rationale. Thus empirical studies on issue management are hardly relevant.
3.2.3 Implementation
Essentially there are no empirical studies on the implementation of – explicitly – CSM.
However several dimensions of corporate responsiveness – environmental management in
particular – have been researched. Inter alia, studies have discussed companies’ activities
(Maxwell et al., 1997), effects (e.g. Hamschmidt & Dyllick, 2001; Steger, 2000), success
factors (Ramus & Steger, 2000) and barriers (Apsan, 2000). In the following, the most
relevant studies will be discussed in more detail:
Arlow and Gannon (1982) conducted a meta-analysis of empirical studies on the relationship
between social responsibility and executive perceptions, corporate goals and practices,
organizational changes, and economic performance. They found that corporate social
responsibility (CSR) is operationalized in companies in a mixture of voluntary and mandated
programs, rarely driven by profitability. They also identified new company policies,
organizational positions and arrangements as CSR-driven organizational changes, and
concluded that the most appropriate perspective on social responsiveness is a contingency
one, incorporating several factors such as the nature of the industry and organizations’
resources and skills (p. 240).
Maxwell et al. (1997) presented three case studies to discuss issues of implementing corporate
environmental strategies. They identified several key challenges, including internal conflicts,
lack of management structures, inconsistencies between goals and resources – across business
divisions and diverse geographic markets. Furthermore, the authors pointed to various success
factors for effective implementation, including (1) visible top management commitment and
incentive systems; (2) management structures improving lines of communication and
encouraging the integration of (environmental) issues into business operations; and (3)
formulation of environmental strategies and corresponding management systems that are
congruent with the existing corporate culture (p. 131).
Andersson and Bateman (2000) compared successful and unsuccessful environmental
championing episodes in US firms through survey and interview data. They concluded that
the former were associated with more environmental scanning and specific issue framing (e.g.
relying on formal business language, and framing issues as financial opportunities). “Soft”
influencing tactics of coalition building and inspirational appeal were found to be used more
often by successful environmental champions. Additionally, the following internal and
27
external contextual factors appeared to influence the success of championing episodes:
corporate environmental paradigms, regulatory requirements, competitive pressures and the
presence of antagonists.
Perceval (2003) compared the approaches of Shell and BP to sustainable development: Based
on qualitative data (primarily interviews in both companies), he reports that both have
recognized the strategic advantage of beyond compliance positions, mention concepts of
sustainability in mission and value statements. Whereas Shell anticipates social and
environmental expectations through “global business scenarios”, BP has opted for a more
“opaque system” because it considers changing business strategy “according to expectations
of future outcomes” too risky. In both companies, responsiveness to societal expectation is
essential to maintaining their licenses to operate and is facilitated through various systems
such as stakeholder engagement to detect issues and respond adequately. Furthermore, both
firms have systems, structures and routines reflecting the significance of social, environmental
and economic criteria: At Shell, responsibility is delegated more fully to units and businesses.
Measurement and information systems also differ slightly, presumably reflecting different
perceptions about their responsibilities: BP measures its impact in order to manage its risk and
be accountable to society. Shell is pioneering in its acceptance of the role of NGOs as verifiers
of its reporting. Perceval also identified a clear distinction in policy formulation: Whereas BP
takes a risk-based view of the BCS with a “keen awareness to focus on avoiding value
reduction that might arise from over-integration of SD thinking,” Shell has a more synergistic
and growth-based approach.
Rondinelli and Berry (2000) carried out a content analysis of the environmental reports of 37
multinational companies’ in order to identify driving forces, practices and their effects on
sustainable development and economic performance: The number of reported externally
oriented practices (e.g. strategic alliances with stakeholder groups) was relatively small
compared with that of internally oriented initiatives, among them pollution prevention and
clean manufacturing, and product and process redesign. Despite the lack of quantification,
companies report on the economic benefits and value drivers, including the reduction of risks
and liabilities, longer-term returns resulting from competitive advantage, resource
preservation, favorable image, and product innovation.
3.3 Outcomes
There are several empirical studies examining the outcomes of CSM. They are limited to case
studies and anecdotal evidence on the successful implementation of CSM and have already
been reviewed above in sections 3.2.2 Economic rationale and 3.2.3 Implementation. Overall
insights provided are limited because the outcome of CSM is not consistently defined and
operationalized – through e.g. more commitment, lower emissions, improved source reduction
– in any of the studies (Maxwell et al., 1997).
There are no quantitative studies examining possible determinants of the outcome of CSM in
the existing literature. Several instrumental studies (Kraft & Hage, 1990; McGuire et al.,
1988; Moore, 2001) examining the corporate social-financial performance link found that
greater financial performance led to greater social performance. However, their approach was
clearly focused on the link between social and financial performance, and thus additional
determinants such as structure, management tools and initiatives were ignored.
3.4 Summary and research gaps
Based on his review of empirical studies on key concepts of this study, the author concludes
the following:
28
1. Studies on the drivers of CSM only examined a subset of the four determinants referred to
above. They are based on either qualitative or quantitative approaches. The empirical basis
for Wood’s three “original” principles of social responsibility is strong but biased toward
the environmental dimension of CSM.
2. CSM is contingent upon various factors such as sector and even plant characteristics,
region of operations, etc. Hence it is important to conduct (1) sector-specific studies to
increase the internal validity of results; or (2) – even better – comparative studies to
simultaneously ensure internal and external validity. Few studies explicitly analyzed
sector and plant effects respectively but focused only on components of CSM such as
determinants of environmental responsiveness (Banerjee et al., 2003; Henriques et al.,
1996) and environmental profit (Lankoski, 2000).
3. There is a lack of descriptive research on CSM in general and on its economic rationale in
particular. Based on the few studies that have been conducted, one can conclude that
companies engage in CSM for economic reasons, but lack adequate models and
methodologies to operationalize this economic potential in a systematic way. Thus
managers’ decisions are often taken in conditions of significant uncertainty.
4. Implementation of CSM is contingent upon various internal factors such structures,
management tools, etc. However, quantitative research on implementation and its
effectiveness are largely lacking.
5. Overall most empirical studies focus on more or less narrow subsets of the key concepts of
CSM. Generally they take a narrow environmental perspective. The social dimension of
CSM is largely ignored.
4 Conceptual rationale and research questions
In the following sections the author presents the conceptual framework, which is based on the
comprehensive assessment of existing theoretical frameworks in section 2 Theoretical
foundation and concepts. It was developed to:
- match the focus of the study, and
- provide a stringent theory and well laid-out arguments from which research questions
or hypotheses can be derived (Bortz et al., 2002, p. 27).
Furthermore the author links the framework to a set of specific research questions formulated
to concretize the study’s objective and reflect the gaps in the empirical literature identified in
section 3.
The framework attempts to model corporate sustainability performance. Analogous to Wood’s
model (1991, p. 693), corporate sustainability performance is defined as
a business organization’s configuration of external and internal determinants of CSM,
strategic disposition to, economic rationale for, implementation of CSM, and its outcome
The framework is based on several models of corporate social performance (Greening et al.,
1994; Husted, 2000; Wood, 1991) that have several shortcomings in the context of this study.
Thus the final framework has several modifications (see Table 4-1):
29
Shortcomings in models of corporate social
performance (Greening et al., 1994; Husted,
2000; Wood, 1991)
Modified framework for corporate sustainability
performance
Lack of differentiation between social and
environmental issues
Explicitly incorporates both the social and environmental
dimension
Economic rationale ignored Definition of CSM includes reference to the need for a
business case
Inadequate process orientation and systemization
of subconcepts
New systemization of subconcepts and definitions:
- Strategic disposition
- Implementation
- Outcome defined as social and environmental effects
of corporate behavior only
Partial ignorance of company-specific
determinants of corporate responsiveness
Explicitly accounts for the motivating principle of
corporate discretion Î Accounts for four motivating
principles in total
Table 4-1: Modifications to Wood’s (1991) model of corporate social performance
Consequently the corporate sustainability performance model has several advantages (see
Figure 4-1):
1. It explicitly accounts for both the social and environmental dimensions of issues and of
CSM, and thus also emphasizes their biophysical (and non-social) and intergenerational
long-term scope.
2. It features four determinants – in Wood’s (1991) model referred to as principles – of social
responsibility: issues, external stakeholders, managers and company-specific factors.
3. Its systemization of concepts allows a differentiation between the strategic and the
implementational dimensions of CSM.
4. Its process orientation facilitates a sequential view of CSM ranging from its determinants
through strategic disposition and implementation, to its outcome. It thus allows one to see
corporate sustainability management and its outcome as dependent variables (Husted,
2000, p. 25)
5. The model explicitly incorporates the economic rationale for CSM and thus signalizes a
synergistic relationship between the three dimensions of corporate sustainability
(financial, environmental, social), and the importance of building a sound economic
rationale for addressing the environmental and social issues caused by companies’ primary
and secondary activities.
It should be noted that the colors used in Figure 4-1 indicate four different units of analysis
examined in this study: issues (red), external stakeholders (green), managers (orange) and
companies(blue). The colors are matched in all corresponding figures to facilitate readability.
30
Corporate sustainability management:
A profit-driven corporate response to social and environmental issues
caused by the organization’s primary and secondary activities
Outcome
Issues
Public
responsibility
Stakeholders
Legitimacy
Managers
Managerial
discretion
Company-specific
drivers
Corporate
discretion
Social and environmental impacts
and financial performance
Corporate sustainability performance
as business organization’s configuration of
Determinants of corporate sustainability management
Implementation
(how to do it?)
Strategic disposition and economic rationale (what to do?)
Tools Initiatives Structure
InternalExternal
Figure 4-1: Corporate sustainability performance model
The framework rests on the following cornerstones:
1. Strategic disposition to CSM is jointly affected by four factors, namely issues,
stakeholders, managers and company-specific determinants. This means that strategic
disposition may vary depending on:
- how important social and environmental issues are to the corporate activity (Henriques
et al., 1996, p. 383; Wood, 1991, p. 697): The same issue, e.g. employment or
biodiversity, may vary significantly in terms of importance depending on e.g. the
location and kind of corporate activity.
- how strong the pressure from stakeholders other than managers is (Henriques et al.,
1995, p. 72; Wood, 1991, p. 695): The same stakeholder may exert different levels of
pressure depending on e.g. local levels of regulation, kinds of corporate activities.
- how proactive or reactive managers are (Bansal et al., 2000, p. 731; Wood, 1991, p.
698)
- how proactive or reactive a company as a whole is. Some may be more proactive than
others through a more open corporate culture, effective tools such as scenario building
and other organizational factors (Griffin, 2000, p. 485; Kolk et al., 2001, p. 505).
2. The strategic dimension of CSM (what to do?) incorporates companies’ strategic
disposition to and the business case for sustainability. E.g. the decision to approach CSM
strategically through, say, a pilot business unit for renewable energy technology depends
on a company’s strategic disposition and the economic rationale for corresponding
decisions.
31
3. The strategic dimension of CSM affects the implementation. E.g. a more strategic and
committed approach through top management commitment, and a stronger integration of
issues into business strategies lead to more effective implementation of CSM (Kolk et al.,
2001, p. 506 ; Maxwell et al., 1997, p. 131).
4. Implementation of CSM is characterized by management tools, initiatives and structures
(Hussey, 1996, p. 8; Maxwell et al., 1997, p. 120). Thus leaders are likely to feature a
bundle of more sophisticated tools and initiatives (scenario-building, community
involvement) than laggards:
5. Companies’ approaches to implementation determine the outcome of CSM (Maxwell et
al., 1997, p. 131). E.g. the use of more sophisticated tools and initiatives can be expected
to improve the outcome of CSM .
Based on these cornerstones, the study is designed to fill several gaps identified in the body of
empirical literature reviewed in section 3 (see Table 4-2).
Shortcomings in empirical literature Characteristics of the present study
Focus on environmental dimension and only some
subsets of the concepts of CSM
Broad analysis of the determinants of, approaches to
and outcome of CSM, taking into consideration both
the social and environmental dimensions
Only focused on a subset of the four drivers of CSM
featured in the conceptual framework
Examines all four drivers: issues, external
stakeholders, managers and company-specific drivers
Lack of research on the business case for sustainability Business case for sustainability examined as part of
CSM
Lack of studies on implementation and the
determinants of the outcome of CSM
Analysis of companies’ approaches to implementing
CSM (management tools, structures, initiatives) and
their effect on the outcome
Table 4-2: Gaps in empirical literature and study characteristics to fill them
The study employs a contingency approach (see 5.1 Selection of suitable method) that
examines the internal and external determinants of, the strategic disposition to, the
implementation of and the outcome of CSM. The social and environmental dimensions are
considered equally. Furthermore, it is designed to analyze companies’ economic rationale for
CSM and the determinants of strategic disposition to and the outcome of CSM.
Following the comprehensive review of theoretical frameworks, empirical research and the
definition of the study’s key concept, the author translates his research objective – an
empirical examination of the main external and internal determinants (i.e. drivers or barriers)
of CSM, companies’ approaches to CSM in terms of both strategic disposition and
implementation, the economic rationale for their approaches and their outcome – into
individual research questions. They are systemized according to the four units of analysis –
issues, external stakeholders, managers and companies (corresponding to sections 8.1 to 8.4) –
of the study:
1. Issues: What are the most important environmental and social issues across a company’s
entire value chain and how do they affect CSM (see section 8.1)?
2. External stakeholders: What roles do external stakeholders play and how does pressure or
ignorance on their part affect CSM (see section 8.2)?
3. Managers: What role do managers play in CSM and how do their attitudes, knowledge
and mindset influence CSM (see section 8.3)?
32
4. Companies (see section 8.4):
- What are the most significant company-specific (rather than manager-, i.e. individual-
related) determinants of CSM (e.g. processes, tools, culture), and how do they
influence CSM?
- What is companies’ strategic disposition to CSM, and what are its key determinants
and effects on implementation?
- What is companies’ economic rationale for CSM and how do they integrate social and
environmental issues into their strategies and operations based on this rationale?
- How do companies implement CSM: e.g. what tools do they use, what initiatives do
they undertake to resolve environmental and social issues?
- What is the outcome of CSM and what are its key determinants?
The author intends to identify significant relationships between variables, e.g. the
determinants of strategic disposition, rather than to compare the strengths of the relationships
found. This approach appears adequate: The rather exploratory stage of this research field and
the broad scope of this study would make it difficult to explain the greater strengths of one
association over another, since complementary qualitative data or secondary data from other
studies may be lacking.
33
5 Method
This section describes in detail how the author intends to achieve the objectives of the study.
This includes:
- a discussion of the suitability of the method chosen (see section 5.1 Selection of suitable
method)
- a description of the instruments used to collect and analyze the data (see section 5.2
Instruments) and of how they complement each other (see section 5.3 Synergistic fit of
methods)
- an overall evaluation of the method (section 5.4 Evaluation).
Section 5: Method
5.1 Selection of
suitable method
• Contingency approach
• Mixed method design
5.2 Instruments
Description of individual
methods of
• Data collection
• Data analysis
5.3 Synergistic fit of
instruments
How do individual
instruments complement
each other?
5.4 Evaluation
Quality of research
design and methods
Figure 5-1: Structure of section 5
It is important to note that this study is based on data collected in the course of a cross-
industry research project (refer to Table 5-1 for the exact timeline and procedures) carried out
by the Forum for Corporate Sustainability Management (CSM) at IMD in Lausanne,
Switzerland, in partnership with WWF International (Refer to Appendix J – Author’s
contribution to cross-industry research project for more details of the author’s involvement.).
Period Step
April 2002 Research review
Formulation of research hypotheses and objectives – developed jointly by the
research team (see Appendix C – Hypotheses and objectives of IMD research
project)
June 2002 Development and pretests of means of data collections (interview guidelines and
questionnaires)
July 2002 – April 2003 Establishing contacts with companies
Distributing questionnaires
Conducting face-to-face interviews including follow up
May– August 2003 Finalization of sector-specific research reports and feedback process
Table 5-1: Timeline of the cross-industry research project
The project was established to examine the business case for sustainability in nine industries
in total; in addition to the OG and UT sectors (subject of this study), the industries surveyed
were: automotive, aviation, chemical, food and beverage, finance, pharmaceutical,
technology.
5.1 Selection of suitable method
In the following sections the authors will elaborate on why the method chosen is the most
suitable in the context of this study.
34
5.1.1 Contingency approach
As the review of empirical literature revealed, CSM, its determinants and its outcome are
dependent on a variety of factors including local social and environmental conditions, markets
and corporate activities, national regulations and cultures. To control for those, the study
adopts a contingency approach that is visualized in Figure 5-2.
It is based on the consideration that corporate sustainability performance and the way it is
described by the respondents is contingent upon external and internal determinants that are
likely to differ across industries (e.g. different technologies and resources), countries
(different levels of regulatory and public pressure) and managers (different expertise and
responsibilities).
Determinants
Subconcepts of
corporate sustainability performance
Strategic disposition
Economic rationale
Implementation
Outcome
Integrated oil and gas sector
(OG)
Electric utilities sector
(UT)
Sustainability
Officers
(SO)
Industry sector
Expertise
Response
North America
Nordic
Mid-Northern Europe
Latin Europe
Regions of operations
…………..
General
Managers
(GM)
Sustainability
Officers
(SO)
General
Managers
(GM)
Figure 5-2: Visualization of contingency approach
The study’s contingency approach allows the empirical examination of the constituents of the
corporate sustainability performance model across the following dimensions:
1. Two industry sectors: the integrated oil & gas (OG) sector and the electric utilities
(UT) sector
2. Two management groups: sustainability officers (SOs) and general managers (GMs)
3. Different regions of operations: primarily Europe and North America
Industry sectors
The two sectors were chosen for their economic, environmental and social relevance. The
energy industry as a whole not only contributes to economic development and activities
through the provision of primary and secondary energy, but its activities are also associated
with several social and environmental issues (Dincer, 1999; International Energy Agency,
2003; International Energy Agency & OECD, 2002; WBCSD, 1999).
35
The selection of this sector largely implies a focus on large and often global companies rather
than small and medium-sized enterprises (SMEs). This focus is legitimate and reasonable,
since large corporations constitute more compelling research objects because they (1) feature
a wider range of activities and have more resources than SMEs, and (2) are under significantly
more scrutiny from governments and civil society demanding that responsibility comes with
power (Davis, 1960, p. 314).
The focus on large corporations has an additional advantage. This universe lends itself better
to convenience sampling: It mad sense to benefit from direct access to respondents at IMD
which – as an international business school – hosts many management education programs,
mostly attended by managers from global firms. It should be noted that convenience sampling
is prone to bias (Saunders, Lewis, & Thornhill, 2003, p. 177). Nevertheless, the sampling
strategy was chosen – even if only for a part of the final sample – because the intended
contingency approach posed a significant challenge in terms of sample size.
Management groups
The study differentiates between two groups (or disciplines) of managers – sustainability
officers and general managers – to take account of the contingency of respondents’
perceptions of corporate sustainability performance on professional activity and experience.
For the purposes of this research the two groups of managers are defined as follows:
- Sustainability officers are managers who exhibit special sustainability-related expertise
and have the role of promoting CSM in their company. They are usually affiliated with
corporate sustainability, environmental or public affairs departments.
- General managers are managers from other (i.e. non-sustainability) business functions
such as finance, research and development (R&D), human resources (HR) and corporate
staff. They shall represent a population with lower levels of awareness of issues, outside
pressure from stakeholders, and corresponding corporate responses.
Countries
Countries represent the third dimension of the contingency approach adopted to account for
differences in the business environment (e.g. level of regulations, societal pressure, corporate
cultures). The author attempted primarily to recruit companies in North America, Europe and
Japan, i.e. industrialized countries, for his interviews, since they account for the major share
of energy consumption globally and related social and environmental effects (Energy
Information Administration, 2004, p. 1). The sampling for the mail/online/fax questionnaire
focused less strictly on the three regions, also for reasons of convenience (see section 5.2.1
Data collection).
5.1.2 Selection of instruments
In the following paragraphs the author will build a case for the instrumentation chosen for the
present study.
Mixed method design
The study features a mixed method design, i.e. it uses both qualitative and quantitative data
collection and analysis techniques (Teddlie et al., 2003, p. 11). It should be noted that mixed
method research has been subject to significant criticism by researchers who considered
qualitative and quantitative methods irreconcilable because of the incompatibility of their
paradigms of postpositivism (quantitative methods) and constructivism (qualitative methods).
This incompatibility thesis has been largely discredited mainly due to the successes of mixed
method research in the past. Moreover, mixed methods are supported by two paradigms,
namely pragmatism and the transformative-emancipatory paradigm (p. 20). As Teddlie and
36
Tashakkori (2003) illustrate, mixed methods research is superior to single approach design in
three areas:
Scope: Using mixed methods offers a broader scope, mainly since it enables “the researcher to
simultaneously answer confirmatory and exploratory questions, and therefore verify and
generate theory in the same study” (p. 15). Through mixed method research it is possible to
demonstrate or detect a relationship between two variables and to explain why the relationship
exists. In the present study, relationships are detected through quantitative methods
(correlation and regression analysis). The process by which the relationships occur is explored
in more detail through qualitative methods (interviews and content-analysis).
Better inference: Better inference results from mixing methods in a such way that their
strengths are complementary and their weaknesses do not overlap (see Table 5-2). In the case
of the present study, a qualitative component (interviews) ensures sufficient depth, and a
quantitative component (mail, fax and online questionnaire) adequate breadth. This use of
both methods facilitates sound inferences about complex topics such as corporate
sustainability performance (Teddlie et al., 2003, p. 16).
Criteria of
comparison
Questionnaire
(Mail, fax and online)
Interviews
(semi-structured, personal)
Data generated Quantitative Qualitative
Survey situation Largely uncontrolled (unclear who filled
in the questionnaire)
Largely controlled
Costs Less expensive More expensive
Amount of control
over survey situation
Low (e.g. uncertain who really filled in
the questionnaire)
High (personal control through
interviewer)
Accuracy/bias Weaker bias: due to greater anonymity Stronger bias
Less accurate, since reality verbalized and
interpretatively assessed
Degree of
standardization
High Low
Results More generalizable
Common patterns
Detected relationships between variables
Less generalizable, case-specific
Explanation of detected relationships
Table 5-2: Complementarity and triangulation through mixed methods – based on Bortz (2002, p. 237)
and Teddlie (2003, p. 15)
Opportunity to detect divergent views: Qualitative and quantitative components do not
necessarily lead to the same conclusions. When they do converge, this indicates their validity.
However they can also generate “a new comprehension of the phenomenon by forming
complementary parts of a jigsaw puzzle or [..] produce unexplainable divergence leading to a
falsification of previous theoretical assumptions” (Erzberger & Prein, 1997, p. 146-147 cited
by Teddlie et al., 2003, p. 17). This advantage is particular significant in a study that takes a
rather explanatory approach.
The approach adopted in the present study fulfills two key functions – triangulation and
complementarity (Teddlie et al., 2003, p. 17), which are more concretely illustrated in section
5.3 Synergistic fit of methods, after the individual methods of data collection and analysis
have been described in more detail:
1. Triangulation: The study’s concurrent triangulation design, depicted in Figure 5-3,
features the simultaneous use of quantitative and qualitative methods to cross-validate
37
findings within the study. The method is primarily quantitatively driven and deductive in
nature to test the conceptual framework presented in section 4 (Bortz et al., 2002, p. 34).
Data collected and analyzed from the two management functions (general managers and
sustainability officers) provide a second opportunity for triangulating results within the
quantitative dimension of this study.
QUAN
General managers qual
Results
QUAN QUAN
qual qual
Combined data
interpretation
Data collection
Data collection
Data analysis
Data analysis
Legend:
Quan = quantitative method
Qual = qualitative method
Uppercase (Quan) denotes priority over lowercase (qual)
QUAN
Sustainability officers
QUAN QUAN
Data collection Data analysis
General
managers
Sustainability
officers
Figure 5-3: Visualization of concurrent triangulization design (based on Creswell, Clark, Gutmann, &
Hanson, 2004, p. 236)
Although both groups of managers were also interviewed, it would not be deceptive to
speak of a comprehensive third opportunity for triangulation, because qualitative data lack
the necessary accuracy.
2. Complementarity: The complementarity results from two characteristics of the interviews.
First they have a slightly different focus than the questionnaire: They examine the
economic rationale for CSM and the process of issue integration more closely. Due to the
lack of “preparatory” descriptive research and theoretical foundations in this area, it was
obvious to adopt a rather exploratory, inductive and thus qualitative approach (Bortz et al.,
2002, p. 34, 299). A quantitative and deductive approach would have been premature.
However, the business case is too important as a key concept of CSM to omit it from the
analysis completely.
Second, interviews are able to explain or illustrate components of the model in more depth
(Teddlie et al., 2003, p. 17). To achieve this objective, a semi-structured and personal
interview approach was chosen (Bortz et al., 2002, p. 239, 315). It strikes a balance
between (1) allowing for the necessary degree of freedom to effectively capture the
complexity of the research topic and (2) avoiding compromising the reliability of the
approach through a certain level of standardization that decreases interviewer bias.
38
Data collection
The present study’s data collection employs two survey methods, i.e. two means of
systematically collecting primary data from respondents (Saunders et al., 2003, p. 280; Tull &
Hawkins, 1993, p. 165): direct personal interviews and online/fax/mail questionnaires. There
are two key arguments for a survey approach:
1. The author found a clear lack of survey-based, contingency approaches in the empirical
literature. Such studies on the entire scope of CSM (from determinants to outcome) and its
economic rationale in particular are clearly needed.
2. The contingency perspective taken in this study requires data from two industry sectors in
various countries. Thus the issue of data compatibility again points to a survey approach
as the obvious choice.
The survey follows the research philosophy of interpretivism (Saunders et al., 2003, p. 83),
which points to the need to “explore the subjective meanings motivating people’s action” in
order to be able to understand these. The importance of subjectivity (i.e. personal knowledge,
experience) is based on the theory of social constructivism and the model of symbolic
interactionism and justifies the operationalization of the study’s key concepts through
respondents’ perceptions: Respondents’ response to things is determined through the
meanings those things have for them (Bortz et al., 2002, p. 304).14 However, surveys are
subject to typical biases such as self-presentation and social desirability bias (Bortz et al.,
2002, p. 232), particularly if the research topic is as values-laden as CSM. To counteract and
control for possible biases, the author employed two strategies:
1. Two different groups of managers – general managers and sustainability officers – were
surveyed to triangulate results.
2. Results were benchmarked with qualitative primary data obtained from interviews with
external stakeholders (e.g. public pressure groups, legislators, experts; see Appendix A –
Interview samples) and qualitative secondary data sourced from internal and external
company documents, academic journals and newspapers.
Data analysis
Instruments of quantitative data analysis were particularly carefully selected. It should be
noted that data generated by Likert-type scales were generally coded from 1 to 5 and treated
as interval data. Only interval data are suited to the use of more powerful statistical tools such
as t-tests, correlations and regressions. However, strictly speaking, Likert-type scales generate
ordinal data.
The present study follows the common practice of carrying out “per fiat” measurements using
instruments that are assumed to measure respondents’ characteristics (such as e.g. attitudes in
the case of this study) on an interval scale (Hammann & Erichson, 2000, p. 27). Academic
dispute between purists and pragmatists on this kind of measurement has a long history and
appears to be ongoing (Bortz et al., 2002, p. 180; Davis & Cosenza, 1988, p. 180; Hüttner,
1997, p. 111). Per fiat measurement as advocated by the pragmatics and carried out in the
present study can be justified as follows:
1. Most standard statistical techniques such as regression analysis are not strongly
affected by small deviations from the interval requirement (Mason, Lind, & Marchal,
1999, p. 475; Traylor, 1983; Tull et al., 1993, p. 308).
14 As the corresponding Thomas-Theorem postulates: “If men perceive situations as real, they are real in their
consequences.” (cited in Rogers, 1995, p. 209)
39
2. Several authors have concluded that respondents perceive certain Likert-type scales as
equidistant, and thus able to generate virtually interval data (Crask & Fox, 1987;
Rohrmann, 1978; Traylor, 1983; Wyatt & Meyers, 1987).15
3. The confirmation of empirical research hypotheses becomes more difficult through
incorrect assumptions about the measurement scale, i.e. an empirical confirmation of
the hypothesis is seen as a proof for the correct assumption about the measurement
scale (Bortz et al., 2002, p. 27).
4. Multiple linear regression was chosen as the most suitable method to detect causal
relationships, since ordinal regression only provided an equally “risky” alternative.
This is because ordinal regression models require relatively large samples, since they
are based on maximum likelihood estimation. Maximum likelihood estimation has
been hardly researched and is considered risky for sample sizes: Whereas only sample
sizes above 500 are considered adequate for some categorical regression models,
ordered probit and logit models require even larger samples (Long & Freese, 2003, p.
69). However the large sector-specific samples that are needed to facilitate the study’s
contingency approach are difficult to generate.
The following measures were taken to ensure that biases through per fiat measurement were
detected and/or avoided as much as possible:
1. Tests for normality using STATA’s skewness/kurtosis tests.
2. Mann-Whitney U tests: Although the t-test is considered reasonably robust against the
violation of the normal distribution assumption (Hamilton, 2003, p. 112), the author
additionally performed Mann-Whitney U tests (Bühl & Zöfel, 2000, p. 292) to give
more assurance on results (Hamilton, 2003, p. 112).
3. Cautious interpretation: The author only interprets the significance and the direction of
the regression coefficients, not the size of their effects. As outlined above, the
consequent information loss is insignificant, considering the rather exploratory stage
of research and the broad scope of this study.
4. Comprehensive set of regression diagnostics (see section 5.2.2.2.2 for more details).
5.2 Instruments
In the following section, instruments of data collection and analysis will be described in more
detail.
5.2.1 Data collection
5.2.1.1 Qualitative methods
Semi-structured and personal interviews with each company’s sustainability officer and at
least one additional general manager were employed to collect qualitative data. Online
databases were used as a sampling frame for the major companies in both sectors.16 As a rule,
15 However, it should be noted that – strictly speaking – such studies only justify the interval treatment for their
individual sample – in the case of Crask – US college students (Crask et al., 1987, p. 336)
16 The author contacted the following companies: BG Group plc (UK), BP plc (UK), Centrica plc (UK),
ChevronTexaco Corporation (US), ConocoPhillips (US), Cosmo Oil Company Ltd. (US), Duke Energy (US),
Electricité de France (France), El Paso Corporation (US), EON AG (Germany), Exxon Mobil Corporation (US),
40
the sustainability officer was contacted first. If the company agreed to participate in the
project, he was asked to identify possible general managers who could be interviewed in
addition. This sampling process is also referred to as snowball sampling (Saunders et al.,
2003, p. 176).
The author also contacted several external stakeholders (regulators, public pressure groups)
and experts to obtain qualitative data that could be used to cross-validate results from the
interviews with the general managers and sustainability officers.17
The interview guidelines (provided in Appendix H – Interview guidelines) feature (1) core
modules used with every interviewee to facilitate a meaningful cross-case analysis; and (2)
function-specific modules that were tailored to certain management functions such as investor
relations and finance, HR and corporate strategy and development.
Interviews focused on the same concepts as the questionnaire, i.e. issues, stakeholders, value
drivers, strategy and implementation. However, they were more strongly geared toward the
business case for sustainability and identifying the tools companies use to detect and present
the economic rationale for CSM. These tools were broadly assigned to four sequential
processes leading to the integration of environmental and social issues into strategic decision-
making (see Figure 5-4).
Tracking:
What issues
is the company facing?
Decision-making:
How are issues and their
economic significance integrated
into strategic decision-making?
Mapping:
Which of the company’s activities
are associated with the issues
in particular?
Prioritization:
What issues are
economically most significant?
Figure 5-4: Process of issue integration based on Salzmann (2003a, p. 24)
Fortum Corporation (Finland), Idemitsu Kosan Co. (Japan), Japan Energy Corporation (Japan), Koch Industries
(US), Marathon Oil Corporation (US), Nippon Oil Corporation (Japan), Norsk Hydro ASA (Norway), RAG
Aktiengesellschaft (Germany), Ruhrgas AG (Germany), RWE AG (Germany), Royal Dutch/Shell Group of
Companies (UK, Netherlands), Schlumberger Ltd (US), Scottish Power plc (UK), Statoil (Norway), Suez
(France), The Tokyo Electric Power Company Inc. (Japan), Total SA (France), TXU Corp. (US), Vattenfall AB
(Sweden)
17 The author contacted the following institutions: Greenpeace Deutschland, European Commission, The World
Economic Forum (WEF), The World Business Council for Sustainable Development (WBCSD), the United
Nations Environmental Program (UNEP), the International Energy Agency (IEA), WWF International.
41
The economic rationale for CSM was operationalized through a set of value drivers referred to
in both the interview guidelines and the questionnaires. The concept of value drivers
originates from Rappaport’s (1986) shareholder value network, which illustrates the links
between shareholder value (as the corporate objective) and management decisions. The
decisions are “impounded” in value drivers such as sales growth, operating profit margin,
which influence the valuation components (cash flow, discount rate and debt) of shareholder
value (p. 76). Rappaport’s notion of value drivers is slightly modified for the purposes of this
study: Here, it conceptualizes an increase in corporate financial performance that is achieved
through corporate activities that address environmental and social issues.
• Increase brand value and reputation
• Improve the license to operate and grow
• Attract and retain talent
•Improve access to capital
•Improve risk management
Corporate activities
that address environmental and social issues...
Decrease net cost
through primarily
incremental innovation
Increase net revenue
through primarily
radical innovation
Increase
Financial Performance
Value
drivers
Value
constructs
Figure 5-5: Systemization of value drivers and value constructs
Hence, value drivers are essentially economic arguments for CSM: e.g. most obviously net
cost decreases or revenue increases but also more intangible concepts such as brand value,
reputation and the license to operate. In the present study, these intangible concepts are
referred to as value constructs, since they are more complex, interdependent and can be
materialized into either reduced costs or additional revenue.
Alongside the primary qualitative data collected through the interviews, the author also used a
diverse range of secondary data sources including newspaper and journal articles, corporate
reports and websites. This third pillar – next to the interviews and questionnaires – is
important to further complement and triangulate primary data. In particular corporate reports
and websites provide an effective means to benchmark primary data collected on:
- Issues: Which issues are mentioned and discussed in detail?
- Companies’ strategic disposition: What are the missions and policies of companies?
To what extent do they incorporate issues? How do companies operationalize
corporate sustainability?
- Implementation: What measures do companies use to implement corporate
sustainability management? What environmental and social activities do they engage
in?
42
5.2.1.2 Quantitative methods
Quantitative data were collected through two questionnaires, an SO and a GM version
(provided in Appendix I – Questionnaires). The SO version of the questionnaire was
distributed to the sustainability officer interviewed in the participating companies, who was
asked to forward it to other sustainability experts in the organization. The GM version was
distributed more widely, beyond the companies that participated in the study through
interviews. This multi-pronged approach comprised distribution:
– At IMD to participants in various management courses (convenience sampling)
– Via email, mostly through the key contacts found in the interview process (snowball
sampling)
– Mail and fax (using internal and external databases as sampling frames).
Furthermore, an online GM version of the questionnaire was created and made accessible on
the project’s website. The sample generated by the online questionnaire is largely based on a
self-selection and snowball process. To increase the number of responses from UT general
managers, an additional mailing targeted the UT sector in the UK, Germany, France and the
Nordic countries.
The two versions partly overlap to achieve a triangulation and complementarity of results:
1. Complementarity was primarily ensured through a set of questions that account for the
different levels of awareness and expertise of sustainability officers and general managers.
Questions that were only used in the GM questionnaire focused on inter alia managers’
personal attitudes, the importance of legitimacy (brand value, reputation) and the
collaboration between sustainability officers and general managers. They were more
general in nature than those that were included only in the SO questionnaire, which
brought into focus concepts that require more special expertise, such as the sustainability
performance of a company and sector compared to others, the most important promoting
factors of CSM and the most important elements of the business case for sustainability.
2. Triangulation was achieved through a certain overlap between the two questionnaires. The
questions that featured in both questionnaires deal with inter alia the significance of
issues, companies’ strategic disposition to CSM, barriers to corporate sustainability, the
use of tools and systems that relate to corporate sustainability and the role of different
stakeholders contributing to sustainable development. These questions account for roughly
60% of the SO questionnaire, and 50% of the GM questionnaire.
The questionnaires measure managers’ perceptions largely through a set of non-numbered but
equidistant 5-point-Likert-type scales and multiple choice questions. An overview of the
operationalization of the study’s concepts and the terms used is provided in Appendix D –
Operationalization of key concepts. Since the empirical research domain of CSM is relatively
new and untouched, widely accepted and traditional operationalizations are missing from the
literature. Most of the operationalizations chosen in the present study are obvious and need no
more detailed explanation.18 However there are a few exceptions:
1. It is worth distinguishing between the three related subconcepts of issue significance,
importance of legitimacy, and the SD roles of stakeholders: Issue significance is measured
for the social and environmental dimensions. It refers to the significance of the financial
18 The GM questionnaire also had a question on companies’ preference for certain stakeholder management
initiatives. As already outlined in the definition of corporate sustainability management, stakeholder management
is a meaningful dimension of CSM, but is ignored here to limit the already substantial scope of the study.
43
opportunity or threat associated with a particular issue dimension. The opportunity and
threat is determined by (1) a firm’s responsibility for outcomes related to its primary and
secondary areas of involvement with society (Wood, 1991, p. 697) and (2) stakeholders
who reward corporate activities carried out assume that responsibility by minimizing
negative and maximizing positive outcomes. Whereas issue significance bundles the
demands of several stakeholders in terms of the two issue dimensions, SD roles of
stakeholders refer to the demand for CSM of an individual group of stakeholders unrelated
to a specific issue or issue dimensions, i.e. it bundles the demands of one stakeholder
group on those issues it considers important to provide an overall measure for its demand
for CSM. The importance of legitimacy is operationalized as the importance of brand
value and reputation, i.e. it measures the importance of a company’s informal rather than
formal (legal) legitimacy or license to operate. This informal kind of legitimacy is granted
by non-regulatory stakeholders such as capital markets, customers and NGOs. Thus the
importance of legitimacy, as operationalized in this study, measures the scale of the
“informal premium” added to the average financial stakes associated with the formal
license to operate that every company needs to exist. It can be amended or revoked more
swiftly – through boycotts, NGO campaigns, and selling of shares – than the formal
license to operate. Hence a greater importance of legitimacy as operationalized in this
study makes the financial threat or opportunity associated with a particular issue more
immediate.
2. The four statements designed to measure the reactive or proactive attitudes of respondents
were designed in the course of the cross-industry research project carried out at IMD.
They were constructed to describe a “continuum” of least to most proactive statements
that describe the role of business in society.
3. The multiple choice question designed to measure respondents’ awareness of the
availability and use of tools refers to the following kinds of management tools:
a. Data management tools providing managers with relevant information: Measurement
tools to increase transparency (e.g. measuring material and waste flows), tools
measuring resource allocation (e.g. environmental expenses), strategic planning and
accounting procedures that take account of environmental and social issues (e.g.
scenario-planning, full cost accounting).
b. Managers’ management tools that shape managers’ expectations and perceptions:
Corporate values, policies and standards that take account of environmental and social
issues, reward and punishment systems, management development (e.g. environmental
training courses).
c. Conflict management tools that are used to reallocate responsibilities and build
consensus within the organization: (1) Coordination committees discussing and
pushing strategic decisions at the corporate level and (2) business teams resolving
conflicts and pushing environmental and social improvements on an operational level.
This systemization was adopted from Doz, and Prahalad (1988, p. 76) to gain insights into
how early or late companies are in the process of strategic redirection to CSM. Thus data
should complement the measurement of companies’ strategic disposition and structure.
Doz and Prahalad (1988) found in their empirical investigation of processes of strategic
redirection that data management tools are used early in the change process, managers’
management tools throughout the process (soft tools such as management development
and corporate values at the beginning; harder tools such as incentive systems later in the
process), and conflict management tools in the middle of the change process.
44
4. The business case for sustainability is operationalized through a set of value drivers and
value constructs already outlined in more detail in the previous section.
5. The outcome of CSM has a very simple operationalization, namely respondents’
perceptions of the success of environmental or social initiatives carried out in their
company –referred to as CSM success in this study. However, as discussed above in the
definition of the study’s key concepts, the outcome of corporate sustainability is more
complex and three-dimensional in nature: It comprises the effect of CSM on corporate
financial performance, and the social and environmental effects of corporate activities. It
is important to note that the three-dimensional nature of CSM success was not elaborated
on in the questionnaire, on the assumption that respondents were unlikely to indicate high
levels of CSM success if initiatives were clearly unsuccessful in either the financial or the
two non-financial dimensions.
CSM success was also operationalized through sustainability officers’ perception of their
sectors’ and companies’ adoption of more sustainable business practices in comparison to
other sectors and their peers, respectively (“Underperformer” to “Overperformer”).
When interpreting the relative frequencies resulting from multiple choice questions, it is
important to note that respondents were not asked to rank items in terms of their importance.
However, one can assume that higher levels of awareness result in higher relative frequencies
of certain items. Hence greater relative frequencies can be seen as proxy measures for the
importance of an item.
5.2.2 Data analysis
The study employs several means of analyzing the qualitative and quantitative data collected.
They will be described in more detail in the following paragraphs.
5.2.2.1 Qualitative methods
The author comprehensively documented every interview through notes in bullet point format.
In a few cases, interviews were taped and transcribed. Every case was entered into word-
processing software, coded and described following a category system that matched the
headings provided in the interview guidelines:
- Section A – Building the business case for sustainability (BCS): External pressures
(issues, stakeholders) and value drivers
- Section B – Implementing the BCS: Internal barriers and promoting factors
- Section C – BCS-related tools
- Section D – Function-specific modules.
Data were then analyzed for content using in-case and cross-case analysis and examined for
concise quotes.
5.2.2.2 Quantitative methods
Quantitative data obtained from the questionnaire were coded (e.g. open-ended questions) and
recoded where necessary (e.g. “other” responses were allocated to main items where
adequate). They were then analyzed using the statistical software package STATA 8.0. The
author provides the complete data set and corresponding STATA do- and log-files on an
attached CD-Rom to ensure that results and methodologies are fully transparent and
reproducible.
45
5.2.2.2.1 Basic statistics
Several means of basic quantitative data analysis are employed in this study. They comprise
both descriptive and inferential methods:
- Relative frequencies displayed in pie charts to describe categorical data
- Summary statistics that include means, standard deviations, standard errors and 95%
confidence intervals to describe interval data
- χ2-tests to detect statistically significant differences in primarily categorical data between
the different samples. Multiple choice questions were dichotomized beforehand
(Hamilton, 2003, p. 99).
- t-tests for equal and unequal variances to detect statistically significant differences in
interval data between the different samples. Unequal variances were detected using
STATA’s variance-ratio tests (Hamilton, 2003, p. 114). It should be noted that t-tests are
also suited to small samples below 30 observations, as long as the sampled populations are
approximately normally distributed (see also the example provided in Mason et al., 1999,
p. 353, 363; Stata Corporation, 2003, p. 294)
Results of both χ2- and t-tests are only referred to in the text. All details are provided in the
corresponding log-files. Both tests facilitate two kinds of comparisons between the four
samples generated for the present study (see Figure 5-6):
1. Cross-disciplinary differences, i.e. differences between the two groups of (1) general
managers and (2) sustainability officers: This comparison is essential because perceptions
of sustainability officers who are expected to exhibit greater awareness and expertise
represent an important benchmark for general managers’ perceptions. It should be noted
that cross-disciplinary mean differences can only be assessed for a subset of questions that
were included in both questionnaires.
Sustainability
officers
General
managers
Sustainability
officers
General
managers
OG sectorUT sector
Cross-sector comparison
Cross-sector comparison
Cross-disciplinary comparison Cross-disciplinary comparison
Figure 5-6: Intra- and cross-sector comparisons
2. Cross-sector differences, i.e. between the UT and OG sector, based on data from either
general managers or sustainability officers: This kind of comparison is necessary to detect
46
and explain significant sector-specific perceptions. Differences between sustainability
officers from one sector and general managers from the other will not be reported, since
their relevance is clearly limited.
5.2.2.2.2 Advanced statistics
The study also features two means of advanced quantitative analysis: correlations and
regressions. Correlations and regressions are applied on data collected from general managers
only for several reasons: First, the scope of the study would be overstretched if data from
sustainability officers was also analyzed in such depth. Second, generating samples sufficient
for those means of data analysis would have be difficult (if not impossible). Obviously there
are more general managers than sustainability experts in companies worldwide. Third, it could
be argued that advanced analysis of GM data is more meaningful, since general managers – as
the majority of managers in companies – determine companies’ approaches to CSM more
strongly than sustainability officers.
Correlation and regression analysis are based on the same three samples respectively: the two
sector-specific samples and the total sample. Because the total sample contains the two sector-
specific samples, this means that correlations and regressions that are based on the total
sample are able to borrow strength from the OG and UT samples to detect weaker effects that
may not be statistically significant in the separate samples. Basically correlations and
regressions based on the total sample treat respondents as originating from the same
population of energy managers. Results that are based on the sector-specific samples are more
likely to detect effects that are specific for the individual sectors. However, their explanatory
power could suffer from limited sample sizes.
Standard pairwise correlation
Standard pairwise correlations are used to detect associations between interval variables.
Results are provided in three correlation matrices (Appendix E – Pairwise correlation
analysis) which feature correlation coefficients and the corresponding t-test probabilities for
the null hypotheses of each individual correlation equaling zero (Hamilton, 2003, p. 135).
Pairwise correlation is a well suited and efficient method of obtaining an overview of the data.
It makes it easy to quickly identify any associations between all interval variables. The
variables that are subject to correlation analysis are systemized according to the four different
units of analysis: issues (red), managers (orange), external stakeholders (green) and
companies (blue) (see Figure 5-7). Pairwise correlation generates a vast amount of
quantitative evidence on how issues, managers and external stakeholders relate to companies’
approaches to CSM, as well as on how they are linked among each other, e.g. not only how
issues and managers’ attitudes are related, but also how issues are linked to each other, and
how the strategic disposition of companies is linked to CSM success.
The immense scope of the evidence generated is particularly visible if one acknowledges that
both existing and missing correlations constitute meaningful empirical findings. Obviously the
author interprets every existing (statistically significant) correlation. Missing correlations are
only reported and discussed in detail if the result significantly contributes to the study’s
objectives.
47
BBB: Business of business is business
UCA: CSM despite unproven competitive
advantage
Managers
WW: CSM only in win-win situations
CA: CSM to gain competitive advantage
Social issues
Issues
Environmental issues
Companies
Capital markets
Damage to legitimacy
Consumers
External stakeholders
Governments
PPPs
Industry
NGOs
Importance of legitimacy
SD familiarity
CSM intent
SD importance
Cross-disciplinary collaboration
Structure
Strategic disposition
CSM success
Cross-disciplinary potential
Current SD role
Future SD role
Legitimacy
Correlations
Barriers
Internal barriers
Initiatives
Tools
Tools and initiatives
Figure 5-7: Variables that are subject to correlation analysis
Multiple linear regressions
Multiple regression analysis is employed to detect
1. The causal effects between interval variables. The first set of regression models aims to
explain variation in CSM intent through (1) the nature and significance of issues; (2) the
(promoting or deterring) SD role of external stakeholders – namely NGOs, governments,
consumers and the financial community – and the importance of and the damage to
legitimacy; (3) personal attitudes of managers toward the role of business in society; and
(4) company-specific internal barriers (see Figure 5-8). The second set of regressions tests
the following hypothetical determinants of CSM success (see Figure 5-9): (1) personal
attitudes of managers toward the role of business in society; (2) external barriers: and (3)
company-specific factors.
2. The effect of demographic variables, primarily the industry sector and regions of
operations. The consideration of demographic variables represents an additional “pillar” of
the study’s contingency approach. Demographic variables are dichotomized and
introduced into regression models as dummy variables using one of the categories as a
reference group (see Table 5-3), which is thus omitted from the model.
48
Contingency
dimension
Demographic
variable
Dummy variables used Reference
group
Industry sector Sector UT sector Oil & gas
Business function Function - R&D
- Operations
- Marketing
- Finance
- Other function
HR and
corporate staff
Management
level
Position - Board member
- Senior management
- Middle management
Junior
management
Region of
operation
Operations - Nordic
- Latin Europe
- North Americas
- Developing economies
- Other
Mid-Northern
Europe
Region of
nationality
Nationality - Nordic
- Latin Europe
- North Americas
- Developing economies
- Other
Mid-Northern
Europe
Age Age - Between 35 and 50
- Over 50
Below 35
Gender Gender - Female Male
Table 5-3: Dummy variables and reference groups
As in the correlation analysis, the author employs three samples: T models are based on the
total sample of OG and UT general managers: Models are run to detect the effects of
independent variables that exist in both sectors. OG models and UT models are based on the
respective sector-specific samples of general managers, and are more likely to detect effects
that are specific for the individual sectors. However, the explanatory power is likely to suffer
because of the limited sample size.
Submodels, cluster models and summary models
The total number of independent variables tested in the models on CSM intent and CSM
success amounts to 28 and 30 respectively (see Figure 5-8 and Figure 5-9). Including too
many of them in one model would stretch the data because of constraints presented by degrees
of freedom.19 Furthermore, multicollinearity and interaction effects would make it difficult to
detect the individual effect of variables and could bias the results. To counter these possible
stumbling blocks, submodels for the clusters that have too many variables are run first.
19 Ceteris paribus an increase in the number of independent variables makes it more difficult to reject the null
hypothesis that the multiple correlation coefficients are zero at an adequate significance level.
49
Cluster modelsSubmodels
External
stakeholders:
All
legitimacy-
related factors
CSM
intent
Managers:
Attitudes
•
BBB attitude
• WW attitude
•CA attitude
• UCA attitude
CSM
intent
Companies:
Internal barriers
•
Managers’ mindset
• Managers’ lack of expertise
knowledge
• Organizational culture
CSM
intent
•Company-specific factors
•External stakeholders
•Managers‘ attitudes
•Issues
CSM
intent
Summary model
Issues:
Environmental
and social issues
Issues significance
•
Environmental issues
• Social issues
Issues description
•Emissions
• Other environmental
issues
• Social issues
• Other issues
CSM
intent
CSM
intent
SD role of external
stakeholders:
• Capital markets’ future SD role
• Consumers’ current SD role
• Governments’ current SD role
• NGOs’ current SD role
CSM
intent
Incidents
•
Media campaigns
• NGO campaigns
• Conflicts with authorities
•Boycott campaigns
• Shareholder oppositions
• Other incidents
CSM
intent
Legitimacy
•
Importance of legitimacy
• Damage to legitimacy
CSM
intent
External barriers
•
Regulation
• Opposition from investors
• Lack of interest from
customers
Figure 5-8: Roadmap for regression analysis – Tested determinants of CSM intent
Cluster modelsSubmodels
External stakeholders
External barriers:
•Regulation
• Opposition from investors
• Lack of interest from
customers
CSM
success
Companies
All corporate
discretionary
factors
CSM
success
Summary model
CSM
success
Internal barriers
• Mindset
•Knowledge
•Tools
• Corporate culture
CSM
success
Management tools
•Measurement tools
• Measuring resource allocation
• Strategy tools
• Corporate values, policies etc.
• Incentive tools
• Management development
• Coordination committees
• Business teams
• Other tools
•No tools
Managers: Attitudes
•BBB attitude
• WW attitude
•CA attitude
• UCA attitude
CSM
success
CSM
success
Structure
•Cross-disciplinary collaboration
• Cross-disciplinary potential
CSM
success
Tools
•Environmental. performance
• Business ethics
• Social issues - supply chain
• Environmental issues
– supply chain
• Community involvement
• Other initiatives
• No initiatives
•External stakeholders
•Managers‘ attitudes
•Company-specific factors
CSM
success
Figure 5-9: Roadmap for regression analysis – Tested determinants of CSM success
50
The cluster models analyze the joint effect of all variables that thematically belong to the four
clusters: issues, (external) stakeholders, managers and company-specific factors (also
corresponding to the four subsections in section 8). Both submodels and cluster models serve
as a guide to the effect that the variables have on the dependent variable, with the caveat that
they may overestimate the effect of the chosen cluster, since other variables are not accounted
for. Finally, the summary models incorporate the joint effect of variables from all clusters.
It is important to note that variables operationalizing companies’ strategic disposition to CSM
(i.e. SD familiarity, SD importance and CSM intent) are not taken into account as independent
variables in the regression models examining variation in CSM success. This is done for the
following reasons:
1. The author attempts to avoid constraints in the degrees of freedom and to prevent SD
familiarity, SD importance and CSM intent from picking up the effects of other company-
specific categorical variables.
2. It is obvious that companies’ strategic disposition determines CSM success, since the
willingness to integrate certain issues into business strategies and operations precedes the
implementation of CSM through organizational changes (management tools, structures)
and corresponding corporate activities (e.g. community involvement, emission reduction).
Nevertheless, the existence of this link between strategic disposition and CSM success
does not remain untested. It is examined through correlation analysis.
Expanded and reduced models
Moreover, the author distinguishes between expanded models and reduced models:
- Expanded models are provided for all submodels and cluster models. They include all
variables that form a cluster or subcluster, plus two demographic variables that were
dichotomized and introduced through a dummy variable approach: (1) Regions of
operations are added to all models to control for their possible moderating effects. (2) A
dummy variable measuring the UT sector effect is introduced –obviously only to the T
model, in which it changes the starting point of the regression line but not the slope
coefficients of the independent variables, i.e. it may detect a possible overall positive or
negative bias of UT respondents that is due to the characteristics of the UT sector (or
respondents) that are not controlled in the regression model. The author focuses on these
two demographic variables because they are key to the contingency approach adopted in
the study. Adding more demographic variables would mean running into data constraints
because of degrees of freedom.
- Reduced models result from an iterative and theoretically guided forward-selection
process that takes into account the entire set of independent non-demographic variables
included in the expanded models. Hence every expanded model has its corresponding
reduced model which, however, only features statistically significant variables and hence
provides a clearer regression equation. In some cases, where the expanded models lack
statistical significance, reduced models may yield statistically valid regression equations.
As a rule, reduced models only comprise coefficients that are statistically significant at a
5% level.20
20 The author used STATA’s areg command to test whether a dummy approach to demographic variables was
worthwhile. If so, then the complete set of dummy variables excluding the reference group is added to the model.
Based on the backward elimination procedure, the dummy variable with the highest p value above .05 is
dropped.
51
Cluster model
Issue
Cluster model
Managers
Cluster model
External
stakeholders
plus submodels
Cluster model
Companies
plus submodels
Total
sample
OG
sample
UT
sample
Summary
model
Reduced
models
Expanded
models
Figure 5-10: Systemization of models predicting CSM intent
Cluster model
Managers
Cluster model
External
stakeholders
plus submodels
Cluster model
Companies
plus submodels
Total
sample
OG
sample
UT
sample
Summary
model
Reduced
models
Expanded
models
Figure 5-11: Systemization of models predicting CSM success
The number of models tested in this study is substantial, as illustrated in Figure 5-10 and
Figure 5-11: All submodels and cluster models are run as reduced and expanded versions for
52
three samples (the total and two sector-specific samples). An exception is the cluster model on
company-specific factors and their influence on CSM success. Here only a reduced model
makes sense since the number of variables tested would overstretch the data because of
constraints presented by degrees of freedom.
The summary models are also provided for the three samples but only as reduced models,
since the sheer number of variables tested would overstretch the data.
Regression diagnostics
The following regression diagnostics were employed to test whether the assumptions required
for multiple linear regressions are met (Hamilton, 2003, p. 152; Mason et al., 1999, p. 475):
1. Ramsey RESET tests for omitted variables which use the powers of the fitted values to
test the null hypothesis that additional variables would not improve the model.
2. The Breusch-Pagan / Cook-Weisberg test for heteroscedasticity testing the assumption of
constant error variance.
3. A test for high multicollinearity through the calculation of variance inflation factors (vif)
for the independent variables specified in the fitted model (NB STATA automatically
drops predictors causing perfect multicollinearity).
4. Tests of the distribution and mean of the residuals.21
They were applied to the summary models because of their complexity and their particular
importance to this study. Detailed results of the regression diagnostics are provided in 0 and
the corresponding STATA log-file (anregdiag.log).
Complementarity of correlations and regressions
One key aspect of this study is the complementary use of correlations and regressions:
1. Correlations between issues, managers’ attitudes and external stakeholders on the one
hand and companies’ approaches to CSM on the other analyze the same associations
between variables as the regression models. Regressions analyze the joint causal effects of
independent variables on CSM intent and CSM success respectively. Hence they are likely
not to detect effects of some independent variables because of constraints in the degrees of
freedom. Additionally, variables could be omitted from regression models due to a lack of
statistical significance, because their effect is picked up by one of the variables that
remained in the models (because of their statistical significance). Thus correlations clearly
provide additional insights because they reveal associations that exist in the data but are
too weak to be detected in the regression models.
2. In terms of the variables that are subject to the analysis, pairwise correlation obviously
goes far beyond the regression analysis by analyzing links between variables within and
between a wider range of different clusters.
3. Correlations as applied in this study do not assess the effects of categorical variables. This
void is filled through the regression models which allow the examination of the influence
of categorical variables through a dummy variable approach. Thus regression models also
shed light on the effects of demographic variables.
Figure 5-12 visualizes the complementarity of both methods: Variables that are considered in
both methods are highlighted in yellow. They also include the two dependent variables CSM
21 Multiple linear regression is based on the assumption that residuals are homoscedastic, i.e. normally
distributed with a mean of zero (Mason et al., 1999, p. 475).
53
intent and CSM success. Categorical variables are only taken into account through
regressions. They are highlighted in black. A third category of variables – highlighted in gray
– is only considered through correlation.
BBB: Business of business is business
UCA: CSM despite unproven competitive
advantage
Managers
WW: CSM only in win-win situations
CA: CSM to gain competitive advantage
Social issues
Issues
Environmental issues
Companies
Capital markets
Damage to legitimacy
Consumers
External stakeholders and legitimacy
Governments
PPPs
Industry
NGOs
Importance of legitimacy
SD familiarity
CSM intent
SD importance
Cross-disciplinary collaboration
Structure
Strategic disposition
CSM success
Cross-disciplinary potential
Current SD role
Future SD role
Legitimacy
Internal Barriers
Internal barriers
Initiatives
Tools
Tools and initiatives
Incidents
External barriers
Issue descriptions
Figure 5-12: Complementarity of correlations and regressions
5.3 Synergistic fit of methods
Now that the individual methods of data collection and analysis have been presented
individually, the author will elucidate their synergistic fit in more detail.
As Figure 5-13 illustrates, the use of methods has been orchestrated in a way that ensures
complementarity and cross-validation of results.
Quantitative methods: The quantitative methods comprise data collection through two
questionnaires that target sustainability officers and general managers respectively. They
partly overlap in terms of the composition of questions, and thus data collected are able to
complement and cross-validate each other. Quantitative data analysis follows a two-pronged
approach:
1. χ2- and t-tests are employed to compare means and relative frequencies within the same
sector across the two management groups (general managers vs. sustainability officers)
and between the two sectors (OG respondents vs. UT respondents).
2. Correlations and regressions are based on data collected only from general managers.
They are both employed to examine relationships between interval variables across three
samples: the two sector-specific samples and the total sample. More specifically,
correlations analyze relationships between all interval variables, regressions analyze the
causal effect of several interval and categorical variables on two dependent variables
54
(CSM intent and CSM success). Thus correlations and regressions are able to complement
and cross-validate not only each other, but also the cross-sector and crossdisciplinary
differences or commonalities detected through χ2- and t-tests: Regressions in particular are
designed to explain possible variation in CSM intent and CSM success through a set of
independent variables. Furthermore, regressions control for the effects of demographic
variables, especially countries of operations, and are thus an important means of the
study’s contingency approach.
Interviews
¾Cross- and within case
analysis
2 Questionnaires
Data
collection
Data
analysis
Focus
¾χ2-tests: Cross-sector and
-functional comparison:
Categorical variables
(multiple choice questions)
¾t-tests: Cross-sector and
-functional comparison:
Interval variables
(foremost Likert scales)
¾Correlations: Association
between interval variables in GM
data analyzed in total sample
and in both sectors
¾Regressions: Identifying
determinants of CSM intent and
CSM success among interval and
categorical variables, in the total
sample and across both sectors,
influences of demographic
variables
GM and OG data
(all 4 samples)
GM data only
(3 samples including total)
Sector and countries:
Where are similarities and
differences in the samples in terms of
¾Associations between variables
¾Causal effects
between variables
¾The influence of countries and
other demographic
variables?
Sector, function and countries:
¾Do qualitative data match with similarities
and differences detected in quantitative
data and can they explain them?
¾Exploratory focus on economic rationale
for corporate sustainability management
External stakeholders:
¾How closely do qualitative data from
managers match those from external
stakeholders and experts?
¾Determinants of corporate sustainability management
¾Companies’ approaches to corporate sustainability management in terms of both strategic
disposition and implementation, the economic rationale for their approaches
¾Outcome
Sector and function:
Where are similarities and
differences between the
samples in terms of
¾Means
¾Relative frequencies?
Qualitative methodsQuantitative methods
Concepts
targeted
4 samples:
•OG general managers
• OG sustainability officers
• UT general managers
• UT sustainability officers
4 samples:
• OG general managers
• OG sustainability officers
• UT general managers
• UT sustainability officers
plus external stakeholders
Figure 5-13: Synergistic fit of methods
Qualitative methods: Whereas the quantitative methods ensure sufficient breadth in the study,
the qualitative methods facilitate a more in-depth examination of the study’s key concepts,
particularly the economic rationale for CSM. Interviews with sustainability officers, general
managers, external stakeholders and experts are qualitatively examined through cross- and
within-case analysis. The resulting data not only broadens the scope of the study but also
facilitates better inference and opportunities to detect divergences in the data:
1. Qualitative data obtained from general managers and sustainability officers provide an
important qualitative benchmark for quantitative data and thus facilitate the triangulation
of results, also because they provide insights into the nature of the relationships detected
or not detected through correlations and regressions.
2. Qualitative data obtained from external stakeholders and experts enable the researcher to
cross-validate both qualitative and quantitative data collected from managers.
3. Qualitative data on the economic rationale for corporate sustainability are collected. This
allows for a more exploratory approach to this key concept, deemed necessary based on
the literature review.
55
5.4 Evaluation
The study’s objective is to empirically examine the main external and internal determinants
(i.e. drivers or barriers) to CSM, companies’ approaches to CSM in terms of both strategic
disposition and implementation, the economic rationale for their approaches and their
outcome.
In the following paragraphs the author provides a brief critical assessment of the research
design and the methods chosen to achieve the study’s research objective.
Quality of research design
The approach adopted in this study is relatively complex to adequately capture the complexity
of the research topic (Newman, Ridenour, Newman, & DeMarce Jr., 2003, p. 168) and
incorporates the current state of the research field. It features a mixed method design that
comprises both qualitative and quantitative methods (the latter having priority of the former),
and thus ensures a wide scope of the study, better inference, and opportunities to present a
greater diversity of different (possibly divergent) views (Teddlie et al., 2003, p. 16).
The approach takes a clear contingency perspective on the concept of corporate sustainability
performance, the need for which was clearly highlighted through the literature review. The
approach allows for a differentiated analysis across two industry sectors, two management
groups and various countries. The selection of the industry sectors and mainly industrialized
countries clearly ensures the relevance of this study: the sectors and countries for their
economic, environmental and social significance (locally and globally), the two management
groups because of their likely role as protagonists in the future of CSM – in general with
sustainability officers as catalysts, general managers as “deterrers.”
The contingency approach greatly increases the internal validity of the study compared to the
numerous studies employing multi-industry samples. This can be expected since, as the
empirical literature review revealed, corporate sustainability performance clearly features
sector-specific characteristics. Hence results will be more clearly interpretable in a sector-
specific context, i.e. changes in the dependent variable can be more clearly explained through
the influence of independent variables, and thus the number of explanations beyond those
formulated in the conceptual framework decreases (Bortz et al., 2002, p. 57). However, it has
to be pointed out that the statistical validity that is seen as part of the internal validity may be
affected, because several conditions required for the quantitative methods employed in this
study are not entirely met: They comprise primarily (1) probability sampling, needed for
statistical inference (Dowdy & Wearden, 1983. p. 9), and (2) interval data required for most
standard statistical techniques. Although these statistical tools tend to be robust against such
violations, results can be biased (Mason et al., 1999, p. 475). Against this backdrop, the author
applied a comprehensive set of diagnostics and complementary means of data analysis.
Moreover, he adopted a conservative approach to interpreting regression models: Only the
direction of the independent variables’ effects was interpreted, not the strength.
The author also states that the study is largely based on managers’ perceptions, complemented
with, primarily, qualitative data collected through interviews with stakeholders, and secondary
data sources (corporate reports, websites, newspaper and journal articles). Hence, overall, a
potential bias in qualitative data (through self-representation and social desirability) is – due
to triangulation with other sources - unlikely to remain undetected. Since, in terms of
quantitative data collected, the research design is limited to self-reported measures from
managers only, the following aspects are to be taken into consideration:
- The indirect measurement of stakeholders’ position (through managers’ self-reported
measures) is meaningful, as their perceived position (rather than their actual position)
determines managers’ decision-making (“perception is reality”).
56
- However, the use of self-reported measures to assess company positions and situations is
more problematic when assessing relationships and causal links between those variables,
for example to determine whether a reported internal barrier (e.g. managers’ mindset)
influences companies’ CSM intent or CSM success. In this situation, it is generally
preferable to measure the dependent variable through a third source (e.g. a stakeholder, a
rating agency). However, this approach is also associated with certain issues: First, it
would further increase the complexity of the study by having to have an additional means
of data collection. Second, it requires an individual company-specific assessment of the
variable under consideration by the third party. This means that values may not be
available for every company in the sample, which would decrease the total sample size.
Third, questions about the validity and objectivity of the additional measurement naturally
arise too.
The contingency approach also contributes to the external validity of this study, largely
because it ensures instrumental validity, i.e. the cross-validation between the two sectors and
the two management groups respectively guarantees that the survey instruments record what
they should.22 However, it has to be stressed that the sample is unlikely to be fully
representative of either of the two sectors. It is obvious that only the more interested elements
of the population respond to surveys of this kind. Unfortunately the multi-pronged approach
to quantitative data collection necessary to obtain adequate sample sizes makes an
examination of no-responses impossible.
Quality of methods
In the following paragraphs the author briefly assesses the methods employed according to
their three common quality criteria, namely objectivity, reliability and validity.
Objectivity
Objectivity refers to interpersonal consensus, i.e. different researchers should be able to reach
similar results if they adopt the same method (Bortz et al., 2002, p. 194, 326). This can be
achieved through the exact description of the process the researcher has gone through and a
certain standardization. In both respects the author has ensured the greatest possible
objectivity: First, procedures have been accurately documented. Second, the author achieves a
high level of standardization through the methods of data collection (questionnaires and
interview guidelines) and data analysis (e.g. standard quantitative methods such as t-tests and
regressions using standard software).
Reliability
Reliability essentially concerns the accuracy of the method. If it lacks accuracy, situational
factors will cause measurement errors (e.g. participant bias through tiredness, guessing). A
completely reliable method should yield the same results if repeated with the same
respondent. Obviously this can neither be fully achieved in a semi-structured interview nor is
it necessarily desirable, since e.g. the researcher may focus on a recent event or experience the
interviewee reports on (Bortz et al., 2002, p. 195, 327). Again the author attempted to ensure
the best possible reliability of the method for his part by using standardized methods of data
collection and analysis. In particular, he ensures complete transparency of the data analysis
process by providing raw data and STATA log- and do-files. Nevertheless, the reliability of
quantitative data collection is affected, since the situations in which questionnaires are filled
in (e.g. online at home or during IMD programs) may differ significantly.
22 External validity is given if results can be generalized to other individuals, situations or points in time (Bortz et
al., 2002, p. 57; Saunders et al., 2003, p. 102).
57
Validity
Validity is the most important criterion for research quality. In the context of the classical test
theory, it indicates whether a test (e.g. an IQ test) really measures what it is designed to
measure. It incorporates three kinds of validity: face validity, criterion validity and construct
validity (Bortz et al., 2002, p. 199). The present study has a clearly explanatory focus and
measures a variety of concepts (or constructs) through a limited number of items. Thus
validity – unlike reliability – is not quantitatively assessed. This does not necessarily mean
that the method lacks validity. Construct validity can be assumed if e.g. relationships detected
through correlations and regressions fit the study’s conceptual framework and qualitative
findings.
The validity of qualitative methods concerns several aspects such as the authenticity and
honesty of interviewees’ statements and possible biases from the researcher in the course of
interviewing and interpretation. Validity has been maximized in the present study through
within- and cross-case analysis, comparisons with other sources (mainly internal and external
company documents) and, most importantly, interpersonal consensus building: Interpersonal
consensus building was achieved among the team members of the cross-industry research
project referred to above, between the researcher and interviewees through dialogic validation
(follow-up phone interviews and focused group discussion),23 and by engaging external
experts (Bortz et al., 2002, p. 329): Members of the project’s advisory council, composed of
managers and experts, critically reviewed the research results. 24
23 As part of the research project carried out at IMD, the author produced research reports on both sectors and a
comparative report. The reports entered a comprehensive feedback process including follow-up phone
interviews, email correspondence, and a two-hour group session with the sustainability officers from the
participating companies.
24 The advisory council was established to critically assess the progress of IMD’s cross-industry research project,
within the framework of which the current study was carried out.
58
6 Sector characteristics
This section elaborates on the major characteristics of both sectors without applying a specific
sustainability focus. This is necessary to set the stage for a comprehensive discussion of the
integration of environmental and social issues into business strategies and operations. The
analysis will be brief and exhaustive by no means but it will be focus on those factors that
play the most important role setting the context for CSM:25 the key characteristics and
activities of both sectors, trends, drivers and competitive forces.
6.1 Characteristics and activities of companies
Both sectors are involved in the production, distribution and supply of energy. The OG sector
mainly supplies primary energy, the UT sector mainly secondary energy, namely electricity.26
Energy – and particularly oil – is a strategic and cheap commodity:
- The strategic importance of oil and its geopolitical effects are particularly visible in US
foreign policy (Barlett & Steele, 2003; Prüller, 2003). It is rising through the increasing
dependency of developed countries on oil imports (Anonymous, 2001b).
- Energy is inexpensive, particularly in industrialized countries. For example, energy
expenditure amounts to 2% of the household income of a high-income UK household.27
Apart from some heavy-industry branches, the proportion of energy expenditure in
production costs is similarly low.
Integrated oil and gas sector
OG companies are primarily involved in (1) global exploration and production of oil and gas
(upstream business) in various regions around the globe, and (2) refining and marketing of oil
products (downstream). These areas also represent the two key business units. OG companies
also engage in gas distribution, power generation mainly for own use in refineries (gas &
power) and chemicals. Furthermore, energy logistics is an increasingly important cross-
business activity. The oil produced is mainly supplied to the transport (57%) and industrial
(19%) sectors; gas serves mainly industrial purposes (44.8%) (International Energy Agency,
2003).
In contrast to the 1970s, the major OG companies no longer dominate oil production,
primarily due to competition with several medium-sized private and several large national oil
companies and the creation of the Organization of Petroleum Exporting Countries (OPEC)
(Ketola, 1993, p. 22). OPEC has recently effectively controlled the oil price, which
substantially determines OG companies’ profits and hence share prices (Drack, 2003;
Vorholz, 2003a). The influence of the major companies such as Shell, Total and Exxon Mobil
in the downstream business is still significant. Over the last decade, the industry has
consolidated through several mergers. Stronger engagement of national oil companies in
downstream activities remains a major potentially disruptive factor (Ernst et al., 1999).
Electric utilities sector
UT companies are typically active in hard coal and lignite mining, power generation,
electricity and gas network activities, and the marketing and sales of electricity and gas.
25 For a more detailed analysis, refer to Salzmann (2004).
26 Primary energy sources can be assigned to three broad categories: renewable fuels (e.g. biomass), non-
renewable fuels (e.g. fossil fuels such as oil, gas and coal, nuclear fuels) and renewable natural forces (e.g. solar
heat and light, wind, geothermal heating). Secondary energy sources or carriers are derived from these primary
energy sources, foremost electricity but also hydrogen and alcohol.
27 On the other hand, it can reach up to 15% of household income in Uganda (International Energy Agency et al.,
2002, p. 8).
59
Electricity is mainly generated through the use of coal (38.7%), gas (18.3%), nuclear fuels
(17.1%) and hydropower (16.6%) It is primarily supplied to the industrial sector (41.7%).
Other sectors (including agriculture, commercial & public service, and residential) account for
a 56.5% share (International Energy Agency, 2003). UT companies are typically smaller and
less profitable than OG companies (refer to Appendix B – Key financials of sector samples for
the companies that participated in the interview phase of the project).
Compared to the clearly global nature of the OG sector, in the UT sector the business models
– relating to power generation distribution and supply – clearly feature regional
characteristics. Companies are more strongly dependent on the local availability of resources
(e.g. coal, hydropower) and on domestic energy policies (e.g. France’s preference for nuclear
power generation). In Europe, for example, the sector exhibits a strategic focus on European
energy markets, vertical integration (Bender, 2003; Economist Intelligence Unit, 2003b) and
expansion into other OECD countries. The implementation of the liberalized EU electricity
and gas markets has had – depending on the degree to which the respective domestic markets
have opened – several significant effects, including rising cost pressure (through
inefficiencies, overcapacities), investment risk (customers can switch suppliers more easily)
(Bohne, 2003; Flauger, 2003a) and the convergence of gas and power markets (Buchan,
2001c; Commission of the European Communities, 2004). In several European countries,
market concentration has increased as a consequence (Vorholz, 2003b). Future development
will depend substantially on how consistently liberalization processes are driven forward.
6.2 Trends, drivers and competitive forces
In the following, the author outlines the key trends and drivers and competitive forces. Energy
demand is growing, and the supply is becoming increasingly challenging. However in the
short to medium term, drastic changes in the current energy mix are not be expected.
Demand and supply
Demand is coupled with economic development, population growth and, in the short term,
weather conditions. In the past, growth in energy consumption has been substantial, but so far
mainly limited to industrial nations. In the future, it will be mainly driven through rising
demand from developing and emerging countries, particularly in Asia.
At the same time, oil reserves in developed countries are maturing. Hence substantial amounts
of investment in the development of additional oil & gas fields are necessary. These
developments will become increasingly difficult for two major reasons:
1. Fields are less accessible, and thus extraction and production will become more
technically challenging and expensive in general (e.g. more deepwater drilling will
become necessary) (Anonymous, 2003e; Morrison, 2000).
2. The host countries in which future E&P activities will take place (mainly Africa, the
former Soviet Union and the Middle East) are obtaining greater bargaining power and bear
more political and social risks. Hence political rivalry, domestic strife and corruption will
certainly increase insurance, project finance and security costs (Anonymous, 2003g, p. 2).
Oil supply is significantly affected by short-term supply disruption and, in the long term,
resource depletion. Both factors are linked by geopolitics, which makes it difficult to estimate
the range of fossil fuels. New discoveries and price shifts due to supply disruptions in the
Middle East and other regions can make certain reservoirs that were previously too expensive
to use suddenly attractive. Various studies estimate that supply gaps, particularly for oil, will
become evident between 2030 and 2050 (Puplava, 9 April 2006; RWE, 2003; Shell
International Ltd, 2001).
60
Short-term supply disruption and resource depletion are less significant in the UT sector, since
its primary energy (coal, gas and nuclear fuels) generally originates from politically more
stable regions (e.g. Australia, China, South Africa) or domestic deposits. Recent blackouts,
e.g. in the US and Italy, are likely to lead to a new emphasis on supply security in the short to
medium term, which will compete with the main goals of liberalization (low consumer prices
and economic efficiency) and environmental considerations (Anonymous, 2003g, p. 8).
Competitive forces
Competitive forces (Porter, 1980) exhibit several meaningful differences and commonalities
across both sectors:
1. High capital intensity and scale economies constitute great barriers to entry of new
competitors and also barriers to radical innovation. The OG sector’s technological lock-in
is even strengthened through existing business systems with neighboring industries (long
life cycles of fossil-fuel based modes of transport) (Steger, 2004).
2. Customers can easily switch suppliers, particularly in the OG sector. Furthermore, the
price elasticity in the transport sector is significant, and thus increases competition in OG
downstream activities. In the UT sector, industrial customers use their bargaining power in
liberalized electricity markets. In contrast, low electricity prices and the administrative
effort of switching electricity suppliers provide little incentive for private households to
exercise potential bargaining power (Anonymous, 2003b).
3. In the OG sector, the bargaining power of suppliers – most importantly national
governments as the resource owners – is significantly higher, because companies rely on
licenses from a few and mostly politically less stable countries. To share the risk of
substantial upstream investments, the sector commonly relies on joint ventures
(Anonymous, 2001b).
4. The current threat from substitutes is low in both sectors (Purdum, 2003). However,
renewable energy sources, distributed generation and hydrogen technology constitute
long-term alternatives with significant disruptive potential.
Current and future energy mix
In today’s world, primary energy demand is mainly met by oil (35%), coal (23%) and natural
gas (21%), which “translates” into the following fuel shares of total final consumption: Oil is
clearly the most important energy source accounting for 43%, followed by natural gas
(16.3%), and electricity (15.6%) (International Energy Agency, 2003).
Several scenarios aim to project the world energy mix in 2030. Results vary significantly due
to different methodologies, but suggest that it will not change dramatically. Natural gas is
expected to exhibit the strongest growth. The current 10% share of renewable energies will
not increase substantially – in fact it may even decline.28 Two Shell scenarios take a more
long-term perspective of possible developments by 2050. They differ in terms of the most
important drivers (superior end-use technology by consumers vs. resource scarcity,
environment and security concerns, competitive responses and competing societal priorities)
and project that renewables could play a substantial part as primary energy sources in the
long-term future, and thus lead to the stabilization of atmospheric carbon dioxide
concentrations (Shell International Ltd, 2001, p. 58).
28 This conclusion is reached based on a meta-analysis of several energy scenarios from the Energy Information
Administration (EIA), the International Energy Agency (IEA) and EU Directorate-General for Research (RWE,
2003, p. 53)
61
6.3 Discussion
Analysis of the main sector characteristics brought to light several commonalities and
differences, which make a sector comparison clearly worthwhile:
- There is a slight overlap in the activities of both sectors: OG companies primarily focus on
the extraction and production of oil and gas, and the refining and marketing of oil. Some
also engage in power generation and the marketing of gas. In contrast UT companies’
extraction and production activities are limited to hard coal, lignite and gas. They clearly
focus on electricity production, and the distribution (network activities) and supply of
electricity and gas. They are expanding their activities globally (through acquisitions in
the electricity and gas markets of other industrialized countries and international
extraction activities) but their business models have more regional characteristics. There
are several reasons for this: (1) Until ongoing liberalization in electricity and gas markets
began, companies focused on their home markets; and (2) electricity is generated close to
where it is consumed because storage and transport are comparatively expensive.
- Both sectors use capital-intensive processes to supply cheap and strategic commodities.
However, on average OG companies are more resourceful than UT companies.
Furthermore, the OG sector is more strongly locked into technological trajectories
primarily due to the fleet inertia in the transport sector.
- Both sectors also face similar future challenges of growing energy demand and depleting
fossil fuels. However, pressure on the OG sector is stronger because (1) its downstream
operations span a broader scale, and (2) oil – as its key resource – will deplete most
quickly of all fossil fuels.
- Additionally, competition in the downstream OG business is stronger, although
liberalization of the UT sector is also leading to a significant increase in competitive
pressure.
- The OG sector’s upstream activities bear considerably greater political and social risks,
associated with local conditions in the supplier countries and geopolitics. The bargaining
power of suppliers in the OG sector, i.e. governments as the owners of oil and gas
resources, is substantially higher.
7 Data collected
In the following two sections, the author briefly elaborates on the amount of qualitative and
quantitative data collected in the course of this study. Overall the evidence obtained (33.25
hours of interview time and just under 200 returned questionnaires) is relatively extensive, if
one considers that the study adopts a contingency approach that does not allow more easily
obtainable multi-industry samples.
7.1 Qualitative data
Seven OG and six UT companies from Europe and the US responded positively when asked
to participate in the study through interviews. In most cases, the author conducted at least two
face-to-face interviews per company (one SO and at least one GM) and followed up by phone
when necessary. The sample includes all major non-sustainability business functions (see
Table 7-1). Furthermore, seven non-corporate organizations, i.e. external stakeholders such as
public pressure groups, regulators and experts, also agreed to contribute to the study through
interviews. The number of conducted interviews amounts to a total of 45. Interviewees mainly
originated from Mid-Northern Europe, Latin Europe and Nordic countries (see Appendix A –
Interview samples for details).
62
Sector
Management
discipline
OG sector UT sector External stakeholders
(# of interviews)
Sustainability officers 14 7
General managers:
Operations including supply chain
(some with responsibility in environmental,
health and safety)
6 1
Public affairs, communications 1 0
Finance, investor relations 1 2
Strategy 2 1
Research & development 1 0
Human Resources 0 1
- Environmental
organizations (4)
- Regulators (1)
- Intergovernmental
organizations, e.g.
UNEP, IEA (3)
- Multi-industry
platforms, e.g. WBCSD,
WEF (2):
Subtotal for general managers 11 5
Total 25 12 10
Table 7-1: Interview sample
Interviewees provided ca. 45 min for an interview on average (if one takes into account that
some interviews were conducted with two interviewees), which adds up to a total of at least
33.25 hours of interview time, excluding follow-up interviews by phone.
Depending on their availability, various internal and external company documents such as
analyst and annual reports as well as corporate environmental, social responsibility or
sustainability reports were used for the preparation of and discussion during the interviews.
Furthermore, the author (passively) participated in a three-hour session of a global OG
company at IMD, during which general managers discussed drivers and practices of CSM
with one of the company’s sustainability officers.
7.2 Quantitative data
The number of returned and valid questionnaires amounted to 205 in total. They comprise 13
and 55 questionnaires from UT sustainability officers and general managers respectively, and
17 and 120 questionnaires from OG sustainability officers and general managers respectively
(see Figure 7-1).
63
13
Sustainability
officers
55
General managers
17
Sustainability
officers
120
General managers
OG sectorUT sector
Cross-sector comparison
Cross-sector comparison
Intra-sector comparison Intra-sector comparison
Figure 7-1: Samples – dimensions of comparison
The GM samples in both sectors are dominated by HR and corporate staff, followed by – in
the OG sector – operations (27%) and marketing (14%), and – in the UT sector – finance
(18%) and operations (13%). OG respondents primarily originate from middle (42%) and
senior (38%) management positions. The UT sample is clearly dominated by senior managers
(60%). Middle management is the second most important group at 35%. Both samples are
clearly dominated by male respondents aged 35 to 50. In the OG samples, respondents who
operate in North America account for the largest proportion, followed by respondents based in
Mid-Northern Europe and Nordic countries (see Chart 7-1). As Chart 7-2 illustrates, the UT
sample of general managers is clearly dominated by respondents who operate in Mid-
Northern Europe.
64
Nordic
15%
Mid-Northern Europe
19%
North Americas
36%
Latin Europe
7%
Developing
Economies
12%
Other
7%
NR
4%
Mid-Northern Europe
70%
Latin Europe
5%
Other
2%
Developing
Economies
2% NR
0%
Nordic
16%
North Americas
5%
Chart 7-1: Regions of operation – OG general
managers
Chart 7-2: Regions of operation – UT general
managers
The sample distribution of nationalities does not deviate substantially from that of the regions
of operation (see Chart 7-3 and Chart 7-4).
Nordic
17%
Mid-Northern Europe
23%
Latin Europe
2%
Developing
Economies
8%
Other
5%
NR
13%
North America
34%
Nordic
18%
Mid-Northern Europe
61%
North Americas
5%
Latin Europe
5%
Developing
Economies
0%
NR
11%
Other
0%
Chart 7-3: Nationalities – OG general managers Chart 7-4: Nationalities – UT general managers
The SO questionnaire was emailed or faxed directly to all sustainability officers interviewed,
with a request to forward it to other sustainability experts in their company. In both sectors,
sustainability officers operate mainly in their company’s environmental health & safety (EHS)
department (44% in the OG, 58% in the UT sector). Sustainability (33% in the OG, 7% in the
UT sector) and external affairs departments (17% in the OG, 14% in the UT sector) also
appear to play a significant role. It should also be noted that 21% of UT respondents operated
in functions that could not assigned to any of the departments referred to above.
65
Nordic
12%
Mid-Northern Europe
52%
North Americas
12%
Latin Europe
18%
Developing
Economies
0%
Other
6%
NR
0%
Mid-Northern Europe
69%
North Americas
8%
Latin Europe
8%
NR
0%
Other
0%
Developing
Economies
0%
Nordic
15%
Chart 7-5: Regions of operation – OG
sustainability officers
Chart 7-6: Regions of operations – UT
sustainability officers
As Chart 7-5 to Chart 7-8 illustrate, that Mid-Northern European bias is substantial in the
sample of sustainability officers, particularly in the UT sector. The bias has “increased”
compared to the GM samples because collecting data from such a relatively small population
proved to be difficult. The author had to rely on personal relationships with managers who
had already participated in the interview stage. As mentioned earlier, most of them were based
in Mid-Northern Europe.
Nordic
12%
Mid-Northern Europe
52%
North Americas
24%
Latin Europe
6%
Developing
Economies
6%
Other
0%
NR
0%
Nordic
15%
Mid-Northern Europe
62%
North Americas
8%
Latin Europe
0%
Developing
Economies
0%
Other
0%
NR
15%
Chart 7-7: Nationalities – OG sustainability
officers
Chart 7-8: Nationalities – UT sustainability
officers
Overall, the sample of sustainability officers (13 in the UT and 17 in the OG sector) is small.
Nevertheless, the author decided to incorporate the data in this study for two reasons:
First, given its rather exploratory character, the study will significantly benefit from an
additional benchmark, if results are interpreted carefully. Second, STATA’s t-test, which is
used in the study to compare the means between/among sustainability officers and general
66
managers does allow for small samples, as it is based on the Student’s t (Mason et al., 1999, p.
353).
8 Empirical evidence
In the following section, the empirical findings will be presented and discussed. It is divided
into four subsections that deal with the four individual units of analysis (see Figure 8-1). It
should be noted that these four units will be consistently highlighted in the following colors:
red (issues), green (external stakeholders), orange (managers) and blue (companies).
Section 8.1 examines the importance of environmental and social issues, and focuses
specifically on a description of the individual problems and their relevance to the companies
and sectors overall. Obviously social and environmental problems only become issues if some
stakeholder’s demand makes the problem relevant to corporate activities, because it holds the
company publicly responsible (Wood, 1991, p. 698). Hence the role of individual stakeholders
in determining the significance of the issues will be mentioned. However, the section
primarily discusses the nature of different social or environmental issues, and how companies
are responding to their responsibility to them rather than focusing on the importance of
individual stakeholders.
Section 8.2 features a comprehensive discussion of legitimacy and the importance of
stakeholders other than managers (whose role is examined separately in section 8.3), namely
governments and regulators, public pressure groups and the financial community. As
mentioned in the previous paragraph, some repetition through brief references to issues is
unavoidable. However, the clear focus is on the stakeholder as such rather than the issue.
Furthermore, the role of industry (i.e. the respondents’ companies and competitors) and
public-private partnerships is examined to obtain a meaningful benchmark for respondents’
assessment of external stakeholder activities and to detect possible differences in the self-
perception of companies (and their competitors), and in the perception of the effectiveness of
public-private partnerships.
67
Section 8: Empirical evidence
8.4 Companies
8.4.1 Company-specific
determinants
8.4.2 Strategic disposition
8.4.3 Economic rationale
8.4.4 Implementation
8.4.4.1 Management
tools
8.4.4.2 Structure
8.4.4.3 Corporate
initiatives
8.4.5 Outcome
8.3 Managers8.2 External
stakeholders, industry
and partnerships
8.2.1 Governments
and regulators
8.2.2 Public pressure
groups
8.2.3 Customers
8.2.4 Financial community
8.2.5 Industry and
partnerships
8.2.6 Legitimacy and
the relative
importance of
external stakeholders
8.1 Issues
Figure 8-1: Structure of section 8
The role of managers as internal stakeholders will be assessed in section 8.3. As individuals in
a corporate environment, they are able to exercise considerable managerial discretion and thus
either drive or deter CSM, depending on their level of knowledge and expertise as well as
their personal attitudes. Hence this is an area of particular interest in this study.
Section 8.4 deals with companies as the final unit of analysis. It comprises a discussion of
internal and company-specific barriers (e.g. opposition from functions, corporate culture) and
compares them with the significance of external barriers (e.g. lack of interest from customers),
companies’ strategic disposition to CSM (e.g. how much should environmental and social
criteria be taken into consideration?) and their ways of operationalizing it (e.g. tools,
initiatives).
As a rule the sections and subsections in Figure 8-1 above feature three subsections each,
which comprise (1) qualitative analysis and basic statistics, (2) advanced statistics, and (3)
discussion. The only exception is section 8.4.3 Economic rationale, for which no advanced
statistics are available due to the necessarily more exploratory and qualitative approach to the
business case for sustainability.
Qualitative analysis and basic statistics
Subsections titled “Qualitative analysis and basic statistics” contain reports on the findings
from the interviews, which are then put into the context provided by basic quantitative data
analysis. These statistics include relative frequencies (reported in pie charts) as well as χ2-and
t-tests.
Depending on the length of the section and the complexity of the results, the author provides
brief conclusions to summarize key findings and interpretations.
68
Advanced statistics
Subsections with the heading “Advanced statistics” feature the results of the correlation
and/or regression analysis. Various figures will be provided to present the correlation analysis
results in a clear format. It should be noted that only correlations that are statistically
significant at a 5% level are included. Associations with lower significance levels may be
reported from time to time. It is possible that correlations and regressions that are based on the
total and the OG sample might yield similar results due to the preponderance of OG
respondents in the total sample.29
Correlations describe the associations between two concepts, e.g. issue significance and
managers’ attitudes. It is worthwhile reporting on them in the two sections that deal with these
concepts respectively – essentially twice in the course of this study, since a holistic
interpretation requires the consideration of all associations that one variable exhibits with the
remaining variables tested. This rationale is followed in this study. However, to avoid
unnecessary redundancies, every correlation is only discussed in detail once, namely the first
time it is reported. Thus most subsections that present the study’s correlation results feature a
brief iteration of results already interpreted in detail in a previous section, and a more detailed
discussion of results that are “new” in the study, i.e. results of correlations that have not been
mentioned in any of the previous sections.
Given the exploratory nature of this study it should be not surprising if some expanded
regression models are not valid, or include coefficients whose p-values are below the regular
0.05 or 0.10 levels. This is precisely why the author provides reduced models in addition. As a
rule, the discussion of the influence of demographic variables primarily focuses on the effect
of the industry sectors and regions of operations. Other statistically significant demographic
variables will not be discussed in detail, since they are primarily used to control for possible
individual biases in the personal attitudes of respondents, which have already been found in
earlier empirical studies. It should be noted that in the reduced and expanded models
significance levels of 5% and 10% are indicated in bold and italic, respectively. Generally
only either the reduced or the expanded model will be shown and interpreted in the text. The
“missing” one will be provided in Appendix F – Regression models. Regression diagnostics
on the summary models (see Appendix G – Regression diagnostics) indicate that assumptions
underlying multiple regression analysis are reasonably met.
As in the subsections on “qualitative analysis and basic statistics,” the author provides brief
conclusions to summarize key findings and interpretations if the scope and complexity of the
results make them necessary.
Discussion
Discussion sections represent a synthesis of results and interpretations from the previous
sections (“Qualitative analysis and basic statistics” and “Advanced statistics”), i.e. to what
extent they converge or diverge, and complement each other.
They discuss (1) the importance of the respective concept examined, e.g. issues, to CSM, (2)
its relationships with other concepts examined in this study (its determinants and effects), and
(3) its contingency character, i.e. to what extent the concept features different characteristics
across the two industry sectors, management disciplines and different regions of operations.
The author will compare the findings with those of other studies and put them into broader
perspective. He will also discuss the limitations of the study and provide suggestions for
further research.
29 There are more than twice as many OG as UT respondents.
69
8.1 Issues
According to the conceptual framework presented in section 4, issues are significant
motivating factors for CSM, since companies are publicly responsible for environmental and
social problems caused by their activities (Preston et al., 1975; Wood, 1991, p. 697).
In this section, the author will:
- report on the issues mentioned by the respondents to this survey
- describe the characteristics of the most important single environmental and social issues in
both sectors in more detail (cause, related stakeholders and corporate response)
- assess their overall importance and effects on companies’ approaches to CSM.
8.1.1 Qualitative analysis and basic statistics
Figure 8-2 and Figure 8-3 include all the different environmental and social issues that were
mentioned in the interviews. There are a substantial number, particularly in the OG sector
largely due to its global scale of activities and its operations in developing countries –
compared to the UT sector. Issues vary not only across different locations of corporate
activities but also across different kinds of activities themselves. This is visible particularly in
the OG sector, since it is highly vertically integrated.
Overall, sustainability officers interviewed exhibited greater knowledge about the entire range
of issues across the value chain. This is to be expected, because they have several
responsibilities including a corporate review and advisory role which requires them to deal
with various organizational units and issues. In contrast, general managers’ awareness tends to
be limited to issues that are more short term and directly associated with their responsibility.
It is obvious that extraction activities and large hydropower projects are under more scrutiny
due to their size and greater environmental and social significance compared to e.g.
downstream operations.
In the following sections 8.1.1.1 and 8.1.1.2, the most important social and environmental
issues of both sectors are described in more detail. The author will also briefly mention how
companies responded to them.
70
•Scale of activity
relatively small,
new equipment
minimizes
environmental
impact
•Climate change
•Environmental impact (e.g.
groundwater), access to areas,
depending on local level of
biodiversity
•Primarily in developing countries:
revenue streams
•Developing countries only (e.g.
Chad, Myanmar): human rights
•Climate change
•Other environmental
impacts (clean fuels,
cleaner production
•Social impact
(employment)
Extraction Sales
•Host governments
Stakeholders Issues
•Host governments, increasingly
concerned with non-economic
issues
•Local community
•Joint venture partners
•Civil society
•International lending institutions
•Host governments
•Local communities
•Neighboring industries
Îinter-sectoral
cooperation
Rigs, pipelines, tankers Big refineries, small outlets
Transport:
•Pipeline construction and maintenance: employment, environmental impact (spills, routes
through sensitive bioregions)
•Shipping: spills
•Road transport: safety
Search Production Refining
•Customers
•Climate change
•Alcohol, pornography
sold at gas stations
Figure 8-2: Issues and stakeholders across the value chain (OG) – based on interviews and corporate
reports/websites
•Relocation (also large hydropower)
•Biodiversity (also large hydropower)
•Lay-offs (decreasing domestic
subsidies)
•Health & safety
•Health & safety,
particularly nuclear
•Nuclear waste
•Climate change
•Local air pollution
•Visual pollution
(wind power)
•Health & safety
•Electromagnetic fields
•Fuel poverty
Extraction
& Production (Hard coal, lignite) Power Generation Distribution & supply
•Host governments
•Local community
•Local pressure groups
Stakeholders Issues
Gas fields, hard coal and lignite
mining
•Host governments
•Local community
•Local pressure groups
•Host governments
•Local community
•Local pressure groups
•Commercial and private
customers
•Municipalities
Large power plants and
distributed generation Electricity and gas networks
Figure 8-3: Issues and stakeholders across the value chain (UT) – based on interviews and corporate
reports/websites
71
8.1.1.1 Social and ethical issues
The issues are systemized according to two categories: (1) short-term operational issues and
(2) long-term strategic issues.
Operational issues
The OG sector faces several social and ethical issues associated with its extraction and
production activities in developing countries. Onshore operations are more relevant in this
respect due to their greater visibility. The following issues were brought up by the
interviewees:
- Benefits for local communities at productions sites: The lack of local infrastructure
around production sites calls for a fair allocation of oil & gas revenues between national
(host) governments and the local communities. People migrate to sites in the hope of
employment and higher standards of living, which puts additional stress on local facilities.
Changing employment levels are also reported to cause significant social problems when a
project switches from construction to maintenance mode, which can require a workforce
reduction of up to 95%. Today sustainability leaders carry out full impact assessments,
involve communities in the project planning and establish necessary local infrastructures
for e.g. education, health (also to combat epidemics such as malaria and HIV in e.g.
Africa), governance and income generation (Bamber, 2002; Gavin, 2003).
- Human rights violations (Dias, 2003): Human rights organizations repeatedly criticized
the way local workforces suffer under totalitarian political regimes (e.g. Myanmar, Libya,
Angola, etc.) through e.g. local contractors hired (including local police) to ensure security
on site. There were also accusations of forced labor. Companies reacted by becoming
increasingly involved with the corresponding authorities, e.g. Statoil engaged in the
training of Venezuelan judges on human rights (Murray, 2002), and management’s
awareness of such issues was increased through training programs (Anonymous, 2002a).
- Corruption (linked to fair allocation of revenues referred to above): Companies were
asked to be transparent about payments to national and regional authorities to reduce
bribery. BP took the lead in 2001 when it announced that it would publish all the
payments made to Angola, whose government promptly threatened to cancel BP’s
contract (Fritz, 2003). Since then corruption continues to be a significant issue in the oil
industry (Anonymous, 2004b; Schmitt & Hennessy, 2004).
Those issues often occur simultaneously, since they are prone to emerge in poor, corrupt and
least developed countries, in Africa in particular (e.g. Chad, Cameroon), and tend to be
accompanied by significant environmental problems (Horta & Djiraibe, 2002). They are
primarily scrutinized by international lending institutions30 and NGOs such as Amnesty
International and Transparency International, and are relevant due to their effects on OG
companies’ reputation and chiefly the local, and increasingly, “global” license to operate
(Marsden, 2000 p. 15; Wheeler et al., 2003 p. 9). At the end of June 2004, the US supreme
court ruled that perpetrators of human rights offenses, i.e. potentially also OG companies,
could be held liable, if offenses were widely accepted as violations of international law.31 The
significance of social and ethical issues was recognized by most interviewees who also
considered social issues “more difficult to grasp” than environmental problems, since they
30 The World Bank’s Operational Policies and Directives take account of various issues of sustainable
development such as poverty, AIDS, environment and globalization.
31 Relevant cases have been brought against Unocal, ChevronTexaco and other major oil companies
(Anonymous, 2004c).
72
require different management and reporting practices (e.g. SA 8000),32 which are as yet
unfamiliar to chiefly laggard companies.
The UT sector faces two social challenges that are more typical for its regional and
eurocentric business models:
- Downsizing: The deregulation of markets has significantly increased competitive
pressure, to which companies are reacting with layoffs. A gradual phasing out of subsidies
to domestic mining activities has been associated with shut downs and has had to be
managed in a socially acceptable manner.
- Relocation of residents: Surface mining and large hydropower projects require relocation
of residents and have been settled largely successfully through dialogues with residents
and citizens’ initiatives in Europe. In developing countries, dams are still being criticized
by NGOs for their unwanted social and environmental effects (Khagram, 2003; Parker,
2001; Suzman, 1998).
Both issues have a certain impact on reputation, and the formal (regulations) and informal
(buy-in from workforce and residents) license to operate but are clearly less important than
the kinds of social issues faced by OG companies.
Strategic issues
There is one key strategic social issue, namely the North-South energy divide. It is caused
through the lack of access to energy of populations in developing countries. People in rural
areas, in particular, spend a disproportionately high share of their income and time on gaining
access to energy. These resources are then not available for child care, education, income
generation and hence economic development (International Energy Agency et al., 2002, p. 6).
Although this problem has been recognized by the sector (also by most interviewees), it
remains clearly unresolved due to the lack of external pressure and financial opportunities
(Andersson et al., 2000 p. 565; Prahalad & Hart, 2002). Residents lack the necessary
purchasing power that would justify more substantial investments. The costs of decentralized
photovoltaic systems or grid extensions to remote communities (where population density and
demand are generally low, but concentrated at peak times) are relatively high.
To partly resolve this issue of energy poverty, OG companies have established local energy
infrastructures around their facilities and carried out pilot projects of rural electrification (e.g.
through solar systems). Some have entered the utility business in developing countries (e.g.
BG Group) but focus on urban areas only. Apart from pilot projects, UT companies also
refrain from serious engagement in rural areas.
Conclusion
The kinds of key social and ethical issues largely differ between the two sectors. Hence it is
not possible to make a direct comparison of the individual issues across the sector – as
provided for the environmental issues in the next section – apart from the strategic issue of the
North-South energy divide.
The great divergence between the sectors is due to the location of the activities concerned.
The UT sector has a more regional business model. In the case of the companies surveyed this
means a Eurocentric perception of issues, i.e. issues are less severe (due to comparatively high
standards of living) and more strongly regulated than in developing countries. This also means
that the level of managerial uncertainty is lower. Furthermore, the extraction of primary
32 SA 8000 is a standard for socially responsible employment practices and features nine different areas including
child labor, forced labor and discrimination.
73
energy sources (e.g. coal) by UT companies takes place in countries (e.g. China, Australia,
South Africa) that on average have less severe social problems than less developed countries
in Africa (e.g. Chad, Cameroon, Nigeria) or Asia (e.g. Myanmar).
Finally the two sectors recognize their only shared issue of the North-South energy divide.
Their responses are very similar and largely limited to pilot projects, clearly because of the
lack of external pressure and financial opportunities.
8.1.1.2 Environmental issues
Interviewees primarily pointed to the significance of several environmental issues, namely
climate change, local air pollution, biodiversity and landscape protection, and – in some
countries – nuclear power, which could also be seen as health & safety issue. Issues will be
described in more detail in the following text. Again, the author differentiates between
operational and strategic issues.
Operational issues
Biodiversity and local environmental deterioration
The issue of biodiversity and local environmental deterioration is primarily associated with
extraction and production activities that require access to areas with high levels of
biodiversity, and that emit harmful substances into the environment, primarily water and soil.
It is dependent on the local infrastructure (e.g. in Europe most pipelines are laid underground),
landscape (surface mining) and level of biodiversity, and thus local stakeholders (regulators,
neighbors) and some global NGOs are the main pressure groups. In some cases (e.g. in terms
of surface mining activities in Germany) citizen groups are perceived as having a stronger
influence than national and global NGOs.
In the OG sector, biodiversity can mainly be affected through oil spills and major extraction
and construction activities (platforms, pipelines) in developing countries, which require access
to remote areas with high levels of biodiversity. In the UT sector, surface mining activities
and large hydropower projects can have significant environmental impacts. Since surface
mining activities are strongly regulated in developed countries and provide much-needed
employment, external pressure is mainly associated with large hydropower projects in
developing and emerging economies (Kynge, 2002; Parker, 2001).
Although the safety of nuclear power generation and the unresolved issue of waste disposal
have triggered opposition from civil society in some European countries – of which several,
such as Germany and Belgium, have legislated to phase out nuclear energy (Dombey, 2002) –
overall the significance of biodiversity and local environmental deterioration is less strong in
the UT sector. This is because it is mainly active in Europe, where relatively high
environmental, health and safety standards are already complied with and levels of
biodiversity are lower than in developing countries. In the OG sector economic implications
are more significant, particularly because local environmental effects in developing countries
are strongly scrutinized by NGOs on a global scale and linked to the social issues described in
the previous section (e.g. human rights, infrastructures, benefit of local communities). Hence
they are more strongly associated with companies’ (formal and informal) license to operate,
brand value and reputation (Cooper, 2003; Hoyos & McNulty, 2003; White, 1996).
Local air pollution
Local air pollution is caused through NOx and SO2 emissions that result from the combustion
of fossil fuels and lead to smog, acidification and eutrophication. In the OG sector, it is
associated with operations (production and refining) and, most importantly, with product use
in the mobility, industrial and residential sectors. Local air pollution has become a severe
environmental and health problem in urban areas of developing countries, and is thus under
74
more scrutiny from regulators than climate change is. In OECD countries, the importance of
local air pollution has clearly decreased. Companies reacted to increasing regulatory and
public pressure in the previous two decades and agreed to phase out lead and to reduce the
sulfur content in motor fuels. This required major investments in new technologies
(Anonymous, 1998; Smith, 1998). In the future, the production of increasingly cleaner fuels
will remain costly because it is considerably energy- and CO2-intensive. On the other hand,
reputation and brand value are expected to benefit from further developments because they
demonstrate environmental leadership (2003d; Ristau, 2004).
In the UT sector, the significance of local air pollution has clearly decreased and appears to be
lower than in the OG sector. Companies made significant investments in end-of-the-pipe and
integrated technologies to reduce emissions – as in the OG sector because of hardening
external pressure (e.g. EU large combustion plant directive, domestic emission limits).
However, in several European countries, waste-fuel-fired power plants may pose a significant
challenge in the future, since emission standards will be more difficult to meet.
Strategic issues
Climate change, which is caused by the emission of greenhouse gases and is likely to have
regional and global environmental effects (e.g. rising sea levels, shifting climate zones), was
perceived as the most significant issue in both sectors. In the OG sector greenhouse gas
emissions are primarily related to product use, i.e. burning of fossil fuels in the mobility,
industrial and residential sectors. However, greenhouse gas emissions from operations are also
seen to play a significant role in areas with little energy-intensive industry and high shares of
renewable energy (e.g. Nordic countries).
The Kyoto Protocol, which – after its ratification through Russia – binds industrialized
countries to commitments to reduce greenhouse gas emissions, has had a notable influence on
national regulations, particularly in Europe. Several national governments in Europe (e.g. the
Netherlands, the UK and Norway) have increased regulatory pressure through eco-taxes and a
bundle of policy measures targeted at end users in the mobility, industrial and residential
sectors: The issue of climate change in the OG sector is mainly pushed by public pressure
groups such as Greenpeace and Friends of the Earth. As a reaction, leading European
companies such as Shell and BP have established internal emission trading systems and are
participating in the UK’s voluntary emission trading system (Nicholls, 2003b). Companies
with less CO2-intensive product mixes, e.g. BG Group (more natural gas, less oil), consider
climate change more of an opportunity than a threat.
Compared with OG companies, UT firms’ greenhouse gas emissions are clearly associated
with their own operations, i.e. power generation from fossil fuels. In fact, UT firms are among
the greatest single industrial CO2 emitters in Europe and are thus more suitable targets for
national and European legislators than the upstream oil & gas activities.33 In conclusion, most
UT companies surveyed are subject to stronger, more short-term and primarily regulatory
pressure in Europe due to the coming CO2 emission trading system (Leyva & Lekander, 2003,
p. 122).34 Most managers across both sectors acknowledge that the price of greenhouse gas
emissions (set by eco-taxes and emission allowances) will increase over time. The Carbon
Disclosure Project, a group of institutional investors scrutinizing the corporate sector in terms
33 As statistics from the US Energy Information Agency also illustrate, the entire US industrial sector emitted 1.6
billion metric tons of CO2 in 2001, whereas the electric power sector on its own accounted for 2.2 billion metric
tons of CO2 emitted (www.eia.doe.gov/oiaf/1605/ggrpt/cdemissions_tbls.html on 5 May 2004)
34 Oil refineries are also affected by the EU emission trading system.
75
of its CO2 portfolio, is considered an additional driver to emissions reduction (Nicholls,
2003a).
Overall, OG managers, and sustainability officers in particular, consider climate change a
significant threat to their companies’ brand value and reputation (Hoyos et al., 2003; Merolli,
2003). However, the license to operate is only believed to be endangered in the mid to long
term (Mansley, 2002). All in all UT, managers are more concerned, particularly due to the
forthcoming EU emissions trading system and the greater CO2 intensiveness of the sector
(Gassman, 2004; Preuß & Gassman, 2003; Whittaker & Kiernan, 2003). Management
attention is greater because climate change features a greater sense of urgency and greater
financial opportunities or threats in the short term (Andersson et al., 2000, p. 565).
Conclusion
Whereas local air pollution, biodiversity and local environmental deterioration appear to
affect OG companies more strongly than UT companies, regulatory pressure on climate
change primarily targets the UT sector in the shorter term. In contrast, pressure from civil
society on climate change clearly focuses on the OG sector. It is impossible to seriously
compare the importance of environmental issues between the two sectors at such an
aggregated level on only the qualitative evidence collected. However, one can draw two
conclusions:
3. Relatively short-term regulatory pressure on the UT sector regarding climate change is
hardening and largely compensates for the lower visibility of issues and companies in the
UT sector in Europe, which has mostly kept companies from the stronger scrutiny of civil
society.
4. In the OG sector environmental effects are more diverse and relate to activities across the
entire value chain, which are carried out on a global scale. In the UT sector they are less
diffuse and thus more easily controllable, as they are mainly associated with greenhouse
gases emitted from power plants that are mostly operated in developed countries. These
plants are operated in industrialized countries with high environmental standards and thus
present very suitable targets for corresponding environmental policy instruments.
8.1.1.3 The relative importance of environmental and social issues
In the following section, the author will assess the importance of environmental and social
issues in relation to each other, across both sectors. To do so, he will elaborate on:
- respondents’ awareness of issues, i.e. their ability to name and describe the most important
ones
- respondents’ perception of the significance of issues.
Issue awareness
When asked to specify environmental and social issues that affect their companies “much” or
“very much,” a substantial share of general managers in both sectors did not respond (see
Chart 8-1 and Chart 8-2), which points to a relatively low level of issue awareness.
Furthermore, data indicate a somewhat narrow, environmentally dominated view: Social
issues take only a 12% and 17% share and are thus clearly less frequently named than
environmental issues, which account overall for 42% and 33% in the OG and UT sector
respectively. This view could have been expected for several reasons:
1. Compared to environmental issues, social issues such as human rights, corruption and
benefits of local communities have only become important more recently due to NGO
activities (Lamont & Michael, 2003; Murray, 2002). They are more elusive and difficult to
76
handle, since they require a new and higher level of corporate involvement with
governments and communities (Gavin, 2003).
2. Most respondents are based in Europe and the US, where they are confronted with higher
regulatory standards and less severe social problems than their counterparts in developing
countries. Hence they are less familiar with those issues.
The higher proportion of “social issues” in the UT sector is unexpected, since – as outlined in
the previous section – social issues affect OG companies more strongly. However, results
should be relativized, because most of the social problems described (e.g. recruitment,
diversity, layoffs and energy prices) point to respondents’ eurocentric perception of corporate
sustainability and thus also partly reflect the strong European bias in the UT sample.
NR
42%
Other
issues
3%
Social issues
12%
Other
environmental
issues (e.g.
biodiversity,
environment in
general)
22%
Pollution (e.g.
climate change,
acidification)
21%
NR
48%
Pollution (e.g.
climate change,
acidification)
19%
Other environmental
issues (e.g.
biodiversity,
environment in
general)
14%
Other issues
2%
Social issues
17%
Chart 8-1: Issues – open-ended question (General
managers – OG)
Chart 8-2: Issues – open-ended question (General
managers – UT)
Results based on data obtained from sustainability officers (see Chart 8-3 and Chart 8-4)
should be treated with reservation due to the small samples. Both charts show a strong focus
on environmental issues (energy consumption and climate change as well as pollution and
waste management) which account for 82% and 79% of the most important issues mentioned
in the OG and UT sectors, respectively. The fact that climate change is more frequently
named in the OG than in the UT sector shows that it “competes” with the issue of nuclear
waste in utilities. Health & safety as well as social and ethical issues are equally less
important in the OG and UT sectors, in which they each account for 6% and 7%, respectively.
77
Energy
consumption and
climate change
70%
Health & safety
6%
Other social and
ethical issues
6%
NR
0%
Other
6%
Other (or
generally)
environmental
issues
12%
Energy consumption
and climate change
46%
Health & safety
7%
Other
7% NR
0%
Pollution and waste
management
33%
Other social and
ethical issues
7%
Chart 8-3: Most important issues (Sustainability
officers – OG)
Chart 8-4: Most important issues (Sustainability
officers – UT)
Issue significance
As Chart 8-5 shows, ratings of the significance of social and environmental issues also
confirm the dominance of the environmental over the social dimension for all four samples.
The cross-disciplinary differences in the significance of social and environmental issues are
statistically significant in the OG and UT sectors. These results clearly illustrate the greater
awareness of sustainability officers, and point to their special expertise and role as advisors
and catalysts in their companies. This is likely to apply in particular to the complex and only
more recently emerging social issues whose sound assessment requires more experienced and
well-trained personnel (see section 8.1.1.1).
78
0
1
2
3
4
5
Social issues Environmental issues
Significance of issues
1 "Not at all" to 5 "Very much"
UT general managers
OG general managers
UT sustainability officers
OG sustainability officers
Social issues
Group Mean Std. Dev. Freq.
UT GM 3.02 1.13 55
OG GM 3.32 0.99 118
UT SO 3.77 0.73 13
OG SO 4.00 0.94 17
Total 3.33 1.04 203
Environmental issues
Group Mean Std. Dev. Freq.
UT GM 3.47 1.30 55
OG GM 3.77 1.22 118
UT SO 4.62 0.65 13
OG SO 4.76 0.44 17
Total 3.83 1.23 203
Chart 8-5: Significance of environmental and social issues (General managers and sustainability officers)
The t-tests reveal only one notable cross-sector mean difference: UT general managers
consider social issues less significant than general managers from the OG sector; this
difference is statistically significant at a 10% level. This finding is in parallel with
sustainability officers’ perception of the most important environmental and social issues and
qualitative evidence presented in the previous sections 8.1.1.1 Social and ethical issues and
8.1.1.2 Environmental issues. It can be explained through a less global, more eurocentric
business model in the UT sector, in which social issues are limited to layoffs and relocation
due to surface mining activities. In contrast, OG companies face considerable social
challenges in developing countries which are under intense scrutiny from public pressure
groups globally (Garcia et al., 2003, p. 47), and have significant financial downside potential.
Although only one mean difference between the sectors was statistically significant, one can
confidently diagnose a general lower issue significance in the UT sector in the data from both
general managers and sustainability officers (see cross-sector mean difference displayed in
Chart 8-5). This indicates that issues in the UT sector are less severe: The UT sector mainly
operates in Europe, where social issues (downsizing, relocation due to surface mining) are
either minor or well managed. Moreover, apart from a relatively high profile of nuclear power
in some countries (e.g. Germany), environmental issues are also either less important (local
air pollution) or not locally visible (climate change).
The issue significance is also influenced by factors that relate to the motivating principle of
legitimacy. Compared to the OG sector, issue significance may be further reduced through the
lower organizational visibility of UT companies: Typically they are smaller than OG
companies, with fewer resources; their brands are also less visible and vulnerable (Bowen,
2000, p. 100; Steger, 2003, p. 106). Hence, the same issue, e.g. climate change, may provoke
different (sector-specific) reactions from stakeholders (see sections 8.1.1.2 and 8.2).
Conclusion
It is not surprising that sustainability officers, as experts and catalysts in the domain of CSM
in their companies, consider both environmental and social issues more significant than
79
general mangers in both sectors. Furthermore, it could also be expected that environmental
issues would be considered more significant than social issues, because companies have come
a long way since the beginnings of environmental management in the 1980s. It is apparent
that this “traditional” focus on the environmental dimension predominates more clearly in the
UT sector because of its regional focus on Europe.
However, responses regarding issue significance need to be put into perspective: In particular
general managers’ perceptions of issue significance are unlikely to reflect a comprehensive
understanding of the issues under consideration. This can be clearly seen from the high
number of managers who are not able (or willing) to specify the most important issues of their
company. It can be attributed to the fact that environmental and social issues currently have a
notable but rather low relevance to companies’ core business:
As the author will discuss further in section 8.2 External stakeholders, industry and
partnerships, outside pressure from stakeholders is rather limited, and so financial threats and
opportunities associated with issues are low:
- Issues such as human rights and local air pollution (short-term operational issues) are
relevant to the core business, but can be addressed rather easily through incremental
innovations in companies’ operations and processes. Hence their financial significance is
limited and will continue to be so.
- Long-term strategic issues (e.g. climate change) are also relevant to companies’ core
business. Their financial significance is also limited but will increase over time. They are
likely, alongside other factors such as resource depletion, geopolitics, to trigger distinct
transitions in current business models (Shell International Ltd, 2001).
8.1.2 Advanced statistics
8.1.2.1 Correlations
The following correlation and regression analyses aim to shed more light on the motivating
effects of the significance of both environmental and social issues. Figure 8-4 and Figure 8-5
display all correlations detected in the total and the two sector-specific samples between
environmental and social issue significance respectively and other variables at a 5% level of
significance. They will be discussed in detail in the following paragraphs.
80
Managers
Issues Companies
Capital markets
Damage to legitimacy
External stakeholders
Governments
PPPs
Industry
NGOs
Importance of legitimacy
CSM intent
SD importance
Strategic disposition
CSM success
OG
UT
+_
T
BBB
UCA
WW
Social issues
Consumers
SD familiarity
Env. issues
Structure
Cross-disciplinary collaboration
CA
Cross-disciplinary potential
Figure 8-4: Correlations – Environmental issue significance
BBB
Managers
WW
Issues Companies
Consumers
External stakeholders
Governments
PPPs
Industry
NGOs
Strategic disposition
CSM success
OG
UT
+_
T
UCA
CA
Social issues
Env. issues
Capital markets
Damage to legitimacy
Importance of legitimacy
SD familiarity
CSM intent
SD importance
Cross-disciplinary collaboration
Structure
Cross-disciplinary potential
Figure 8-5: Correlations – Social issue significance
81
Issue significance
The positive link between the significance of social and environmental issues suggests that
more proactive respondents exhibit generally greater awareness of any kind of issue that
affects their business unit or function. This is plausible because proactive respondents
supposedly exhibit certain cognitive maps (defined as a representation of concepts and beliefs
held by the individual) that differentiate their understanding about cause-effect relationships
and interpretation of issues from those of less reactive managers (Dutton et al., 1983, p. 311).
Managers’ attitudes
This interpretation of proactive managers’ more sophisticated cognitive maps is also in line
with evidence on the link between issue significance and managers’ attitudes: More proactive
managers consider environmental and social issues more significant:
- The significance of environmental issues is negatively related to a stronger reactive BBB
(“The business of business is business”) attitude. This link also exists for social issue
significance but lacks statistical significance, presumably – as qualitative analysis also
revealed – because respondents are less familiar with social than with environmental
issues. Hence they rate the significance of social issues less consistently, which appears to
confound the positive correlation. The fact that the two more proactive attitudes (CA,
UCA) are significantly linked to both environmental and social issue significance suggests
that particularly reactive managers are largely unfamiliar with social issues.
- The CA (“CSM to gain long-term competitive advantage”) attitude is positively linked to
the significance of social and environmental issues in the total and OG sample. Judging
only from the correlation coefficients, these links may also exist in the UT data. However,
significance levels are lower, most likely for the following reasons: First the UT sample is
smaller, second, the links exhibit greater variation because UT respondents have a less
strong CA attitude and/or are less familiar with environmental and, in particular, social
issues.
- The UCA (“CSM even if long-term competitive advantage is unproven”) attitude is
positively associated with both environmental and social issue significance, but only in the
total sample. The correlations probably lack statistical significance in the sector-specific
samples because they were confounded by social desirability bias, which probably affected
the very “progressive” UCA attitudes more strongly than the other attitudes.
- In contrast, issue significance is unrelated to the WW (“CSM if there are win-win
situations”) attitude. This can most likely be attributed to the operationalization of WW
attitude which appears to have appealed to both proactive and reactive respondents equally
(see section 8.3).
External stakeholders and legitimacy
Capital markets
It is somewhat surprising that the significance of social rather than environmental issues is
related to a more proactive future role of capital markets – particularly surprising in the UT
sample, even if it is only statistically significant at a 10% level. In the past, social issues have
hardly been relevant to the financial community. However, recent developments may indicate
a slight change in stance. The potential impacts of social and political risks associated with the
OG sector’s extraction and production activities will be increasingly scrutinized by financial
institutions: More than 20 private banks have adopted the Equator principles for determining,
assessing and managing social (and environmental) risk associated with project financing in
82
emerging markets.35 Furthermore, social issues have provoked several shareholder resolutions
filed against major OG companies: E.g. in May 2004 a shareholder resolution seeking
improved communication between Unocal’s board of directors and shareholders about the
company’s natural gas project in Myanmar and accusations of “slave labor” and other human
rights violations was supported by 20% of the shareholders – capturing “10% more
affirmative votes than a typical social-issue resolution” (Parker, 2004).
Nevertheless, it may be unrealistic to make out a significant link between social issues and the
future role of capital markets based on the correlations found in both sectors. The financial
implications associated with environmental issues such as climate change, tanker accidents or
nuclear incidents are at least as significant as those related to social issues, and thus also
scrutinized by the financial community. Since the corresponding link between environmental
issues and the SD role of capital markets is missing from the data, the correlation between the
social issue significance and capital markets’ future role more likely suggests that more
proactive respondents/companies are more aware of both social issues and recent
developments in the financial sector.
Governments and consumers
In the UT sector environmental issue significance is negatively related to a more proactive
role of consumers and governments, even if the latter correlation is only significant at a 10%
level. This suggests that respondents from laggard companies with little issue awareness also
consider consumers and governments more proactive, i.e. they perceive greater demand for
CSM from them. The fact that both correlations are weak and not statistically significant in
the OG data suggests that both stakeholders hardly influence the significance of issues in the
OG sector. This also matches with qualitative and quantitative evidence presented in section
8.2.
Public pressure groups
It is peculiar that social and environmental issue significance and the SD role of public
pressure groups are unrelated: Correlation coefficients in all three samples lack statistical
significance, most of them are close to zero. At first sight this appears to be a mismatch of
findings in terms of the OG sector in particular, since – as interviews revealed (see section
8.2.2.1) – public pressure groups represent the most important source of outside pressure on
OG companies. However, this missing link between NGOs’ SD role and issue significance
may point to the fact that NGOs actually represent catalysts for actions of companies’ primary
stakeholders, defined as those stakeholders “without whose participation companies cannot
survive,” i.e. inter alia shareholders, employees, customers, community residents and
regulators (Hillman et al., 2001, p. 126). Thus NGOs’ activities are only effective if primary
stakeholders change their demands for CSM, i.e. NGOs are only able to press on certain
issues such as human rights or climate change if primary stakeholders react to NGOs’
campaigns, e.g. if the financial community acts upon climate change risks (e.g. through the
Carbon Disclosure Project, shareholder resolutions), if legislators provide a legislative basis
for introducing lawsuits against human rights violations in developing countries (Alden, 2002;
Anonymous, 2004c).
Industry and public-private partnerships
Correlations between social and environmental issue significance and the role of industry and
public-private partnerships (PPPs) are not detected. This is presumably because possible links
are confounded by the fact that issue significance is assessed in relation to the respondents’
35 www.equator-principles.com on 15 June 2004
83
business unit or function, whereas the role of industry and PPPs focuses on a much more
general and aggregated level.
Importance of and damage to legitimacy
Both the importance of and damage to legitimacy are positively linked to social issue
significance. This indicates that a greater importance of the informal license to operate, e.g.
brand value and reputation, increases the significance of issues, as it raises the financial
stakes.
It is surprising that the link between legitimacy and issue significance exists only in the social
not in the environmental issue dimension. Most respondents operate in industrialized
countries, in which local environmental and social issues are of minor importance. It is
puzzling that social issues (such as human rights, energy poverty) are linked to legitimacy
whereas environmental issues, which comprise climate change as one of the most significant
single issues (according to the interviewees), are not. One can draw two conclusions:
1. General managers who responded to the questionnaire – in contrast to the interviewees –
appear to be still largely unaware of the significance of climate change to companies’
brand value and reputation.
2. Sustainability leaders consider social issues more significant, attach greater importance to
legitimacy, and report greater damage to legitimacy, either because they are more willing
to acknowledge damage and/or because they have more often been subject to incidents
that damaged their legitimacy (Vogl, 2003).
It is surprising that quantitative OG data do not reveal any statistically significant linkage
between issue significance and the two legitimacy-related variables, whereas interviews
suggest that some social issues such as human rights in developing countries and public
pressure on climate change have sensitized OG companies to the vulnerability of legitimacy.
The author offers the following explanations:
- The missing link between issue significance and the importance of legitimacy shows that
OG respondents’ perceptions of the financial premium added to issue significance through
(informal) legitimacy differ significantly. It is possible that a third latent variable such as
corporate culture and stakeholders’ demands for the granting of legitimacy, which could
both differ more widely across the regions of operations, has dulled the expected
relationship.
- The missing link between damage to legitimacy and issue significance could be attributed
to response bias and a selective occurrence of incidents (only some companies may have
been affected). Additionally one should take into account that the most “prominent”
incidents in the OG sector such as the grounding of the Exxon Valdez in Prince William
Sound (1989), human rights abuses in Ogoniland, Nigeria (1994) and Brent Spar (1995)
occurred at times the questionnaire did not cover.36
Strategic disposition
Positive correlations between issue significance on the one hand and SD familiarity, SD
importance and CSM intent clearly suggest that CSM is driven by issues. Overall social issues
are more clearly linked to companies’ strategic disposition than environmental issues. This
outcome is in line with the associations reported above that linked social rather than
environmental issue significance to legitimacy and the future SD role of capital markets, and
36 It only focuses on incidents over the past three years, i.e. on the period between roughly 1999 and 2002.
84
thus supports the conclusion that sustainability leaders have gone beyond a narrow
environmental approach to CSM.
The clear link between strategic disposition and social rather than environmental issues is
particularly visible in the OG data, which exhibit very weak and statistically not significant
correlations between environmental issue significance and both SD importance and CSM
intent. These results augment findings from the interviews and suggest that although
environmental issues are considered important in the OG sector – in fact slightly more
important than in the UT sector – social issues threatening the license to operate in developing
countries are the main drivers of CSM. The relatively weaker link between strategic
disposition and environmental issues also suggests that climate change hardly drives CSM
intent in the OG sector. This is plausible because primarily sustainability leaders have – as
indicated by most interviewees – acknowledged climate change as a significant threat to the
sector. However, as the author will also discuss in more detail in section 8.4.2 Strategic
disposition, corporate responses are limited to large-scale incremental and largely efficiency-
based or small-scale pilot projects. Thus climate change is integrated into business strategies
and operations only to a limited extent. The strong link between strategic disposition and
social rather environmental issues also illustrates that primarily sustainability leaders who are
primarily concerned with social issues in developing countries and their potential effects on
the license to operate and grow participated in the survey. One can reasonably assume that
laggard companies are still primarily driven by environmental issues.
Since interviews point to a minor role of social issues in the UT sector, correlations between
companies’ strategic disposition and social issue significance in UT data are somewhat
unexpected and possibly caused by outliers and social desirability bias. They could also
indicate that sustainability leaders in the UT sector who exhibit a greater strategic disposition
to CSM also take social issues (e.g. relocation due to large hydropower projects, energy
poverty) more strongly into account (see e.g. social strategies described in WBCSD, 2002, p.
21). The only clear difference to the OG sector is the moderately positive and statistically
significant (at a 10% level) correlation between environmental issue significance and CSM
intent, which is also the only association (between issue significance and strategic disposition)
whose coefficient indicates a stronger correlation with environmental rather than social issue
significance.
This link is in parallel with qualitative evidence on the relatively greater importance of
environmental issues in the UT sector (see section 8.1.1.2) and indicates that the UT sector is
driven by environmental challenges – as pointed out earlier – due to its current strategic focus
on Europe and developed countries, selective external pressure regarding nuclear power
generation, and greater concern about forthcoming regulatory pressure on climate change. As
the interviews also revealed, climate change is recognized more as a short-term issue directly
associated with UT firms’ production activities and their current license to operate, whereas
OG companies are more affected in the long term at the product use phase.
Structure
Evidence also points to a strong link between issue significance and the level of cross-
disciplinary collaboration. If one takes into account the positive link between issue
significance and managers’ proactive attitudes, this is very plausible, since general managers’
collaboration with sustainability officers or departments naturally increases familiarity with
issues through e.g. existing review and advisory mechanisms, and alters cognitive maps
(Dutton et al., 1983). In this respect differences between the sectors are marginal, since the
missing correlation with social issue significance in the OG data is statistically significant at a
10% level. The positive link between issue significance and the level of cross-disciplinary
collaboration could also indicate that greater issue significance has led to the creation of more
85
evolved cross-disciplinary structures, obviously because issue significance increases strategic
disposition, which in turn leads to the implementation of adequate structures.
Greater cross-disciplinary potential is linked to greater issue awareness, which indicates that
respondents from leading companies exhibit greater issue awareness and assess the potential
of more extensive cross-disciplinary collaboration more positively, obviously due to positive
experiences with cross-disciplinary collaboration in the past.37 Although all coefficients are
positive in both sectors, there is one notable difference: Correlation coefficients in the UT
sector indicate a stronger association between cross-disciplinary potential and issue
significance, particularly in terms of environmental issue significance. The fact that these
associations are stronger in the UT sector could suggest that UT general managers are close to
the start and thus still relatively steep part of the learning curve: The greater respondents’
issue awareness is, the more positively they assess cross-disciplinary potential. In the OG
sector high issue awareness may – in contrast – be less strongly associated with greater cross-
disciplinary potential because some of the sustainability leader respondents may already
consider most of the potential to have been exploited. The stronger link between cross-
disciplinary potential and environmental issue significance in particular aligns with the
dominant role of environmental issues in the UT sector, discussed earlier in section 8.1.1.2.
CSM success
Finally social issue significance is positively linked to CSM success. The association is
statistically significant at a 10% level in the total sample, which suggests that it is subject to
notable variation. Nevertheless it is highly plausible: Greater issue significance reflects
greater external pressure associated with the issue, and is positively linked to strategic
disposition, which leads to a faster and more effective implementation of corporate
environmental and social initiatives.
It is important to note that social rather environmental issue significance is related to CSM
success. This result suggests that leading companies reporting greater CSM success are
characterized by a heightened awareness of the social dimension of CSM. Obviously most
companies in both sectors have come an equally long way in recognizing environmental
issues, so that today stronger emphasis on the social dimension of CSM discriminates the
leaders from the laggards.
Conclusion
The evidence presented suggests that companies with more proactive managers and more
elaborate corporate structures, which facilitate cross-disciplinary collaboration, exhibit greater
issue awareness. Greater issue awareness is also clearly linked to companies’ greater strategic
disposition to CSM. Some nuances in the dominating (social or environmental) issue
dimension are notable across the two sectors. Companies’ CSM intent is linked to social issue
significance in the OG sector, to environmental issues in the UT sector.
A comparison of Figure 8-4 and Figure 8-5 reveals that the significance of social rather than
environmental issues is linked to variables that relate to external stakeholders and legitimacy.
Overall this result is puzzling, since environmental issues, particularly climate change, are at
least as relevant to companies’ brand value and reputation as social issues. This applies to the
UT sector in particular, in which social issues are of minor overall importance.
Hence it is suggested that the positive linkage between issue significance and both the
importance of and the damage to legitimacy – detected in the total and the UT sample –
37 Both variables, the level of cross-disciplinary collaboration and the potential for more extensive collaboration
to contribute to more sustainable business practices, are indeed positively related (see section 8.4.4.2).
86
suggests that companies attach more significance to issues, the more important they consider
the informal license to operate. This suggests that companies are going beyond a mere
compliance-oriented approach to CSM and increasingly aim to protect or build up an informal
kind of legitimacy through greater goodwill from non-regulatory stakeholders. In the
liberalizing European energy markets, UT companies may also perceive damage to brand
value and reputation more clearly. Recent experiences support this finding, since corporate
social responsibility was found to support the building of brands (Gray, 2003) in the UK
electricity market.
The link between social rather than environmental issue significance and both of the
legitimacy-related variables suggests primarily that sustainability leaders have gone beyond a
mere environmental focus and become more aware of the importance of social issues (e.g.
relocation, energy poverty).
8.1.2.2 Regressions
The following regression models analyze the effect of environmental and social issues on
companies’ intention to integrate environmental and social criteria into business strategies and
operations (CSM intent).
T model OG model UT model
Number of obs
F
Prob > F
R-squared
Adj R-squared
Root MSE
166
10.72
0.0000
0.2103
0.1906
.7538
112
12.59
0.0000
0.2592
0.2386
.71368
54
5.10
0.0095
0.1668
0.1341
.78195
Coefficients
Social
issues
UT sector
North
America
Develop.
Econ.
Constant
.2330794
-.5179783
-.6256973
-.4383872
3.385708
Social issues
North America
Develop. Econ.
Constant
.2776461
-.6771252
-.4397351
3.25639
Env.
issues
Nordic
Constant
.1775457
.7283435
2.790949
Regression Table 8-1: CSM intent – Issues (Reduced cluster models)
The OG model suggests that the OG sector’s CSM intent is driven by social issues, and
moderated by individual regions of operation. Companies operating in North America and
developing economies feature lower levels of CSM intent than those operating in the
remaining regions, due to less societal and regulatory pressure (Skjaerseth et al., 2001; Souza
Porto & Freitas, 2003) and presumably corporate cultures (Kolk et al., 2001). The fact that
social rather environmental issues influence CSM intent in the OG sector – although
respondents considered environmental issues more significant than social ones – suggests the
following: Financial threats and opportunities associated with environmental issues are
probably fairly homogeneously assessed across the sector. In contrast, only the leading
companies with greater CSM intent noted the financial significance of social issues.
In contrast, in the UT sector, CSM intent is positively affected by the significance of
environmental issues and is higher in Nordic countries. The positive bias of Nordic regions
can be attributed to several factors such as higher levels of environmental awareness and more
efficient environmental governance (Midittun & Kamfjord, 1999, p. 875).
The T model shows the effect of issue significance on CSM intent in the total sample. The
results are remarkable insofar as they point to the role of social rather than environmental
issues in driving corporate sustainability in the energy sector as a whole. They most likely
also reflect the preponderance of OG respondents in the total sample. The statistically
significant negative effect of the UT sector dummy variable reveals the leading position of
87
OG companies over utilities. Possible reasons for this, such as lower organizational visibility,
external pressure and greater internal deficits, will be discussed in later sections. The T model
also shows a negative effect in two regions of operations. The interpretation is identical to that
for the OG model.
8.1.3 Discussion
Importance of issues and the principle of managerial discretion
Both qualitative and quantitative methods point to the significance of issues (Wood, 1991, p.
697) in the area of CSM, as suggested in the study’s conceptual framework for corporate
sustainability performance. Qualitative data in particular reveal a great number of different
issues. Their relevance differs, and only about a handful of key issues really trigger
meaningful corporate responses that are aimed to resolve them.
However, incremental modifications of processes and operations suffice to address all social
and environmental issues that are currently associated with perceivable financial risks and
opportunities. This little relevance to current business models also explains managers’ low
level of issue awareness. Nevertheless, two long-term strategic issues – the North-South
energy divide (once current growth markets in Asia are served) and, above all, climate change
– show significantly greater relevance for companies, as the financial stakes are substantial:
Both issues require distinct changes to current business models from an organizational and a
technological point of view (lower carbon intensity, distributed generation, etc.).
Determinants and effects of issue significance
The author has been able to link issue significance to the principles of legitimacy (i.e. to
greater external demands for CSM, greater importance of and damage to legitimacy) and
managerial discretion (i.e. managers’ more proactive attitudes), as well as to more advanced
approaches to CSM. In particular, a positive causal effect on companies’ willingness to
integrate social and environmental issues into strategies and operations (CSM intent) has been
established. Thus findings are in line with those of Henriques and Sadorsky (1996, p. 392),
Andersson and Bateman (2000, p. 656) and Bansal and Roth (2000, p. 729) who linked the
relevance of environmental issues to corporate environmental responsiveness.
The study also reveals several issue drivers, i.e. factors that determine the significance of
issues. They comprise:
1. The kind of corporate activity that determines the absolute social and environmental
effects of corporate behavior: E.g. the more carbon-intensive the fuel or product mix is,
the more significant the corporate risk associated with climate change.
2. The location of the activity. The location is most significant, since it determines whether
and to what extent the same corporate activity is perceived as legitimate. The same
environmental or social issue may provoke more or less greater demands from
stakeholders to resolve it, depending on various factors such as local regulations and
societal values: E.g. The same amount of CO2 emissions bears greater risks associated
with climate change in Europe than in the US due to different levels of societal and
regulatory pressure. The same level of community involvement is perceived as adequate in
industrialized countries but considered inadequate in developing countries due to different
needs of the local population. The same amount of pollution (e.g. a minor oil spill) may
cause different levels of public outrage depending on the local level of biodiversity and
the sensory visibility of the effect (Bowen, 2000, p. 100).
3. A company’s visibility is a significant moderating factor. Size, consumer name
recognition, and its attitude (proactive-cooperative vs. reactive-confrontational) to the
issue under consideration additionally play an influential role.
88
Figure 8-6 aims to illustrate the determinants of issue significance incorporating findings from
Bansal and Roth (2000) and Bowen (2000). The former identified several attributes of “issue
salience” as determinants of environmental responsiveness. The latter developed and tested a
typology of environmental visibility as a trigger of organizational response, which included
the concepts of issue visibility and organizational visibility.
Corporate activity
Social or environmental intake
e.g. tons of CO2emitted
Visible issue
Visible social or environmental effect
attributable to corporate activity
(Bowen 2000), e.g. floods, storms, rising sea level
Issue significance
Current and future
Outside pressure
from stakeholders on the company
to minimize the effect
Organizational visibility
(Bowen 2000)
•Size
• Consumer name recognition
• Location of headquarters
• Approach to the issue: negation,
climate change strategy, pilot projects
to develop renewables
Local, regional or
global level of legitimacy
• Societal standards, values
• Regulations
as perceived by the managers:
Transparency
Certainty
(Bansal and Roth, 2000)
Managers’ mindset, knowledge
(e.g. cognitive maps)
Social or environmental issue
e.g. climate change
Local, regional or
global biophysical,
social conditions
e.g. critical level of CO2
concentration in the atmosphere
Financial threat or opportunity
Informal license to operate
•Brand value
• Reputation
• Community relations
Figure 8-6: Determinants of issue significance
As depicted in the figure, a certain primary or secondary corporate activity (or a lack of such
activity, e.g. lack of community involvement) is associated with some social or environmental
intake through the business environment, which causes an issue. The severity of the issue
depends on local, regional or global biophysical and social conditions. However, the entire
scope of the issues is not necessarily visible. Visibility differs depending on the transparency
(how easily attributable to the corporate activity?) and the certainty (how certain and
measurable is the effect?) of the issue caused by the intake. In the case of climate change, the
transparency is relatively high in some countries (e.g. internal or external accounting and
trading systems for CO2 emissions) and the certainty is limited (effects are complex, global
and long term).
The visible issue then triggers current and future outside pressure from stakeholders on
companies to resolve the issue. The determinants of outside pressure will be discussed in more
detail in section 8.2 External stakeholders, industry and partnerships. Inter alia it depends on
the organizational visibility of the company or business unit (Bowen, 2000, p. 100), the local,
regional or global limit of legitimacy that corresponds to the issue under consideration and the
importance to the company of the informal license to operate. The limit of legitimacy refers to
the degree of issue visibility and organizational visibility at which stakeholders attempt to
amend or revoke companies’ current license to operate (Davis, 1973, p. 314). It is determined
by several factors such as societal standards, values and regulations. Managers’ perception of
89
the legitimacy and strength of the outside pressure depends on their individual mindset and
knowledge, e.g. their cognitive map (Dutton et al., 1983). Thus, issue significance is
determined by individual managers’ perception of short- or long-term financial threat or
opportunities caused by outside pressure on a particular issue.
Considering the various factors that influence issue significance, it is clear that issues
represent the root of the contingency nature of CSM. In this context, the study also reveals
how important the differentiation between social and environmental kinds of issues is: Both
issue dimensions do not exhibit the same relationships with other variables. This means in
particular that variations in companies’ CSM intent can be better explained, the finer the
differentiation is. In this context, the author proposes that any additional differentiation could
shed further light on the strengths of public responsibility as an organizing principle of
corporate sustainability performance.
Contingency perspective on issue significance
The evidence also shows that the contingency approach chosen in this study is worthwhile.
Issue significance, and its motivating effect on CSM, differs between the two sectors,
management groups and several regions of operations, which can be explained through the
influence of the determinants displayed in Figure 8-6: E.g. the sectors differ in terms of the
kinds and locations of corporate activities, the organizational visibility of the companies and
the local and regional limits of legitimacy; the management groups differ in terms of their
mindset and knowledge; and the regions feature specific levels of legitimacy, biophysical and
social conditions as well as levels of issue transparency and certainty.
Both qualitative and quantitative methods showed that the UT sector is more strongly
influenced by environmental issues, the OG by social issues. Thus the results reflect the OG
sector’s growing awareness of operational risks associated with extraction and production
activities in developing countries and the UT sector’s current strategic focus on developed
countries and greater concern about increasing regulatory pressure on climate change. They
also show that – in tendency – the more urgent and locally relevant issues are more likely to
be taken up by management (Andersson et al., 2000, p. 656): The OG sector’s social issues in
developing countries are obviously local (or regional); climate change is a global issue but the
coming EU CO2 emissions trading system will indeed have a very local impact on power
plants in the UT sector.
Regressions also show that the energy sector as a whole is driven by social rather than
environmental issues. However, it would certainly be rash to diagnose a paradigm shift in this
respect, largely because the sample is biased towards sustainability leaders. The surprisingly
dominant role of social issues over environmental issues should rather be seen as a sign of the
renunciation of the traditional narrow environmental focus among sustainability leaders.
The data also exhibit differences in sustainability officers’ and general managers’ perceptions
of social and environmental issue significance. This finding points to the importance of
management development, proactive corporate cultures and more intensive collaboration
between the two management disciplines surveyed. The motivating effect of public
responsibility is very complex through the great number of highly fragmented issues.
Adequate corporate responses are more likely to be achieved if managers, and general
managers in particular (as the decision-makers in their business units and functions), have a
thorough understanding of the social and environmental issues their company faces and the
financial risks and opportunities associated with them.
90
8.2 External stakeholders, industry and partnerships
The present section aims to provide an overview of the stakeholders’ importance to CSM
rather than an issue-specific discussion presented in the previous sections:
- In sections 8.2.1 to 8.2.5 the author first describes the individual roles (demand for CSM,
activities) taken by external stakeholders (governments and regulators, public pressure
groups, customers and the financial community), the industry as a whole and public-
private partnerships.
- Section 8.2.6 deals with
- legitimacy, more specifically its importance and its vulnerability through conflicts
with stakeholders (section 8.2.6.1).
- the relative importance of external stakeholders (section 8.2.6.2).
Finally, the author synthesizes and discusses the findings from quantitative and qualitative
methods in the sections referred to above (section 8.2.7).
8.2.1 Governments and regulators
8.2.1.1 Qualitative analysis and basic statistics
Interviewees from the UT sectors see national and European governments and regulators as
the most powerful external pressure groups in terms of corporate sustainability. This is not
because they are most demanding but because they are in the strongest position to change or
revoke companies’ current licenses to operate through higher chiefly environmental standards.
In the past domestic emission standards and the EU large combustion plant directive
effectively reduced air pollution (Economist Intelligence Unit, 2003a). Nowadays mostly
utilities with a CO2-intensive fuel mix for their power plants are strongly driven by the
European CO2 emission trading system which will become mandatory after 2008. The EU has
also set an indicative target for electricity sourced from renewable energies of 12.5% by 2012.
In contrast, governments in industrialized countries constitute a less powerful pressure group
in the OG sector because, as elaborated in the quote below and section 8.1 Issues in more
detail, they cannot easily regulate those activities that are associated with the sector’s major
issues. This is because the activities take place in developing countries (social impact of
upstream activities) and in the use phase of the product (local air pollution and, above all,
climate change through use of fossil fuels). Interviewees also reported that governments in
developed countries are clearly more concerned with social and environmental performance
than developing countries are. The latter are primarily concerned with oil and gas revenues,
even if they become increasingly aware of environmental and social issues over time. In
developed countries regulatory pressure on OG companies is limited to raising standards of
fuel quality, i.e. the reduction of lead and sulfur content to combat local air pollution. In
Europe, individual member states have introduced eco-taxes on fuels. Furthermore, refineries
will be subject to the forthcoming EU emission trading system (Anonymous, 2004d), but the
corresponding pressure is substantially lower than in the UT sector due to the lower carbon
intensity (see section 8.1.1.2 Environmental issues).
An interviewee from the European Commission acknowledged the positive environmental
performance of the energy sector as a whole, particularly in terms of air emissions. A clear
differentiation between the two subsectors was made in terms of policy mixes used:
The OG sector can only be indirectly regulated at the use phase of its products.
This is also where the major environmental impact occurs [in Europe]. One [the
regulator] has to target billions of consumers rather than a couple of companies
91
and faces lack of political acceptance and alternatives (e.g. public transport) as
major challenges (European Commission, DG Energy and Transport).
The lower importance of governments and regulators in the OG sector is also indicated by the
quantitative data, since both OG general managers and sustainability officers rated
governments’ SD role lower than their counterparts in the UT sector. Due to the limited size
of the two sustainability officer samples, cross-sector variation is only statistically significant
in the data obtained from general managers. Cross-disciplinary differences in the ratings
between sustainability officers and general managers are small and not statistically significant,
which gives additional assurance to the results.
Governments’ SD role (1 = “Least proactive” to 5 = “Most proactive”)
General managers
Sector Obs Mean Std. Err. Std. Dev. 95% Conf. Interval
UT
OG
51
116
3.176471
2.706897
.0998268
.0648112
.7129062
.6980375
2.975962 3.376979
2.578518 2.835275
Sustainability officers
Sector Obs Mean Std. Err. Std. Dev. 95% Conf. Interval
UT
OG
13
17
3
2.823529
.2264554
.1764706
.8164966
.7276069
2.506596 3.493404
2.449428 3.19763
Table 8-1: Summary statistics – governments’ SD role
The data presented illustrate that role of governments varies between the two sectors due to
the different locus of the major environmental and social impact geographically and within the
value chain.
The UT sector can be more directly and more conveniently regulated (as easier targets than
individual consumers and households) and it is more strongly concerned with the formal
license to operate, i.e. with current and future regulatory pressure. The OG sector’s formal
license to operate is not under great threat: Policy instruments targeting the use of its product,
i.e. fossil fuels, in developed countries are not necessarily popular and politically accepted.
Furthermore, regulatory measures on the environmental and social effects of upstream
activities in developing countries are largely absent, because governments demand a steady
flow of oil and gas revenues rather than sound environmental management and community
involvement.
8.2.1.2 Advanced statistics
Figure 8-7 displays the correlations that the data exhibit between governments’ SD role and
other variables. In the following paragraphs, the author will discuss the results in more detail.
92
Managers
CA
Issues Companies
Capital markets
Damage to legitimacy
External stakeholders
Industry
Importance of legitimacy
CSM intent
Strategic disposition
CSM success
OG
UT
+_
T
BBB
UCA
WW
Social issues
Consumers
SD familiarity
Env. issues
Structure
Governments
PPPs
NGOs
SD importance
Cross-disciplinary potential
Cross-disciplinary collaboration
Figure 8-7: Correlations – governments’ SD role
Issue significance
There is a linkage between environmental issue significance and governments’ SD role, which
is negative in the UT data, but it is only statistically significant at just above the 10% level
(hence not included in the figure above). One can assume that the relationship would attain
more adequate significance levels in a larger sample. Hence the author cautiously suggests
that more proactive individuals (and companies) consider governments’ demand for CSM less
strong. They appear to be more aware of the issues and more strongly acknowledge the need
for corporate responses than their reactive counterparts who consequently perceive
governmental initiatives as more demanding.
The fact that this link exists with environmental rather than social issue significance indicates
that primarily environmental regulations (chiefly the EU emission trading system) are relevant
to companies and thus supports the findings presented above. The missing link between issue
significance and governments’ SD role in the OG data is also in parallel with the qualitative
data, which indicated that governments and regulators play a relatively minor role as external
pressure groups in the OG sector.
External stakeholders and legitimacy
Public pressure groups
Respondents in the UT sector who consider governments’ SD role proactive are also likely to
consider the SD role of public pressure groups proactive. This suggest that the activities of
NGOs and the reactions of governments are less strongly linked in the OG than in the UT
sector: This is plausible since NGO campaigns on OG companies focus mostly on social and
environmental issues in developing countries and on climate change, and trigger little direct
regulatory pressure from host and home governments. In the UT sector, campaigns on climate
change and nuclear power have in fact led to notable changes in European, national and local
regulations (e.g. nuclear phase out, emission trading).
93
Public-private partnerships
Furthermore, respondents in the OG sector reporting a more proactive SD role of governments
also consider PPPs more proactive. This presumably points to the involvement of
governments in these partnerships. In developing countries, the exploration and development
of oil & gas fields and the construction of pipelines has traditionally occurred through PPPs,
through which the public sector is able to transfer risk to the private sector, which contributes
both capital and know-how.
Strategic disposition
Relationships between governments’ SD role and companies’ strategic disposition, which
would have been expected in the UT sector based on the qualitative data presented above, are
not found. There are several explanations: First, the sample is too small and biased. Second,
relationships are subdued by some third variable such as a reactive mindset or other internal
barriers. Third, the relationship between governments’ role and strategic disposition hardly
exists. In fact the third interpretation is very plausible, since governments provide relatively
little strategic guidance to companies’ strategic disposition, apart from the legislated phasing
out of nuclear power in some countries and emission trading systems. Thus the missing link
between governments’ demand for CSM and strategic disposition suggests that both measures
have little strategic implications for the UT sector and require no radical changes in business
models.
It is puzzling that the OG sector exhibits the only statistically significant sector-specific link
between governments’ SD role and strategic disposition to CSM, namely the future
importance of sustainable development to the companies (SD importance). The association
may be spurious but could also suggest that OG companies experiencing greater demand for
CSM from governments attach greater importance to the concept of sustainable development
in the future. This could point to an increasing demand from host governments in developing
countries for the resolution of local social and environmental issues, which is in line with
findings from the interviews.
Overall data hint at an insignificant to weak role of governments in providing long-term
strategic guidance: There is no link between their SD role and CSM intent. Furthermore,
greater SD familiarity is negatively related to governments’ SD role (at a 10% significance
level in the total sample), i.e. the more familiar companies are with the concept of sustainable
development, the less demanding they perceive governments in terms of CSM.
Structure
Correlations also indicate that respondents’ perceptions of governments’ SD role are related to
corporate structures. However, they reveal a significant difference between the two sectors:
- In the UT sector, closer cross-disciplinary collaboration and greater cross-disciplinary
potential are associated with a less proactive SD role of governments, i.e. weaker demand
for CSM from governments. If one assumes that closer cross-disciplinary collaboration
and greater cross-disciplinary potential are a proxy measure for respondents’ higher levels
of awareness as well as companies’ higher level of implementing CSM, these linkages
suggest that leading companies perceive regulatory pressure less strongly than laggards
do.
- In the OG sector, respondents who work more closely with sustainability officers consider
governments’ role more proactive. If one followed the interpretation suggested for the UT
data, this would mean that respondents and/or companies that are higher on the CSM
learning curve feel governmental pressure more strongly. This would contradict the fact
that leading OG companies often “overcomply” (e.g. voluntary emission trading systems
at BP and Shell, community involvement in developing countries), and are subject to little
94
external pressure from regulations compared to UT companies. To this extent, the results
are puzzling but there is one explanation: Since cross-disciplinary collaboration is
significantly higher (see section 8.4.4.2) and current regulatory pressure is low in the OG
sector, respondents from sustainability leaders that exhibit close cross-disciplinary
collaboration may perceive greater demand for CSM from governments in the future,
presumably from host governments in particular which, as the interviews revealed, are
becoming increasingly concerned with social and environmental issues.
Conclusion
Correlations reveal few statistically significant associations between governments’ SD roles
and other variables. There are surprisingly few in the UT data in particular, since governments
and regulators were identified as the most powerful external pressure group in the UT sector.
Overall, this suggests governments play a minor role in leading the corporate sustainability
agenda and – in the case of UT companies – that there are significant internal barriers such as
a lack of structures and reactive mindsets. E.g. several regulatory measures, most prominently
the coming EU emissions trading system, are not reflected in companies’ strategic disposition.
The results also suggest that the level of cross-disciplinary collaboration influences general
managers’ perception of governments’ demand for CSM.
8.2.2 Public pressure groups
8.2.2.1 Qualitative analysis and basic statistics
Public pressure groups or non-governmental organizations (NGOs) focus in particular on the
environmental and/or social effects of corporate activities in developing countries and
companies’ strong focus on non-renewable primary energy sources (Luhmann, Müller, Nitsch,
& Ziesing, 2002). Moreover, they criticize governments’ fossil-fuel-based policies and lobby
for the internalization of external costs and the reorganization of subsidies to offset the
competitive disadvantages of renewable energies.
The allocation of subsidies between non-renewable and renewable energy sources is a field of
considerable complexity and controversial discussion. In general, it is difficult to draw
meaningful conclusions, primarily due to the variety of implicit subsidies: E.g. one may argue
that a significant proportion of the US defense budget to secure oil and gas fields in the
Middle East implicitly subsidizes fossil fuels (2001a). A Greenpeace study concluded that
direct subsidies for renewable energies and conservation in Western Europe between 1990
and 1995 amounted to less than one-third of the amount provided to fossil and nuclear energy
(Ruigrok & Oosterhuis, 1997).
In addition to their boycott and protest campaigns, NGOs have filed shareholder resolutions
against several major OG companies, which are finding more and more support, particularly
from the socially responsible investment community (Merolli, 2002; St. Clair, 2004). Hence,
as OG interviewees also indicated, NGOs are the most important source of external pressure
in terms of corporate sustainability in the OG sector.
In contrast, UT companies are organizationally less visible and less profitable. Furthermore,
their extraction activities take place in emerging or developed economies, where they provide
much-needed employment and affect areas with relatively low levels of biodiversity. Hence,
NGO pressure on utilities is less strong and confrontational, and focuses on single issues such
as e.g. nuclear transport, surface mining and the construction of plants. In fact, as one
interviewee indicated, local pressure groups (e.g. citizens groups) often play a greater role
than global NGOs with much more resources. However, interviews with large environmental
organizations also suggest that climate change and grid access for electricity from renewable
95
sources may become significant issues that NGOs will increasingly take up against the major
European electric utilities.
Public pressure groups’ SD role (1 = “Least proactive” to 5 = “Most proactive”)
General managers
Sector Obs Mean Std. Err. Std. Dev. 95% Conf. Interval
UT
OG
48
115
3.375
3.347826
.1099041
.072066
.7614376
.7728221
3.153902 3.596098
3.205064 3.490588
Sustainability officers
Sector Obs Mean Std. Err. Std. Dev. 95% Conf. Interval
UT
OG
13
17
3.307692
3.411765
.2370928
.1928658
.8548504
.7952062
2.791111 3.824273
3.002907 3.820622
Table 8-2: Summary statistics – public pressure groups’ SD role
Mean differences in the SD role of NGOs between all four groups of respondents are marginal
and not statistically significant (see Table 8-2). Although one may have expected a more
proactive NGO role in the quantitative OG data based on the interviews, missing differences
are not necessarily inconsistent with the finding that NGOs present a more important pressure
group in the OG than in the UT sector. The SD role of NGOs only operationalizes their
demand for CSM rather than their power or intention to affect companies’ legitimacy. Thus
the insignificant differences between the two sectors suggest that NGOs’ agendas on different
operational issues, but chiefly on a more rapid introduction of renewable energies, are
perceived as equally demanding across both sectors. In fact the more important role of NGOs
as an external pressure group in the OG sector is revealed through the relatively greater
number of NGO campaigns OG companies have been subject to (see section 8.2.6.2 The
relative importance of external stakeholders).
96
8.2.2.2 Advanced statistics
The present section features a discussion of correlations detected between the SD role of
NGOs and other variables. As Figure 8-8 illustrates, their number is rather limited.
Managers
CA
Issues Companies
Capital markets
Damage to legitimacy
External stakeholders
PPPs
Industry
SD importance
Strategic disposition
CSM success
OG
UT
+_
T
BBB
UCA
WW
Social issues
Env. issues
Structure
Cross-disciplinary potential
Cross-disciplinary collaboration
Governments
NGOs
Importance of legitimacy
CSM intent
Consumers
SD familiarity
Figure 8-8: Correlations – public pressure groups’ SD role
Issues
Issue significance and the SD role of NGOs are unrelated, presumably because NGOs
essentially act as catalysts for companies’ primary stakeholders such as customers,
governments and the financial community (as discussed in detail in section 8.1.2.1).
Managers’ attitudes
Associations between NGOs’ SD role and managers’ attitudes are limited to a positive link
with the CA (“CSM to gain long-term competitive advantage”) statement, which is, however,
only statistically significant at a 10% level in the total and OG sample. This indicates that
more proactive attitudes are also associated with greater awareness of NGOs’ demands for
CSM. The fact that the corresponding UT coefficient indicates a similar relationship in terms
of direction and strength but fails to attain statistical significance can be attributed to the
smaller sample size and/or a less strongly developed CA attitude in the UT sector.
External stakeholders and legitimacy
The relationship between the role of governments and NGOs reveals a more direct link
between NGO campaigns (including those of citizens groups) and reactions from governments
(e.g. climate change, phasing out of nuclear power generation) in the UT sector (see section
8.2.1.2 for a more detailed discussion).
Moreover, the positive correlation between NGOs’ role and, on the one hand, the importance
of legitimacy and, on the other hand, consumers’ SD role points to the effects of NGO
campaigns on consumer awareness and behavior, and the moderating factor of organizational
visibility. The more important companies consider legitimacy to be (due to greater consumer
97
name recognition, level of downstream competition, switching cost of customers etc.),38 the
more sensitive they are to the demands of NGOs and consumers for CSM.
It is somewhat puzzling that NGOs’ SD role is linked to importance of legitimacy, but not to
the damage to legitimacy. This could suggest that companies are particularly aware of NGOs’
activities if their informal license to operate is important to them. The lack of association with
the actual damage to their legitimacy allows two interpretations: (1) the correlation is
confounded by respondents’ unwillingness to acknowledge the true level of damage; and (2)
companies have been alerted by incidents that their peers have encountered, not necessarily
ones they themselves have experienced.
Strategic disposition
Furthermore, correlations confirm the significant role of NGOs in driving corporate
sustainability through various campaigns such as consumer boycotts, lobbying and
shareholder resolutions. A more proactive SD role of NGOs is related to companies’ greater
familiarity with the concept of sustainable development (SD familiarity) and intention to
integrate social and environmental criteria into business strategies and operations (CSM
intent). The missing link with SD importance is likely to be caused by a social desirability
bias, which may have affected results more strongly due to the smaller (3-point) Likert scale
with which SD importance is measured.
It is surprising that the OG data do not – in contrast to the UT data – exhibit a statistically
significant link between NGOs’ SD role and strategic disposition. This indicates that the
association between the two variables exhibits greater variation in the OG than in the UT data,
presumably because NGOs’ influence differs more widely in the OG sector. This is because
OG companies are more globally active, and both issues and companies are more visible.
Hence the sector is under scrutiny from a greater number of NGOs with different agendas on a
greater number of issues. Furthermore, OG respondents’ perception of NGOs’ influence could
exhibit greater variation because most of them operate in Europe and North America, and are
not as close to most of the issues of their sector (e.g. in developing countries such as human
rights, corruption) as UT respondents.
Conclusion
Overall the correlations detected point to a significant effect of NGO activities on companies’
strategic disposition. They also reveal that NGOs mainly act as catalysts for change by
targeting companies’ primary stakeholders (consumers and governments) through boycott
campaigns and lobbying.
8.2.3 Customers
8.2.3.1 Qualitative analysis and basic statistics
Alongside shareholders, customers play the most deterrent role in both sectors. OG
interviewees acknowledged that NGO boycott campaigns (most prominently the “Stop Esso”
and “Brent Spar” campaigns in the UK and Germany, respectively) had noticeable effects on
their companies. Nevertheless, effective campaigns are seen as exceptions to the rule, insofar
as their effect is selective and limited to consumers with greater environmental awareness. All
in all, consumers’ strong preference for cheap and convenient energy and their lack of
environmental awareness and behavior are considered two of the most significant external
barriers to corporate sustainability. Interviewees from the UT sector drew a similarly negative
picture of the current and future role of its customers. Most corporate customers, particularly
38 Refer to Bowen (2000, p. 100) for additional determinants of organizational visibility.
98
if their production process are highly energy-intensive, tend to be even less environmentally
conscious than private customers (Platts, 2002).39
Cross-disciplinary differences in consumers’ SD role are not statistically significant.
However, it is notable that sustainability officers from both sectors assessed the consumers’
role more negatively than general managers did. This could indicate that sustainability officers
are more critical about the predominantly deterrent part that consumers are also likely to play
in the medium to long term, which also reflects their – as catalysts – more strategic
perspective of CSM.
Consumers’ SD role (1 = “Least proactive” to 5 = “Most proactive”)
General managers
Sector Obs Mean Std. Err. Std. Dev. 95% Conf. Interval
UT
OG
49
115
2.285714
1.895652
.1336306
.0724149
.9354143
.7765637
2.017032 2.554397
1.752199 2.039106
Sustainability officers
Sector Obs Mean Std. Err. Std. Dev. 95% Conf. Interval
UT
OG
13
17
2
1.705882
.2531848
.1663781
.9128709
.6859943
1.448358 2.551642
1.353177 2.058588
Table 8-3: Summary statistics – consumers’ SD role
Whereas interviews do not point to any significant difference in consumers’ SD role between
sectors, the quantitative data reveal a more positive role of consumers in the UT than in the
OG sector: The difference is visible in the data obtained from both sustainability officers and
general managers, but is only statistically significant in the GM sample (at the 10% level).
The mean differences are somewhat surprising and could reveal that UT managers perceive
greater demand for CSM from customers because their companies’ approach to CSM leaves a
greater “supply gap” than that of OG companies.40 Alternatively, the significant mean
difference could point to a more proactive role of customers in the UT sector, which is,
however, difficult to diagnose: Consumers are largely ignorant of environmental and social
issues. However, there are some nuances:
- Kalkman and Peters (2002) tested several electricity brand concepts in the UK, Germany
and Spain, and found that environmental friendliness was a significant component of the
concept that received higher consumer ratings. However, the extent to which these ratings
reflect actual purchasing behavior is clearly questionable. Furthermore, green electricity
suppliers were among the few new companies that managed to survive in Germany’s
liberalized market due to higher customer loyalty and price premiums (Flauger, 2003b).
Some US states require electric utilities to phase in electricity from local renewable
resources (Peltier, 2003). Finally, several big US companies such as General Motors, IBM
and DuPont have formed a partnership, the Green Power Market Development Group of
the World Resources Institute (WRI), to build corporate demand for green power.
- In the OG sector both private and non-private customers tend to be largely ignorant of the
environmental properties of fuels, which clearly affects the marketability of
environmentally friendly products: Biodiesel is recognized for its drivability, fuel
consumption benefits and environmental credentials only by a clear minority of consumers
(Anonymous, 2004e; Siehoff, 2004). Furthermore, when OG companies introduced
cleaner fuels in several markets such as the Netherlands, Germany and Argentina,
products were mostly positioned primarily through high performance attributes to
39 There are exceptions such as the Green Power Market Development Group, a coalition of the World Resources
Institute and 12 US corporation (including Alcoa Inc., General Motors, IBM and DuPont), who announced the
purchase of 97 Megawatts of green power in 2000 (www.newsroom.wri.org/newsrelease on 01/10/2003).
40 A more advanced approach to CSM in the OG sector is diagnosed comprehensively in section 8.4.
99
legitimate a price premium (Anonymous, 2000; Klähn, 2000). However, customers can
more easily switch suppliers in the OG than in the UT sector, and several boycott
campaigns on Shell (and its decision to sink the Brent Spar) and Exxon Mobil (and its
climate change position) did have significant impacts.
It remains difficult to reach a definite conclusion about the main reason consumers are more
proactive in the UT sector, although it appears that demand for CSM is less persistent and
more ad-hoc in the OG sector, i.e. largely unrelated to the product as such and observable in
the form of boycott campaigns.
8.2.3.2 Advanced statistics
Figure 8-9 displays all correlations detected between consumers’ SD role and other variables.
They will be discussed in more detail in the following paragraphs
Managers
CA
Issues Companies
Capital markets
External stakeholders
Governments
PPPs
Industry
Importance of legitimacy
CSM intent
SD importance
Strategic disposition
CSM success
OG
UT
+_
T
BBB
UCA
WW
Social issues
SD familiarity
Structure
Damage to legitimacy
NGOs
Consumers
Env. issues
Cross-disciplinary potential
Cross-disciplinary collaboration
Figure 8-9: Correlations – consumers’ SD role
Issues
The negative correlation between issue significance and consumers’ SD role indicates that
sustainability leaders in the UT sector exhibit greater issue awareness and perceive less strong
demand for CSM from consumers. In contrast, issue awareness and consumers’ SD role are
unrelated in the OG sector, which indicates that both sustainability leaders and laggards
consider consumers insignificant and reactive stakeholders (refer also to section 8.1.2.1 for a
more detailed discussion).
External stakeholders and legitimacy
The positive link between consumers’ and NGOs’ SD role reflects the effect of NGO
campaigns at triggering consumer boycotts or other changes in consumer behavior (see also
section 8.2.2.2).
The positive link between consumers’ current SD role on the one hand and, on the one hand,
capital markets’ future SD role and, on the other hand, the damage to legitimacy incurred
clearly points to the effect of high profile consumer boycotts. These boycotts result in the loss
of reputation and brand value, and in corresponding reactions of capital markets. E.g. Shell’s
share price was affected by the botched disposal of the Brent Spar platform and accusations of
100
human rights violations in Nigeria – but only to a limited extent (Caulkin, 1997).
Nevertheless, this case illustrates a notable triangulating effect of consumer boycotts and
capital markets’ demand for CSM, which could become stronger if capital markets become
more sensitive to CSM. It is not surprising that the UT data lack this specific association:
Consumer boycotts are a rather inconvenient option because switching to a competitor is too
cost- and time-intensive.
Structure
Consumers’ SD role is negatively linked to both cross-disciplinary collaboration and
potential. If one again assumes (see section 8.2.1.2) that both variables indicate a more
advanced implementation of CSM and greater awareness of issues and stakeholders’
demands, the negative relationship is plausible: Respondents from leading companies who are
also more familiar with issues and stakeholders through more extensive cross-disciplinary
collaboration perceive less strong demand for CSM from consumers than laggards. It should
be noted that the corresponding relationships are weak and not statistically significant in the
OG sector, which suggests that general managers’ perception of the consumers’
predominantly deterrent role is independent of their levels of awareness and their companies’
level of CSM implementation. This additionally supports evidence presented above, which
suggested that customers play a consistently more deterrent role in the OG sector.
Conclusion
In conclusion, the evidence clearly supports the findings presented in the previous section
about the predominantly deterrent role of consumers as an external pressure group. This is
particularly visible through the lack of correlations between consumers’ SD role and strategic
disposition. The data also exhibit sector-specific nuances:
- Overall consumers in the UT sector appear to play a more proactive role. Pressure from
environmentally friendly consumers is more persistent and related to the process of power
generation, i.e. the question of whether the electricity purchased is generated from
renewable or non-renewable energy sources.
- In the OG sector, consumers’ switching costs are lower (e.g. one just needs to drive to
another gas station). Thus boycott campaigns appear to have a significant but only brief
effect. They constitute a short-term reaction of customers to corporate activities rather
than to the environmental properties of the product.
8.2.4 Financial community
8.2.4.1 Qualitative analysis and basic statistics
Interviewees from both sectors considered the financial community – in addition to consumers
– the stakeholder that plays the most passive or even counterproductive part in terms of
corporate sustainability due to its focus on short-term profitability. Despite recent trends in the
US toward more scrutiny of issues such as accounting practices and climate change risks
(Bayon, 2002), European shareholders (and insurance companies in particular) are considered
more progressive players than their Anglo-Saxon counterparts (Kantaria, 2002). The
following significant nuances mentioned by several sustainability officers interviewed could
point to a more proactive role of the financial community in the future (e.g. Innovest, 2002b):
- International lending institutions such as the World Bank play an increasingly significant
role in setting standards for corporate activities in developing countries, e.g. in terms of
ensuring a fair allocation of oil revenues and preventing human rights violations (Beattie,
2002).
- The scrutiny of capital markets and socially responsible investors differs from NGOs’
pressure in terms of both quality (more conceptual) and intensity (more consistent).
101
Companies react on a more conceptual and strategic basis, also because shareholders are –
unlike NGOs – primary stakeholders:
Our climate policy is more the consequence of the influence of capital markets’
than NGO campaigns (OG2, SO)
- Private banks and insurance companies are becoming increasingly important stakeholders
in terms of environmental and social issues, as the motivation of the Carbon Disclosure
Project (Nicholls, 2003a) and the adoption of the Equator Principles through various banks
illustrate.41
- Finally, companies are recognizing the increasing importance of sustainability stock
indices and pressure from institutional investors such as pension funds.
This more proactive trend is also reflected in the quantitative data presented in Chart 8-6.
Respondents from all four samples expect a more positive reaction from capital markets to
improved corporate social and environmental performance in the next five years. The only
statistically significant difference between the four groups of respondents is found between
the general managers of both sectors: OG general managers expect a more positive reaction
than their counterparts from the UT sector.
0
1
2
3
4
5
Future reaction of capital markets to CSM
(1 = "Much more negatively" to 5 = "Much more postively")
UT general managers
OG general managers
UT sustainability officers
OG sustainability officers
Capital markets
Group Mean Std. Dev. Freq.
UT GM 3.75 0.73 55
OG GM 4.05 0.64 117
UT SO 3.92 0.64 13
OG SO 4.00 0.50 17
Total 3.96 0.66 202
Chart 8-6: Capital markets’ future SD role and summary statistics
There are two possible and complementary explanations:
1. OG companies have come under more pressure from shareholders and investors, most
prominently due to (1) a clear general trend toward a greater number of social and
environmental shareholder resolutions that are also increasingly more strongly
41 The Carbon Disclosure Project is a group of institutional investors that scrutinizes the corporate sector in terms
of its CO2 portfolio. The Equator Principles raise the standards of banks’ social and environmental risk
management in emerging countries.
102
supported,42 and (2) the Equator Principles. It is difficult to determine precisely the actual
effect of these two drivers on corporate practices. After all, shareholder resolutions are
generally voted down and the Equator Principles need to be properly implemented.
However, they seemed to have significantly changed general managers’ perceptions in the
OG sector, as the differences in the data might indicate.
2. The mean difference could be attributed to OG general managers’ more proactive
attitudes.
Interviewees from the UT sector reported that shareholders are aware of relatively high
environmental standards in OECD countries (and Europe in particular), and are mainly
concerned about adequate provisions for operational accidents and transparency in the “Post-
Enron Era.”
Sustainability plays a very minor role for investors. Environmental performance
matters in terms of risk and liabilities attached to assets that are to be disposed.
They are additionally concerned with insurance coverage of nuclear liabilities
(OG5, finance).
Since most UT firms are among the greatest CO2 emitters in their country of operation, they
are particularly concerned about the coming emissions trading systems and increasing interest
in the carbon intensity of their fuel mix from investors and rating agencies: Standard & Poor’s
has recently published a study suggesting that the credit rating of European energy companies,
particularly those featuring a relatively carbon-intensive energy mix may suffer due to the
coming EU emissions trading (Flauger, 2003c). The fact that general managers in the UT
sector nevertheless expect a less (but still) positive future role of capital markets than their
counterparts in the OG sector, suggests the following: Current positive trends in the financial
sector are less visible in the UT sector, whereas shareholder resolutions, which are frequently
introduced in the OG sector, tend to increase awareness more effectively, since they are more
confrontational and often taken up by the media.
In conclusion, a more proactive role of the financial community is expected in both sectors.
More positive expectations in the OG sector reflect a generally stronger and visible interest of
more socially responsible and increasingly “mainstream” shareholders in the major OG
companies, presumably also because they have been very profitable over the last few years.
Despite these more recent and partly promising trends that are relevant to both sectors, it
should be noted that the financial community clearly is a deterrent to CSM for two reasons.
First, it narrowly focuses on short-term financial targets. Second, it is primarily concerned
with downside risk rather than upside potential, i.e. it is more likely to punish laggards and
unsustainable business practices than to reward leaders (Frooman, 1997).
8.2.4.2 Advanced statistics
In the following paragraphs, the author will discuss correlations between the future SD role of
capital markets and other variables (Figure 8-10).
42 Between January and June 2002, 17 out of 100 proposals across various industries received more than 15% of
the votes. Support for proposals on greenhouse gas emissions almost doubled from 9.3 to 18.3%
(www.socialfunds.com on 3 July 2002).
103
Managers
CA
Issues Companies
External stakeholders
Governments
PPPs
Industry
NGOs
CSM intent
SD importance
Strategic disposition
CSM success
OG
UT
+_
T
BBB
UCA
WW
Social issues
Consumers
SD familiarity
Env. issues
Structure
Cross-disciplinary potential
Cross-disciplinary collaboration
Damage to legitimacy
Importance of legitimacy
Capital markets
Figure 8-10: Correlations – capital markets’ future SD role
Issues
Social issue significance and capital markets’ SD role are positively related, which suggests
that respondents from leading companies are more aware of both social issues and recent
developments in the financial sector than laggards (as discussed in detail in section 8.1.2.1).
Managers’ attitudes
Strong proactive attitudes (CA “CSM to gain long-term competitive advantage” and UCA
“CSM despite unproven long-term competitive advantage”) are related to a more proactive
future SD role of capital markets: a strongly reactive BBB attitude (“The business of business
is business”) is linked to a less proactive future SD role of capital markets. In contrast, the
WW attitude (“CSM if there are win-win situations”) lacks a statistically significant link,
presumably because – as also suggested above in section 8.1.2.1 – both proactive and reactive
respondents could equally strongly relate to the statement provided. Overall these results
clearly suggest that more proactive respondents have more positive expectations of the future
SD role of capital markets, presumably for two complementary reasons: (1) respondents with
a proactive mindset are more aware of recent positive trends described above; and (2) the
association may have been partly caused by “wishful thinking” of proactive respondents:
They more clearly see a need for change and thus hope for a more proactive role of capital
markets in the future.
The only significant difference between the two sectors lies in the weakly positive and
statistically not significant relationship between capital markets’ SD role and the UCA
attitude (“CSM even if competitive advantage unproven”) in the UT sector. The
corresponding link in the OG sector is moderately positive and statistically significant, which
suggests that proactive attitudes are more consistently and strongly developed in OG
companies.
104
External stakeholders and legitimacy
Consumers’ SD role
Capital markets and consumers’ SD role positively correlate. This suggests that high profile
consumer boycotts (e.g. in Germany due to the Brent Spar crisis), and the subsequent loss of
reputation and brand value, have led to corresponding capital market reactions (as discussed
in detail in section 8.2.3.2) in the OG sector, and are likely to do so in the future.43
Importance of and damage to legitimacy
Furthermore, there are two positive correlations with the importance of legitimacy and the
damage to legitimacy. The first association shows that companies are concerned with their
legitimacy because they expect capital markets to act more proactively in the future. The
second association suggest that they have “learned this lesson” in the past from NGO
campaigns and consumer boycotts and capital markets’ reaction to them. The greater the
damage to their legitimacy, the more proactive companies expect capital markets to be in the
future. In the OG sector this appears to reflect reality reasonably well: Reactions of capital
markets to damaged legitimacy – except for severe environmental incidents – have not been
too drastic but notable.44 However, they could become more extreme due to the possibly more
proactive role of capital markets in the future.
It should be noted that the corresponding associations have similar strength and the same
direction in the UT sample, but are not statistically significant, presumably due to constraints
in the degrees of freedom a greater variation in the association. Nevertheless, results could
point to the increasing importance of legitimacy in Europe’s liberalized electricity markets,
which may become more and more relevant to more proactive capital markets in the future. It
could also indicate, in the wake of the Enron crisis, companies’ increased sensitivity to issues
relating to corporate governance and business ethics, which can significantly affect legitimacy
and share prices, and are thus increasingly scrutinized by capital markets.
Public-private partnerships
There is one remaining correlation between capital markets’ SD role and a more proactive
role of public-private partnerships. This could indicate that companies that are higher on the
CSM curve (1) have recognized the potential of public-private partnerships to resolve issues
such as the North-South energy divide or the fair allocation of oil revenues in developing
countries; and (2) expect greater demand for CSM from capital markets in the future.
Strategic disposition
A more proactive future SD role of capital markets also positively correlates with companies’
strategic disposition. Whereas it is linked to OG companies’ current SD familiarity and CSM
intent, it is only linked to UT companies’ future SD importance. This corroborates evidence
presented above on the stronger role of capital markets in the OG sector.
43 As a result of Greenpeace UK’s Stop Esso campaign, the number of consumers unwilling to buy petrol from
Esso due to its approach to climate change increased substantially. Consistently over 5% of the population
bought into the campaign (Gueterbock, 2004, p. 267).
44 Whereas Exxon’s share price did not immediately react significantly to the Exxon Valdez spill in 1989
(Kearns, 1989), the verdict of a federal court exposing it to up to US$ 15 billion punitive damages in 1994 led to
a 4% drop (Waters, 1994). Shell’s share price was affected by the botched disposal of the Brent Spar platform
and accusations of human rights violations in Nigeria – but only to a limited extent (Caulkin, 1997). The
Canadian Talisman Energy moved out of Myanmar following protests from human rights organizations and
subsequent losses in share price. Its CEO said “he could not justify letting 12% of his company’s production dent
the share price so badly (Anonymous, 2002b)
105
Structure
The positive correlation between capital markets’ SD role and cross-disciplinary collaboration
shows that leading companies that have implemented CSM more comprehensively consider
the future role of capital markets more positively. The same conclusion can be drawn from the
positive link with cross-disciplinary potential if one assumes that greater potential indicates
higher levels of respondents’ awareness (which should be prevalent in leading companies)
rather than low levels of implementation, which would be associated with unexploited
potential (see section 8.4.4.2). The correlation is moderately positive in both sectors but not
statistically significant in the UT data, presumably due to the smaller size and/or greater
variation in the link.
Conclusion
In conclusion, the relationships found link several expected characteristics of companies that
are more advanced in CSM. Alongside expectations about capital markets’ greater demand for
CSM in the future, these characteristics include: Greater strategic disposition, more intensive
cross-disciplinary collaboration, more proactive attitudes of managers and greater issue
awareness and greater potential of public-private partnerships.
Most importantly the data point to a notable positive influence of capital markets’ expected
greater demand for CSM on companies’ strategic disposition. They also reveal perceptions of
a less important future role of capital markets in the UT sector, probably also because general
managers are largely unaware of existing trends. It is important not to overestimate the
proactive role of capital markets. Their current role is clearly disruptive rather than
constructive, hence perceptions of their future role may be biased.
8.2.5 Industry and partnerships
8.2.5.1 Qualitative analysis and basic statistics
The role of industry in contributing to sustainable development is determined by various
companies, sustainability leaders and laggards, which compete against each other across the
value chain. In general, competition on environmental and social issues is low but has been
increasing, particularly in the OG sector: As the interviews suggest, a good corporate record is
increasingly linked to an improved license to operate and grow, which shortens the “time to
market” and increases employee satisfaction (Banerjee, 2003; Suggett, 2000). Competitors
can also play an important role in partly determining the environmental and social
performance of upstream joint ventures. Interviewees reported that a joint venture’s
performance either converges at the level of the more proactive partners or the laggards,
depending on the relative power and corporate sustainability agendas of the companies
involved.
Both OG general managers and sustainability officers consider their industry’s SD role more
proactive than their counterparts in the UT sector. Although these variations may partly reflect
the OG sector’s more advanced approach to CSM (as described in section 8.4 in particular),
they are not very meaningful for the following reasons: First, neither of the differences is
statistically significant. Second, it remains unclear whether managers’ assessment included
laggard companies in other regions of operation. This applies to UT respondents in particular,
since the sector’s approach is clearly more regional and Eurocentric than that of the OG
sector.
106
Industry’s SD role (1 = “Least proactive” to 5 = “Most proactive”)
General managers
Sector Obs Mean Std. Err. Std. Dev. 95% Conf. Interval
UT
OG
51
117
2.607843
2.675214
.0973308
.0651791
.6950808
.7050197
2.412349 2.803338
2.546118 2.804309
Sustainability officers
Sector Obs Mean Std. Err. Std. Dev. 95% Conf. Interval
UT
OG
13
17
2.846154
3
.1538462
.1485221
.5547002
.6123724
2.510952 3.181356
2.685147 3.314853
Table 8-4: Summary statistics – industry’s SD role
In both sectors sustainability officers assess the industry’s SD role more positively than
general managers do. In the OG sector this cross-disciplinary difference is statistically
significant. The result corresponds with sustainability officers’ higher ratings for their
companies’ SD familiarity (see section 8.4.2 Strategic disposition). It is a little surprising,
since one may have expected SOs to have a more critical, i.e. demanding, assessment of the
industry’s role due to their role as change agents in their companies and their greater
awareness of strategic issues (climate change and the energy divide) and responses required in
the short and long term. There are several explanations for a more positive assessment: (1)
They are more aware of existing best practices throughout the industry. (2) They are more
calculatedly optimistic as change agents in their companies. (3) Although they report on
several internal barriers such as mindset, lack of knowledge, etc. (see section 8.4.1 Company-
specific determinants), they may still be largely unfamiliar with the even more troublesome
situation at the operational level – with the “very bottom management” as one interviewee
phrased it. (4) Sustainability officers overstate organizational alignment in their company and
the sector because they are more strongly concerned with CSM at the strategic level (e.g.
strategy formulation). Qualitative evidence obtained from a two-hour session that an OG
sustainability officer held at IMD with a general management audience primarily supports the
first explanation: General managers’ lower awareness of best practices even within their own
company is plausible in large organizations, particularly if activities – as in the OG sector –
are scattered around the globe.
Public-private partnerships’ SD role (1 = “Least proactive” to 5 = “Most proactive”)
General managers
Sector Obs Mean Std. Err. Std. Dev. 95% Conf. Interval
UT
OG
47
111
2.55319
2.75675
.1045165
.058951
.7165288
.6210873
2.342811 2.763572
2.63993 2.873584
Sustainability officers
Sector Obs Mean Std. Err. Std. Dev. 95% Conf. Interval
UT
OG
12
17
2.5
2.764706
.288675
.182495
1
.752447
1.86463 3.13537
2.377833 3.151578
Table 8-5: Summary statistics – public-private partnerships’ SD role
In the interviews public-private partnerships were mentioned in the context of corporate
activities in the developing world. They are thus more relevant to OG companies that engage
in education and youth development, healthcare (infrastructure, HIV/AIDS awareness
programs) and water and sanitation programs (ExxonMobil, 2003, p. 14-21; The Shell
Petroleum Development Company of Nigeria Ltd., 2003, pp. 15-2). Leading UT companies
that operate in developing countries carry out similar activities (WBCSD, 2002, p. 21).
Nevertheless public-private partnerships are considered less effective in this study’s UT
sample, most likely due to its bias towards companies that mainly operate in developed
countries.
This finding is supported by quantitative data indicating that both OG general managers and
sustainability officers assess the SD role of public-private partnerships more positively than
their counterparts in the UT sector (see Table 8-5). The cross-sector difference in the
107
perceptions of the general managers is statistically significant. Cross-disciplinary differences
between the perceptions of general managers and sustainability officers are marginal and
clearly not statistically significant, which gives additional assurance on the cross-sector
variation.
8.2.5.2 Advanced statistics
The following paragraphs feature a discussion of the correlations between the SD roles of
both industry and public-private partnerships and other variables (see Figure 8-11 and Figure
8-12).
.
Managers
CA
Issues Companies
Capital markets
Damage to legitimacy
External stakeholders
Governments
NGOs
Strategic disposition
OG
UT
+_
T
BBB
UCA
WW
Social issues
Consumers
Env. issues
Structure
Cross-disciplinary potential
PPPs
Industry
Importance of legitimacy
CSM intent
SD importance
CSM success
SD familiarity
Cross-disciplinary collaboration
Figure 8-11: Correlations – industry’s SD role
Correlations between the industry’s SD role and other variables
Managers’ attitudes
The industry’s SD role is positively linked to the CA (“CSM to gain long-term competitive
advantage”) attitude in the OG data (at a 10% significance level). This could indicate that
more proactive OG respondents are more optimistic about their sector’s performance,
although they tend to be more aware of unresolved environmental and social issues, because
they are also more aware of best practices in their own company and throughout the entire
sector. It could also point to calculated optimism or “wishful thinking” of individuals who see
the need for a more distinct shift in corporate activities.
The corresponding UT coefficient is close to zero and statistically not significant, which
suggests that (1) proactive attitudes are less developed in the UT sector, and/or (2) the
industry’s SD role is assessed more heterogeneously, presumably since respondents are less
aware of existing initiatives throughout their industry and/or sector performance is indeed
more heterogeneous (e.g. through differences in fuel mixes or the level of market
liberalization).
108
External stakeholders and legitimacy
The correlation between the industry’s SD role and the importance of legitimacy is weak and
not statistically significant in the UT sector, whereas in the OG sector it is statistically
significant and positive, i.e. the more important OG respondents consider legitimacy to be, the
more positively they assess the SD role of industry.
This points to a significant cross-sector difference: The motivating effect of legitimacy is
weaker and less consistent in the UT sector because industry performance and/or the
importance of legitimacy is less homogenous than in the OG sector (see section 8.2.6.1, for a
more comprehensive discussion of the role of legitimacy). Thus UT data again indicate that
UT companies are at different stages in the process of liberalization. However, it is likely that
legitimacy will become more important with ongoing liberalization processes.
The positive link between the industry’s SD role and public-private partnerships (PPPs)
supports qualitative evidence presented earlier on the effectiveness of public-private
partnerships at assisting the sectors to resolve primarily social and health issues in developing
countries and to support pilot electrification projects.45
Strategic disposition
Correlations also show that respondents who indicated greater SD familiarity, greater SD
importance and greater CSM intent also assessed their industry’s SD role more positively.
This suggests that sustainability leader respondents have a more positive perception of the
entire sector’s performance. They appear to have a more optimistic mindset – presumably due
to greater awareness of current initiatives and best practices – rather than a critical attitude
towards laggard companies, which would have been reflected in negative correlations
between the industry’s SD role and companies’ strategic disposition.
It should be noted that the linkage between the industry’s SD role and CSM-related variables
(e.g. CSM intent, CSM success) is weaker in the UT than in the OG sector. Thus the data
indicate that (1) UT respondents are less optimistic about their sector’s performance,
presumably because their own companies are relatively inexperienced, i.e. still at the lower
end of the CSM learning curve, and (2) the perception of the industry’s SD role is less
homogenous for reasons referred to above.
Structure
Data also exhibit a positive link with cross-disciplinary collaboration. This result is in line
with findings presented in the previous paragraph: Cross-disciplinary collaboration tends to
increase respondents’ awareness of corporate activities and thus positively influences their
view of the overall performance of the industry. Furthermore, correlations between the
industry’s SD role and cross-disciplinary potential yield different results across the two
sectors: In the UT sector the relationship is moderately positive but only statistically
significant at a 10% level.
In the OG sector it is very weak (in fact slightly negative) and clearly not statistically
significant. This suggests that OG respondents’ assessment of cross-disciplinary potential may
be moderated more strongly through other company-specific factors such as corporate cultures
and structures, and the current level of collaboration, i.e. respondents who work relatively
closely with sustainability experts may consider the still unexploited potential minor. Thus
respondents with higher levels of awareness of corporate activities do not necessarily assess
45 E.g. the South African utility Eskom has launched a comprehensive HIV/AIDS program and played a key role
in establishing the South African Business Coalition against HIV/AIDS (Holliday et al., 2002, p. 122). Shell and
Eskom formed a joint venture project to install home solar systems in South Africa (WBCSD, 2002, p. 39)
109
cross-disciplinary potential more positively. This is not implausible, since OG companies tend
to be larger and thus more complex organizations, and are thus likely to exhibit greater
variation in corporate culture, structure, etc.
Correlations between the SD role of public-private partnerships and other variables
Figure 8-12 displays correlations between the role of PPPs in contributing to sustainable
development and other variables. They will be discussed in the following paragraphs.
Managers
Issues Companies
Damage to legitimacy
External stakeholders
NGOs
Importance of legitimacy
Strategic disposition
OG
UT
+_
T
BBB
WW
Social issues
Consumers
Env. issues
Structure
Cross-disciplinary potential
Cross-disciplinary collaboration
CA
Capital markets
Governments
PPPs
Industry
CSM intent
SD importance
CSM success
UCA
SD familiarity
Figure 8-12: Correlations – public-private partnerships’ SD role
Managers’ attitudes
A positive link between PPPs and the two proactive attitudes (CA:”CSM to gain long-term
competitive advantage” and UCA “CSM despite unproven competitive advantage”) of
managers suggests that more proactive managers are more aware of possible contributions of
partnerships with public agencies to more sustainable business practices.
External stakeholders and legitimacy
Positive links between PPPs’ SD role and (1) that of governments and industry and (2) the
future role of capital markets, point to the use of public-private partnerships in leading
companies. Leaders are likely to be more aware of greater contributions from governments
and industry that both participate in the partnerships and expect capital markets to take on a
more proactive SD role in the future.
Strategic disposition and CSM success
Correlations also show a clear positive link between PPPs’ SD role and both strategic
disposition and CSM success. Compared to the associations detected with the industry’s SD
role, there are fewer cross-sector differences. In the UT data the correlation between PPPs’
SD role and both CSM intent and CSM success are positive but only the former is also
statistically significant (even if only at a 10% level).
Thus the results point to the perception in leading companies of the greater effectiveness of
PPPs, particularly in the OG sector. This is plausible, since UT companies surveyed in this
study rely less strongly on public agencies because their core activities are located in
developed countries (70% of UT general managers operate in Mid-Northern Europe). An
110
additional factor could be the fact that OG companies engage more strategically in
partnerships because they have to extract and produce oil and gas where the deposits are
located, i.e. often in rural areas with little infrastructure. In contrast, UT firms that operate in
developing countries still focus primarily on urban areas, where partnerships for health,
education and community development are less needed. Through its electrification program
launched in 1991, Eskom has raised the electrification rate in urban areas in South Africa to
90%. In rural areas only 40% of the homes are electrified (WBCSD, 2002, p. 39).
Conclusions
It is not surprising that there are some parallels with the associations detected for the role of
industry, since industry is involved in PPPs. Overall results indicate that sustainability leaders
in the OG sector in particular assess their sector’s SD role more positively than laggards, and
exhibit greater awareness of the effectiveness of PPPs, obviously because they more strongly
rely on them to resolve local social issues in developing countries. Overall this points to a
more advanced and confident approach to CSM in the OG compared to the UT sector, which
can be partly attributed to the importance of legitimacy and its greater motivating role in the
OG sector. This also most likely reflects OG companies’ greater organizational visibility.
8.2.6 Legitimacy and the relative importance of external stakeholders
In the present section, the author will elaborate on the role of legitimacy as such,
operationalized as brand value and reputation, in the area of CSM (see section 8.2.6.1). He
will also compare the relative importance of the external stakeholders as pressure groups (see
section 8.2.6.2).
8.2.6.1 The role of legitimacy
8.2.6.1.1 Qualitative analysis and basic statistics
The interviews indicate that both the informal and formal kinds of legitimacy have a clear
effect on CSM. Interviewees mostly referred to two concepts, the (informal or formal) license
to operate (or grow) and reputation, and reported that their companies have reacted to
changing demands from stakeholders.
Thus different institutional environments and societal values determine the limits of
legitimacy – i.e. the visible significance of an issue – at which stakeholders react to amend or
revoke companies’ current licenses to operate. Limits of legitimacy can be local, regional,
national or even global. For example, the US and Europe vary in terms of societal pressure to
combat climate change (Browne, 1997; Sharma et al., 1999, p. 91; Skjaerseth et al., 2001):
Originally our actions were based on expert analysis, less on public perceptions.
However, there has been a change in opinion, primarily due to reputational
damage we incurred in Europe. This is also one reason why our sustainability
report was originally planned as a European Report (OG1, upstream EHS).
Furthermore, regulatory standards on local social and environmental issues vary widely
between developing and developed countries (Souza Porto et al., 2003). Lower standards are
often overcompensated for by greater scrutiny from public pressure groups, and so the OG
sector in particular has become more sensitive to social and environmental issues in
developing countries (Gavin, 2003).
Whereas most interviewees are familiar with the potential effects of short-term operational
issues (e.g. health & safety) on brand value and reputation, legitimacy concerns about long-
term strategic challenges such as climate change tend to be limited to sustainability officers
and managers operating in pilot business units:
111
Strategic transition to renewables will be an iterative process between the
different stakeholders. There will be more and more pressure. The European
Commission is doing a very good job at the moment (OG4, renewables business
unit).
It is obvious that the significance of legitimacy is greater in the OG sector (see Chart 8-7),
since OG companies operate in more competitive downstream markets and have greater
organizational visibility (Bowen, 2000). According to the principle of “countervailing power,”
OG companies’ size, profitability and relatively low level of regulation attracts opposition
from public pressure groups. Furthermore, name recognition by consumers is considerably
higher than in the UT sector (Kalkman et al., 2002), and thus OG companies are more
vulnerable to incidents that may damage legitimacy, e.g. boycott or media campaigns (Steger,
2003, p. 106). Interview data reveal two additional factors that moderate company- or plant-
specific risks associated with legitimacy:
- Location and profile of headquarters and facilities: As one interviewee claimed, Nordic
players may be under less scrutiny globally, due to “spill over” from the good
environmental and ethical records of their home countries. Furthermore, facilities
providing much-needed employment are under less external pressure.
- Corporate reputation: Companies differ in terms of their corporate identity, their approach
to external stakeholders and the image and visibility of the top executives (Anonymous,
2003f; Browne, 1997).
0
1
2
3
4
5
Importance of brand and reputation 1 = "Not at all" to 5 = "Very much"
UT General managers
OG General managers
Importance of brand and reputation
Group Mean Std. Dev. Freq.
UT GM 3.91 1.08 55
OG GM 4.41 0.83 119
Total 4.25 0.94 174
0
1
2
3
4
Damage to brand and reputation 1 = "No impact at all" to 4 = "Severe"
UT General managers
OG General managers
Damage to brand and reputation
Group Mean Std. Dev. Freq.
UT GM 2.32 0.83 31
OG GM 2.28 0.82 82
Total 2.29 0.82 113
Chart 8-7: Importance of legitimacy Chart 8-8: Damage to legitimacy in the past three
years
Whereas the cross-sector difference in the importance of legitimacy is statistically significant,
the difference in terms of actual damage to legitimacy (see also Chart 8-8), i.e. loss of
legitimacy, are not. This is unexpected, because of the OG sector’s greater issue and
organizational visibility, and can be attributed to the following reasons: First, the sensitivity of
the question makes it prone to substantial bias: 31% of OG and 44% of UT managers did not
respond, and only 7% and 6% respectively reported “severe” damage to legitimacy. Second,
the most “prominent” incidents in the OG sector occurred in a period the questionnaire did not
cover.
112
Even if one takes into account that respondents from both sectors are likely to downplay the
severity of damage to legitimacy, data indicate that the effect of incidents has been rather
weak overall, presumably because boycott campaigns, shareholder resolutions on
environmental and social issues, and protests against nuclear power are limited to certain
countries and exert brief and selective rather than persistent pressure on companies. Thus
general managers may also lack awareness of such incidents.
In conclusion, companies have recognized the financial premium associated with informal
kinds of legitimacy or license to operate, which enable the company to create a steady flow of
revenues, since operations can continue uninterruptedly (e.g. no strikes, no occupation of
facilities, no scandals and crises to manage) and efficiently (motivated personnel), and
products are consistently demanded by customers (e.g. no boycotts). Overall data presented
suggest that the informal license to operate is a particularly important driver of CSM in the
OG sector because of several factors such as the visibility of some issues (e.g. social conflicts)
and greater organizational visibility of companies as well as stronger downstream
competition.
Whereas interview data, from sustainability officers in particular, point to a significant impact
of NGO and boycott campaigns in the OG sector, survey data from general managers reveal
little effect of incidents that damaged legitimacy. If one takes into account possible bias from
respondents, this suggests that incidents have been rather selective and too insignificant to
draw notable attention from general managers. This could additionally point to (1) a strongly
reactive mindset of general managers who are focused on their every-day activities in their
business function and unit, and (2) a failure to communicate the significance of incidents
across business units and functions.
8.2.6.1.2 Advanced statistics
8.2.6.1.2.1 Correlations
Importance of legitimacy
In the following paragraphs the author will present and discuss correlations between the
importance of legitimacy and other variables (see Figure 8-13).
Managers
Issues Companies
Damage to legitimacy
External stakeholders
Governments
PPPs
Strategic disposition
OG
UT
+_
T
BBB
UCA
Consumers
Env. issues
Structure
Cross-disciplinary potential
Cross-disciplinary collaboration
CA
Capital markets
NGOs
CSM intent
SD importance
CSM success
WW
Social issues
SD familiarity
Industry
Importance of legitimacy
Figure 8-13: Correlations – importance of legitimacy
113
Issues
Social issue significance and legitimacy are related, which indicates that sustainability leaders
exhibit greater awareness of social issues and attach greater importance to legitimacy (as
discussed in detail already in section 8.1.2.1).
Managers’ attitudes
The importance of legitimacy is related to the personal attitudes of respondents, more
specifically to the CA attitude (CSM to gain long-term competitive advantage) and WW
attitude (CSM only in win-win situations); the corresponding correlations also exist in the UT
sector but their significance levels are just above 10%. The links indicate that proactive
managers are more strongly concerned with their companies’ legitimacy.
External stakeholders and legitimacy
Furthermore, the importance of legitimacy positively correlates with the SD roles of capital
markets, industry and NGOs. This indicates that:
- Industry, more specifically the OG sector, is driven by the importance of legitimacy as a
motivating factor of CSM (as discussed in more detail in section 8.2.5 Industry and
partnerships).
- Companies’ sensitivity to the importance of legitimacy, which is determined through
several factors such as corporate culture (Steger, 1998a; 2003, p. 241) and organizational
visibility (Bowen, 2000, p. 100); it is increased through greater demand for CSM from
public pressure groups (see section 8.2.2).
- Companies are concerned with retaining and increasing their legitimacy because they
expect capital markets to act more proactively in the future (see also section 8.2.4
Financial community on p. 104)
There is no statistically significant link between the importance of legitimacy and damages to
legitimacy. Although companies that attach greater importance to legitimacy could report
greater damage, because stakes are higher if an incident occurs, a link should not be strongly
expected, because the damage is at least as strongly determined by the nature of the incident
as by the level of legitimacy at stake.
The missing link between the importance of legitimacy and consumers’ SD role points to the
fact that consumers are hardly relevant to companies’ legitimacy, except through boycotts that
are often triggered by NGO campaigns. This is confirmed by a statistically significant linkage
between consumers’ SD role and actual damage to legitimacy (see Figure 8-14), and fits
evidence obtained from the interviews: Overall the consumers’ role is deterrent, but selective
pressure due to consumer boycotts constitutes a substantial legitimacy risk.
Strategic disposition and CSM success
The data also exhibit a clear link between the importance of legitimacy and the strategic
disposition to CSM – consistently across both sectors – and thus clearly support findings from
the interviews about the motivating effect of legitimacy. The positive link with CSM success
suggests that greater strategic disposition leads to the implementation of CSM measures that
effectively contribute to CSM success. This is highly plausible since companies’ initiatives
need to be successful to retain and expand companies’ informal license to operate.
Structure
The data do not show any link between the importance of legitimacy and cross-disciplinary
collaboration. The fact that the importance of legitimacy is linked to strategic disposition but
not to current structures – all coefficients are positive but close to zero – as one dimension of
CSM implementation suggests that the association is subdued by some third variable such as
114
internal drivers or barriers (e.g. corporate culture) or the different scales (categorical and
pseudo-continuous) used to measure both variables.
Damage to legitimacy
In the following paragraphs the author will present and discuss correlations between damage
to legitimacy in the past three years and other variables (see Figure 8-14).
Managers
Issues Companies
External stakeholders
Governments
PPPs
Industry
NGOs
Importance of legitimacy
CSM intent
SD importance
Strategic disposition
CSM success
OG
UT
+_
T
BBB
UCA
WW
Env. issues
Structure
CA
Capital markets
Damage to legitimacy
Social issues
Consumers
SD familiarity
Cross-disciplinary potential
Cross-disciplinary collaboration
Figure 8-14: Correlations – damage to legitimacy
Issues
Social issue significance and damage to legitimacy are positively related. This suggests that
companies that have incurred greater damage to legitimacy report greater issue significance
(see section 8.1.1.3 The relative importance of environmental and social issues for a more
detailed and sector-specific discussion).
Managers’ attitudes
More proactive managers also report greater damage to legitimacy. The correlation
coefficients between all four attitudes and damage to legitimacy support this finding, although
only one link with the CA attitude (CSM to gain long-term competitive advantage) is
statistically significant. Relationships between the variables could be recursive: Proactive
managers could be more willing to acknowledge greater damage to legitimacy, and greater
damage to legitimacy may also have changed managers’ attitudes.
External stakeholders and legitimacy
Damage to legitimacy positively correlates with capital markets’ future SD role, obviously
since incidents have triggered reactions from capital markets and are expected to do so in the
future (see also section 8.2.4 Financial community).
It is also positively related to consumers’ SD role, which points to significant effects of
consumer boycotts and protests (see also section 8.2.3 Customers).
115
Strategic disposition
Damage to legitimacy is also linked to companies’ strategic disposition, but less clearly than
the importance of legitimacy, as the lower number of statistically significant links shows.
Furthermore, data reveal two differences between the sectors: In contrast to the OG sample, in
the UT sample damage to legitimacy is linked to neither (1) SD importance, nor (2) CSM
intent.46
These results are in parallel with findings from the interviews, which suggest that OG
companies react to decreasing legitimacy by increasingly integrating environmental and social
issues into operations – particularly in developing countries (e.g. community involvement).
The missing link in the UT data clearly suggests that damage to legitimacy in the UT sector
has been marginal and has thus not triggered any significant changes in their strategic
disposition and activities.
Structure
There is a statistically significant link to both cross-disciplinary collaboration and potential:
- The link with cross-disciplinary collaboration is statistically significant and positive in the
UT sector, in the OG sector it is negative: Even if the OG coefficient lacks statistical
significance, this difference is quite insightful, since it again indicates that both sectors are
at different stages of the CSM learning curve: The positive link in the UT data suggests
that more advanced UT companies featuring stronger cross-disciplinary structures have
become more aware of damage to their legitimacy. The negative link in the OG data,
although statistically not significant, could indicate that more advanced companies were in
fact subject to less damage to brand value and reputation. This is not implausible, although
it can be argued that companies that are sustainability leaders are the preferred targets of
NGO campaigns, since they are suspected of greenwashing (Kolk et al., 2001, p. 507;
Vogl, 2003).
- The positive link with cross-disciplinary potential is line with correlations presented above
(with strategic disposition, issue awareness, attitudes, etc.) and could indicate a
relationship that is characterized by a feedback loop: (1) Respondents who are more
experienced through closer collaboration with sustainability experts are more aware of or
willing to acknowledge damage to legitimacy in the past. (2) More advanced companies
incurred more damage to legitimacy in the past and reacted with greater strategic
disposition and thus more evolved corporate structures.
Differences in correlations
There are several differences between the correlations detected between other variables and,
on the one hand, the importance of legitimacy and, on the other hand, damage to legitimacy.
They will be discussed in more detail in the following paragraphs.
It is notable that in contrast to the importance of legitimacy, the damage to legitimacy lacks
links with several variables:
1. There is no statistically significant link to NGOs’ SD role. This suggests that (1) the
correlation is affected by respondents’ unwillingness to acknowledge the true level of
damage, and/or (2) that companies have also been alerted by incidents that their peers
experienced, not necessarily themselves.
46 In the OG sector the link is moderately strong and positive (almost statistically significant at a 5% level), in the
UT sector close to zero (in fact negative) and statistically not significant
116
2. There is no link to the industry’s SD role. This suggests that incidents that damage
legitimacy are either limited to a few companies or assessed differently across several
companies.
3. There is no link to CSM success. This is a bit unexpected, because – as interview data also
suggest – incidents that damage legitimacy can cause substantial impetus for
organizational changes and thus affect the effectiveness of corporate environmental and
social initiatives. The link may be missing for several reasons: (1) Social desirability bias.
(2) Learning effects: Companies that were not directly subject to incidents incorporated
organizational changes nevertheless as a reaction to incidents their peers experienced. (3)
Lower importance of legitimacy: Damage to legitimacy only has a “sustainable” effect on
companies if legitimacy is important to the company and perceived to be at risk in the
long term rather than the short term. (4) Internal barriers that prevent possible significant
changes that could have contributed to CSM success.
Furthermore, damage to legitimacy has some associations with variables that the importance
of legitimacy lacks:
1. It is linked to consumers’ SD role. This is plausible, since consumers play a
predominantly deterrent role but occasionally react to NGO or media campaigns, mainly
through consumer boycotts.
2. It is linked to cross-disciplinary collaboration and potential. This could point to a general
manager mindset that is more strongly geared toward risk reduction (as outlined in more
detail in section 8.4.3 Economic rationale) – hence the greater awareness of damage
incurred – than toward the general motivating factor of legitimacy.
Conclusion
In conclusion, evidence presented points to legitimacy as a significant driver of CSM,
particularly in the OG sector, which reflects the latter’s greater organizational visibility and
more competitive downstream markets. The concept of legitimacy is linked to issue
significance, managers’ attitudes, strategic disposition and CSM success.
The importance of legitimacy is determined by the current and future SD roles of NGOs and
capital markets, respectively; the damage to legitimacy occurs through incidents related to the
current and future SD roles of consumers and capital markets, respectively. These
relationships reveal NGOs’ role in catalyzing reactions from consumers and capital markets.
Although the operationalization of legitimacy chosen for this study (“brand value and
reputation”) is not really compatible with the role of governments and regulators, since it
focuses on the informal rather than formal license to operate, the lack of associations between
the importance of and damage to legitimacy and governments’ SD role is meaningful, since it
points to a lack of guidance and external pressure from regulators and legislators. Conflicts
with authorities, as little as they are indicated, appear to have minor relevance to companies’
brand value and reputation. This finding is in line with companies’ incremental approaches to
CSM that are perfectly sufficient to meet regulatory standards, and the role of NGOs as those
stakeholders (“watchdogs”) that most strongly affect the informal dimension of legitimacy.
Finally, damage to legitimacy is less clearly linked to CSM than the importance of legitimacy.
There are several complementary reasons for this: (1) Social desirability bias prevented
respondents from indicating the true level of damage. (2) Companies may learn from the
damage to the legitimacy of their peers, which would mask a possible association. (3) Today
the leading companies above all are profoundly aware of their organizational visibility and
exposure, which thus “suffice” as motivation for CSM. (4) Damage to legitimacy is a less
relevant motivating factor if legitimacy as such is less important. This could partly apply to
117
the UT sector, in which reputation and brand value are lower but are becoming increasingly
important due to ongoing market liberalization.
8.2.6.1.2.2 Regressions
Regression models provided below in Regression Table 8-2 show that the importance of
legitimacy has a statistically significant positive effect on CSM intent in all three models,
whereas the damage to legitimacy does not attain statistical significance in any of the models.
T model OG model UT model
Number of obs
F
Prob > F
R-squared
Adj R-squared
Root MSE
108
5.59
0.0000
0.3113
0.2556
.71263
78
6.26
0.0000
0.3850
0.3235
.68055
30
1.07
0.4170
0.2533
0.0157
.82117
Independent variables Coefficients
Importance of legitimacy
Damage to legitimacy
UT sector
Nordic
North America
Latin Europe
Developing economies
Other regions
Constant
.349672
.0518231
-.1614597
.0733383
-.6135013
-.082756
-.5847856
.2721515
2.39373
.3834678
.0986357
-.2120864
-.7786374
-.2913629
-.7015981
.2305751
2.277337
.3261286
-.0420575
.5931272
.0393686
.4183617
-.5395808
.1342905
2.403296
Regression Table 8-2: CSM intent – Importance of and damage to legitimacy (Expanded submodels)
Hence they support findings from the correlation analysis on the relatively greater
significance of the importance of legitimacy over the damage to legitimacy.
It is also important to note that the regression models are in parallel with interview data, since
they show two statistically significant region effects. Compared to their counterparts operating
in Mid-Northern Europe, general managers in North America and developing economies
report lower levels of CSM intent, presumably due to lower societal and regulatory pressure
(Skjaerseth et al., 2001; Souza Porto et al., 2003) and internal barriers such as corporate
cultures (e.g. Kolk et al., 2001).
8.2.6.2 The relative importance of external stakeholders
8.2.6.2.1 Qualitative analysis and basic statistics
In the following paragraphs, the author will compare to what extent external stakeholder
contribute to CSM. He will assess:
- their demands for CSM, i.e. their SD roles
- their influence through incidents that affect companies’ legitimacy, and
- their importance as external barriers to CSM.
SD roles of external stakeholders, industry and public-private partnerships
As Chart 8-9 shows, there are few notable cross-disciplinary differences in general managers’
and sustainability officers’ perceptions of external stakeholders’ SD role (which have been
discussed in the previous section). Overall results are relatively congruent in both sectors,
which gives reasonable assurance on the individual ratings. The less proactive SD role of
governments compared to public pressure groups in the UT sector does not contradict findings
from the interviews that pointed to governments as the most influential external pressure
group. Public pressure groups certainly exhibit greater demand for CSM from UT companies
than governments do (as illustrated in the chart below), but they have exerted less strong and
more selective pressure on them (in terms of nuclear transport and large hydropower projects
118
in developing countries) than governments and regulators, which for their part are more
influential, because their policy instruments directly target the firms (Khagram, 2003).
0
1
2
3
4
Industry Governments PPPs NGOs Consumers
Contribution to sustainable development
1 = "Least proactive" to 5 = "Most proactive"
UT General managers
OG General managers
UT Sustainability officers
OG Sustainability officers
NGOs
Group Mean Std. Dev. Freq.
UT GM 3.38 0.76 48
OG GM 3.35 0.77 115
UT SO 3.31 0.85 13
OG SO 3.41 0.80 17
Total 3.36 0.77 193
Industry
Group Mean Std. Dev. Freq.
UT GM 2.61 0.70 51
OG GM 2.68 0.71 117
UT SO 2.85 0.55 13
OG SO 3.00 0.61 17
Total 2.70 0.69 198
PPPs
Group Mean Std. Dev. Freq.
UT GM 2.55 0.72 47
OG GM 2.76 0.62 111
UT SO 2.50 1.00 12
OG SO 2.76 0.75 17
Total 2.69 0.69 187
Governments
Group Mean Std. Dev. Freq.
UT GM 3.18 0.71 51
OG GM 2.71 0.70 116
UT SO 3.00 0.82 13
OG SO 2.82 0.73 17
Total 2.86 0.74 197
Consumers
Group Mean Std. Dev. Freq.
UT GM 2.29 0.94 49
OG GM 1.90 0.78 115
UT SO 2.00 0.91 13
OG SO 1.71 0.69 17
Total 1.98 0.84 194
Chart 8-9: Contribution of different groups to sustainable development (General managers – OG)
Furthermore, the chart illustrates that respondents from all four samples consider NGOs the
most proactive and consumers the least proactive group. These results are not unexpected and
reflect (1) the increasingly prominent part public pressure groups are playing globally in
scrutinizing the environmental and social performance of companies and (2) consumers’ lack
of environmental awareness and behavior as well as their strong preference for cheap and
convenient energy (Mathieu, 2002, p. 91). Obviously this does not rule out the selective
impact of boycott campaigns, which have had significant effects on the OG sector in the past.
In the OG sector, industry, governments and public-private partnerships play roughly the
same less to fairly proactive SD role, whereas in the UT sector, governments are rated higher
and PPPs lower than industry, apparently because UT companies are more strongly and
directly regulated in their main markets (mainly Europe) and rely less strongly on PPPs than
OG companies for upstream activities in developing countries. Although respondents’ (self-)
assessment of the industry’s role is prone to social desirability bias, results suggest that OG
general managers and sustainability officers consider their industry – in contrast to UT
respondents – respectively roughly equally or more proactive than governments. This finding
is in line with OG companies’ activities in developing countries (e.g. community involvement,
fair allocation of oil revenue, etc.) which have moved corporate social and environmental
performance clearly beyond compliance.47
47 There are various examples of companies’ approaches to community involvement to improve healthcare,
education, economic development (ExxonMobil, 2003). In 2003 Shell established a new Sustainable Community
Development Strategy that places greater emphasis on partnerships with communities, governments and other
organizations (The Shell Petroleum Development Company of Nigeria Ltd., 2003, p. 16)
119
Incidents that damaged legitimacy
Chart 8-10 and Chart 8-11 illustrate how often incongruences in the “supply” of and
“demand” for CSM have led to significant conflicts with the corresponding stakeholder.
Media campaign
18%
NGO campaign
21%
Conflicts with
authorities
13%
NR
29%
Consumer boycotts
4%
Shareholder
opposition
3%
Other
12%
Media campaign
20%
NGO campaign
8%
NR
41%
Conflicts with
authorities
15%
Consumer boycotts
2%
Shareholder
opposition
2%
Other
12%
Chart 8-10: Incidents damaging brand value and
reputation (General managers – OG)
Chart 8-11: Incidents damaging brand value and
reputation (Sustainability officers – UT)
They show two clearly visible cross-sector differences: The UT data exhibit a smaller
proportion of NGO campaigns and a greater share of no-responses. Both differences are
statistically significant. The relatively greater number of no-responses may partly reflect less
proactive attitudes and lower levels of awareness of UT respondents who are less able and/or
willing to respond. However, it also supports the finding about the generally lower
organizational and issue visibility of UT compared to the strongly scrutinized major OG
companies (e.g. Hoyos et al., 2003; Merolli, 2002; Prüller, 2003; St. Clair, 2004). It appears
that relatively weak regulatory pressure on the OG sector is compensated for by more scrutiny
from civil society, which influences companies’ approach to CSM (Whetten et al., 2002, p.
402).
External barriers to CSM
Chart 8-12 to Chart 8-15 display the relative frequencies of barriers to CSM reported by
sustainability officers and general managers, respectively. In the SO data, customers and
investors take significant shares as external barriers amounting to 10% and 11% in the OG
and UT sectors, respectively. In the GM data, proportions are largely similar: Excluding the
number of no-responses included in the charts, customers and investors take 12% and 10% in
the OG sector, and 22% and 8% in UT sector.
The proportions of regulations also play a notable role in the charts, which could indicate that
companies surveyed are indeed sustainability leaders that feel impeded in their beyond-
compliance activities through inappropriate legislation (e.g. inadequate subsidies; low
regulatory standards through which compliance-oriented competitors gain a competitive
advantage, e.g. corruption). However, it is just as likely that companies feel overregulated and
thus prevented from engaging in CSM in a more flexible way, which would point again to a
rather reactive and conservative mindset of respondents.
120
Managers' mindsets
19%
Managers' lack of
knowledge
15%
Regulation
12%
Absences of
appropriate tools
15%
Organization culture
15%
O
pposition or lack of
interest from
investors
10%
Lack of interest from
customers
10%
Other
4% Managers' mindsets
23%
Managers' lack of
knowledge
22%
Regulation
8%
Absences of
appropriate tools
11%
Organization culture
14%
Opposition or lack of
interest from
investors
11%
Lack of interest from
customers
11%
Other
0%
Chart 8-12: Barriers (Sustainability officers – OG) Chart 8-13: Barriers (Sustainability officers – UT)
There are no statistically significant cross-sector or cross-disciplinary differences. However,
the greater proportion of “Lack of interest from customers” in the data obtained from UT
general mangers (see Chart 8-15) deserves some attention, since it contradicts the findings
presented in section 8.2.3 Customers, which pointed to a more proactive role of consumers in
the UT than in the OG sector. The author suggests that the relatively greater proportion of
“Lack of interest from customers” in Chart 8-15 should not be overinterpreted for several
reasons: (1) The cross-sector difference is not statistically significant. (2) It is possible that
general managers from the UT sector are more likely to blame external barriers than to
acknowledge internal failings, which could point to a more reactive mindset. (3) Findings on
the more proactive role of customers in the UT sector referred to above are limited to
consumers. The contradictory result about the greater importance of customers as external
barriers also includes industrial and commercial customers, which could have distorted the
proportions.
121
Managers' mindset
12%
Managers' lack of
knowledge/expertise
11%
Absence of appropriate
tools and processes
8%
Organizational culture
14%
Opposition or lack of
interest from investors
7%
Lack of interest from
customers
8%
Other
2%
NR
34%
Regulation (e.g.
subsidies & low
environmental/social
standards)
4%
Other
4%
NR
39%
Managers' lack of
knowledge/expertise
5%
Absence of appropriate
tools and processes
8%
Organizational culture
11%
Opposition or lack of
interest from investors
5%
Lack of interest from
customers
14%
Regulation (e.g.
subsidies & low
environmental/social
standards)
5%
Managers'
mindset
9%
Chart 8-14: Barriers (General managers – OG) Chart 8-15: Barriers (General managers –
UT)
Finally it is also important to note that the significance of individual stakeholders, including
joint venture partners, depends on the kind of corporate activity, which can also change
according to the life cycle phase of a project:
The most significant stakeholders are governments, partners and the local
population (fishermen, onshore facilities). It would not be fair to rank them in
terms of importance, since this depends on the business environment and life
cycle phase of the individual project. Once drilling is initiated, partners become
more important (OG6, E&P North Sea).
Conclusion
Data reveal that external stakeholders vary in terms of their demands for CSM within the
same sector. As qualitative data revealed above, this variation originates from stakeholders’
different perceptions of the visible issue and organizational visibility as well as their different
limits of legitimacy. These three factors obviously also cause cross-sector variation in the
demand of the same pressure group.
The rankings for the CSM demand level of NGOs, governments and consumers are identical
across both sectors: NGOs are considered most demanding, followed by governments and
consumers. However, it is evident that UT companies – as easier targets – are not only more
strongly regulated than the OG sector. UT companies also consider governments more
demanding, and their SD role is consistently considered more proactive than that of the
industry. In the OG data, it is evident that the present study’s sample of companies that are
likely sustainability leaders hardly feels driven by governments, and even that their current
approach to CSM leads to overcompliance.
Results also show that this relative lack of regulatory pressure on the OG sector is
compensated for through stronger scrutiny from public pressure groups. The OG sector is also
more often subject to incidents that damage brand value and reputation, which can be
attributed to both higher issue and organizational visibility (Bowen, 2000). Finally,
quantitative data are also in line with qualitative findings presented above, which point to the
significant role of customers and capital markets as external barriers to CSM.
122
8.2.6.2.2 Advanced statistics
8.2.6.2.2.1 Correlations
In the following the author presents a comparison of the correlations detected between the SD
roles of the four external stakeholders – capital markets, governments, public pressure groups
and consumers – and other variables respectively (i.e. a comparison of Figure 8-7 to Figure
8-10) to shed additional light on the relative importance of those pressure groups.
Issues
Only capital markets and consumers are linked to issue significance. It is notable that both are
– in contrast to NGOs – primary transactional stakeholders. Furthermore both are – in contrast
to governments – able to react quickly to social and environmental issues, and both are linked
to the importance of and/or the damage to legitimacy, i.e. “brand value and reputation.”
This suggests that they are able to drive CSM at the market rather than the regulatory level,
i.e. they affect companies’ informal rather than formal license to operate. This is also where
NGOs come into play since they tend to trigger reactions from both capital markets and
consumers through their campaigning activities.
Managers’ attitudes
Apart from the future SD role of capital markets, only the current SD role of public pressure
groups (NGOs) is linked to managers’ proactive attitudes. If one assumes that more proactive
respondents are more farsighted and aware of current and future developments (Dutton et al.,
1983), the lack of links with the remaining external pressure groups is quite telling:
Apparently these groups, namely governments and consumers, play such a marginal role that
even more proactive respondents do not perceive any stronger involvement from them.
Strategic disposition
Capital markets’ SD role shows the clearest link to strategic disposition, followed by the SD
role of public pressure groups, governments and consumers. The key importance of capital
markets is somewhat surprising and should be relativized because it concerns a potential
future situation. Since capital markets play a predominantly deterrent role today, the clear link
could also simply reveal more proactive managers’ “hope” for a continuation of recent trends
(as described in section 8.2.4 Financial community) toward a more responsible role for capital
markets. This interpretation is also supported by a positive correlation between capital
markets’ future SD role and proactive attitudes, particularly because no other external
stakeholder exhibits a statistically significant link to managers’ attitudes.
The clear link between capital markets and strategic disposition may also reflect companies’
strong general focus on delivering shareholder value. It certainly implies that CSM – provided
it is increasingly demanded from capital markets in the future – will have to be based on a
sound business case. This requirement would obviously be less strong if CSM was more
strongly driven by governments and regulators.
The fact that NGOs’ SD role is more clearly linked to strategic disposition than governments’
role is clearly points to a lack of strategic guidance from governments, which also illustrates
that the significance of the EU emissions trading system is rather limited, since its objectives
can be achieved rather easily through incremental innovations (e.g. investments in energy
efficiency). Consumers’ SD role is unrelated to companies’ strategic disposition, which points
to their predominantly deterrent attitudes. Their selective short-term pressure through
consumer boycotts should not be ignored but clearly has no strategic implications.
123
Structure
The SD role of capital markets, governments and consumers are – unlike that of NGOs –
linked to cross-disciplinary collaboration and potential. If one assumes that cross-disciplinary
collaboration and potential operationalize greater experience with and awareness of issues and
the corresponding demands of external pressure groups, the missing link with NGOs’ SD role
shows that managers’ perceptions of NGOs’ activities are independent of changing levels of
awareness.
Again this result separates NGOs as secondary contextual stakeholders from primary
transactional stakeholders, which react to NGO activities with changes in their transactions
(e.g. new regulations, taxes; boycotts, selling shares). It is important to note that cross-
disciplinary collaboration and potential are linked to the roles of transactional stakeholders
because it shows that companies with more evolved CSM structures and respondents with
higher levels of awareness, respectively, are more sensitive to stakeholders that affect
companies more directly than NGOs as contextual stakeholders.
Conclusion
Strategic disposition to CSM and more proactive attitudes are primarily linked to the SD roles
of capital markets and NGOs. This points to a significant potential effect of capital markets
that has yet to be realized; a lack of strategic guidance from governments, which react to
demands from civil society in the short term because they rely on political success (Steger,
1998a, p. 589); and a predominantly deterrent role of consumers.
The relatively great importance of NGOs as external stakeholders is meaningful since they
provide the context in which the companies’ primary transactional stakeholders – mainly
consumers and capital markets – act in the short term. This also means that the main concern
of most companies is the short-term risk of losing the informal (i.e. brand value and
reputation) rather than the formal (e.g. changing regulatory regimes) license to operate
through emerging social and environmental issues.
Finally, the SD roles of primary stakeholders are positively associated with more developed
corporate structures and greater issue significance. This points to (1) a link between the two
motivating principles of (1) legitimacy (i.e. pressure from transactional stakeholders) and (2)
public responsibility (i.e. responsibility for the social and environmental effects of corporate
activities), and the importance of corporate structures that facilitate cross-disciplinary
collaboration because they significantly determine managers’ perceptions of stakeholders’
demand for CSM.
8.2.6.2.2.2 Regressions
In the following section, regression models are used to assess the relative influence of external
stakeholders on CSM. Submodels first assess the effects of several sets of variables on CSM
intent separately. They respectively examine the effects of:
- External stakeholders’ SD roles, i.e. their individual demands for CSM (Regression Table
8-3)
- Incidents that have damaged legitimacy in the past three years (Regression Table 8-4).
- External barriers to corporate sustainability. Here the effects on both CSM intent and
success are investigated (Regression Table 8-5 and Regression Table 8-6).
The cluster model on CSM intent (Regression Table 8-7) incorporates the effects of all
variables tested previously in the separate submodels.
124
Submodel – SD roles of stakeholders
As the regression models in the table below illustrate, a more proactive current role of NGOs
and a more proactive future role of capital markets have a statistically significant effect on
CSM intent. These results are in line with findings from the correlation analysis presented in
the previous section.
T model OG model UT model
Number of obs
F
Prob > F
R-squared
Adj R-squared
Root MSE
149
3.55
0.0003
0.2047
0.1470
.77625
103
4.09
0.0002
0.2836
0.2143
.73096
46
2.03
0.0641
0.3368
0.1709
.77921
Independent variables Coefficients
Future SD role - Capital markets
Current SD role - Consumers
Current SD role - Governments
Current SD role - NGOs
UT sector
Nordic
North America
Latin Europe
Develop. Economies
Other regions
Constant
.206493
-.0403777
.0207638
.2061017
-.4283364
-.0025701
-.6232768
-.0101307
-.2847854
.1123592
2.636266
.3582275
-.1579707
-.0094584
.0348867
-.4943823
-.8792507
-.4143929
-.5651934
-.1691712
3.157
-.0359029
.0443107
.0474479
.5241982
.4810275
-.1331178
1.037493
-.840563
.1953399
1.612106
Regression Table 8-3: CSM intent – SD role of external stakeholders (Expanded submodels)
The sector-specific models are somewhat puzzling: The statistically significant effect of
capital markets rather than NGOs in the OG model is unexpected, particularly since
qualitative data point to a strong effect of NGO activities. As already suggested above in
terms of correlation results, this missing link is probably due to greater variations in NGOs’
influence in the OG sector. In contrast to UT respondents, OG managers’ assessment of
NGOs’ influence appears to exhibit greater variation for the following reasons:
1. Compared to the UT sector, a greater number of NGOs scrutinize a greater range of
corporate activities in the OG sector in terms of a greater number of issues in a greater
variety of countries. This means that NGOs’ demands can vary significantly.
2. Most of the OG respondents operate in Europe and North America, whereas most NGO
activities focus on issues in developing countries. Thus respondents’ perceptions of
NGOs’ demands are likely to exhibit greater variation, since they are less close to the
issue. UT respondents tend to be closer to the issues.
Thus it is plausible that capital markets are linked to CSM intent in the OG sector. The
position of capital markets, e.g. on climate change, is more coherent than the position of
NGOs. This allows for a more conceptual response. In addition it is plausible that OG
companies align their approach to CSM to shareholders as one of their most important
transactional stakeholders.
The fact that CSM intent is driven by NGOs rather than governments in the UT sector is also
in line with findings presented above suggesting that governments’ initiatives clearly lack
strategic guidance. Capital markets may play an insignificant role in the UT sector because
general managers are less familiar with an increasingly proactive role of the financial
community and/or less focused on the demands from capital markets since companies are or
have been state-owned and strongly regulated as former natural monopolists.
Finally the statistically significant sector and region effects should be noted. They indicate
less CSM intent in the UT sector. The negative sector effect is most likely due to lower issue
and organizational visibility in the UT sector, which moderates outside pressure, but could
also hint at internal deficits such as corporate cultures and managers’ mindset, which prevent
125
greater CSM intent. The negative effect of regions of operations in North America,
developing countries (statistically significant at a 10% level in the OG data) and Nordic
countries (in the OG model only) similarly indicate less internal capabilities and lower
organizational visibility of business units or companies operating in these regions. These
country effects are in line with findings from the interview data presented above.
Submodel – Incidents
The following regression models show which kinds of incidents that damage legitimacy can
be linked to companies’ CSM intent. They reveal a negative effect of conflicts with
authorities, which is statistically significant in the total and the OG sample (in the latter at a
10% level).
T OG UT
Number of obs
F
Prob > F
R-squared
Adj R-squared
Root MSE
101
2.70
0.0039
0.2689
0.1692
.77238
75
2.59
0.0088
0.3113
0.1911
.75877
26
0.55
0.8313
0.2671
0.2215
.9537
Independent variables Coefficients
Media campaigns
NGO campaigns
Conflicts authorities
Boycott campaigns
Shareholder oppositions
Other incidents
UT sector
Nordic
North America
Latin Europe
Developing Economies
Other regions
Constant
-.2414118
-.0055816
-.4425226
-.2656037
-.2176631
.0692916
-.3661229
-.0068062
-.8038528
-.0664533
-.6769614
.1133928
4.464038
-.1205565
-.0095522
-.3952947
-.0756823
-.2669499
.1557093
-.288386
-.9698099
-.3068663
-.8062312
-.0258236
4.534238
-.8457848
-.4383139
-.5263879
-.1806032
-.5
-.3598355
.5558602
(dropped)
.3810829
-.9383139
1.179232
4.464702
Regression Table 8-4: CSM intent - incidents that damaged legitimacy(Expanded submodels)
Judging from the signs of the coefficients, the models would appear to indicate the likelihood
of incidents as a function of CSM intent. Thus the results are somewhat plausible, since they
show that laggard companies featuring less CSM intent have had more conflicts with
authorities. The UT correlation coefficient suggests that this link exists in both sectors, but
fails to become statistically significant in the UT data due to constraints in the degrees of
freedom.
The fact that the effect of NGO campaigns is not statistically significant in the OG model
indicates that OG companies are targeted by NGOs independently of their level of CSM
intent. This result is conceivable. In fact, it has be argued that leading companies have been by
NGO campaigns at least as often as laggards (Vogl, 2003). At first sight the insignificant
effect of shareholder resolutions also contradicts findings about the key importance of capital
markets presented above. This putative inconsistency can be attributed, alongside response
bias, to the fact that the variable under consideration refers to specific incidents in the past,
whereas findings about the role of capital markets above refer to a possible future and more
persistent influence.
Overall regression models above indicate that companies that are more advanced in terms of
CSM, i.e. exhibit greater CSM intent, are less frequently subject to incidents that damage
legitimacy. Furthermore, they show sector and country effects that are very similar to those
detected in the previous models. Hence their interpretation will not be iterated here.
Submodel – External barriers
The following regression models examine the effect of three external barriers, namely lack of
interest from customer, regulation and opposition or lack of interest from customers on both
CSM success and CSM intent. The high number of invalid regression models is most likely
126
due to constraints in the degrees of freedom, since the number of cases that could be drawn on
for the models was limited due to a great share of no-responses (see Chart 8-14 and Chart
8-15).
T model OG model UT model
Number of obs
F
Prob > F
R-squared
Adj R-squared
Root MSE
76
3.54
0.0341
0.0884
0.0634
.80991
Not valid Not valid
Coefficients
Customers
Investors
Constant
.4481358
-.4471797
3.531549
Regression Table 8-5: CSM intent – external barriers (Reduced submodels)
The effect of regulation (e.g. inadequate subsidies, low environmental/social standards) as a
barrier is omitted from both models due to lack of statistical significance. The valid T model
shows a negative effect of opposition from investors, which can be interpreted in two ways:
1. The financial community and capital markets in particular constitute a significant barrier
to greater CSM intent, i.e. they negatively affect companies’ willingness to incorporate
social and environmental criteria into business strategies and operations today as also
concluded in section 8.2.4 Financial community. This interpretation is not contradictory to
the positive effect of capital markets’ SD role on CSM intent because that variables refers
to a future situation.
2. Laggard companies with less CSM intent consider investors a barrier to CSM because
they are largely unaware of recent trends pointing to more proactive involvement of
capital markets in the future.
The positive correlation coefficient for the lack of interest from customers in Regression
Table 8-5 suggests that sustainability leaders with greater CSM intent tend to criticize the
environmental ignorance of their customers more often than laggards do.
T model OG model UT model
Number of obs
F
Prob > F
R-squared
Adj R-squared
Root MSE
Not valid 52
3.92
0.0532
0.0727
0.0542
.77105
Not valid
Coefficients
Investors
Constant
-.4774436
3.263158
Regression Table 8-6: CSM success – external barriers (Reduced submodels)
The negative influence of investors on CSM success most likely occurs in extraction and
production projects whose substantial upfront costs require joint ventures: As interviewees
repeatedly reported, laggard companies, particularly the state-owned oil firms of host
governments in developing countries, impinge on the overall social and environmental
characteristics of projects.
Cluster model – External stakeholders
The following cluster model only includes a subset of the variables that were statistically
significant in the three submodels above. This suggests that the effects of the omitted
variables have been picked up by the variables that remain in the cluster model.
127
T model OG model UT model
Number of
obs
F
Prob > F
R-squared
Adj R-
squared
Root MSE
101
10.95
0.0000
0.3133
0.2847
.71667
111
13.92
0.0000
0.2807
0.2605
.70042
54
7.26
0.0017
0.2217
0.1912
.75574
Coefficients
Import.
legitimacy
Conflicts
authorities
North America
Develop. Econ.
Constant
.3413822
-.3628666
-.5478015
-.5300627
2.656458
Import.
legitimacy
Capital
markets
North America
Constant
.3064229
.2639094
-
.4122189
1.584652
Import.
legitimacy
Nordic
Constant
.2776573
.7382502
2.323933
Regression Table 8-7: CSM intent – all variables relating to influence from external stakeholders
(Reduced cluster models)
The models indicate that OG and UT companies that attach greater importance to legitimacy
also report greater CSM intent. This finding is very plausible since it points – as both
qualitative and quantitative evidence presented above – to the importance of the informal
license to operate and grow in driving CSM. It is particularly meaningful in terms of the UT
sector, since it reveals that governments – despite having been identified as the most
important (even if not the most demanding) external pressure group – do not drive CSM
intent. This points to a void of strategic guidance from regulators and legislators that is filled
by public pressure groups. Furthermore, all three models show statistically significant region
effects that support qualitative and quantitative findings presented above. They could point to
variation in both internal (e.g. corporate cultures) and external factors (e.g. societal pressure)
across countries. The T model additionally features three statistically significant independent
variables: The negative coefficient for conflicts with authorities suggests that companies that
report conflicts with authorities have less CSM intent.
The sector-specific models differ in more than the demographic variables included: In contrast
to the UT model, the OG model additionally indicates a positive effect of proactive capital
markets in the future on CSM intent. This does not necessarily mean that future pressure from
capital markets will be stronger in the OG sector. Greater interest from the financial sector in
the CO2 portfolios of companies concerns UT companies at least as much as OG companies.
However, the insignificant effect of capital markets in the UT data clearly indicates managers’
lower levels of awareness, presumably because the interest of socially responsible and
increasingly “mainstream” shareholders has concentrated on the OG sector.
8.2.7 Discussion
Importance of external stakeholders and the principle of legitimacy
According to the principle of legitimacy, society can amend or revoke companies’ charter to
exist (i.e. license to operate) if they do not use their power in a way that it considers
responsible (Davis, 1973, p. 314). As the present study reveals, in line with others (e.g.
Andersson et al., 2000; Buysse et al., 2003; Henriques et al., 1996), these possible revocations
amendments constitute an important driver of CSM.
Both qualitative and quantitative methods show that stakeholders’ demands for CSM and the
importance of informal legitimacy are positively linked to companies’ approach to CSM
(strategic disposition, structure and success), issue significance (as already illustrated in
section 8.1 Issues) and proactive managers’ attitudes. This also means that:
128
1. Stakeholder demands are issue-related.
2. Managers’ perceptions of stakeholder demands depends on their personal attitudes,
which again points to the importance of the individual manager and the need to
influence his or her knowledge and mindset through training and other management
tools.
3. Informal legitimacy granted by primarily non-regulatory stakeholders such as
customers, investors and NGOs as the main catalysts is a significant motivating factor
for CSM. Companies that are more aware and concerned with the financial premium
associated with that factor report greater issue significance and greater strategic
disposition to CSM.
The study additionally shows that external stakeholders differ in terms of the pressure they
exert. Their individual demands for CSM vary:
- Governments and regulators provide little long-term strategic guidance to companies.
Essentially they respond to public pressure because they rely on political success (Steger,
1998a, p. 589).
- Apart from a small niche segment, customers (consumers and corporate customers) play a
deterrent role due to their strong preference for cheap and convenient energy.
Nevertheless, some ad hoc reactions are possible (e.g. consumer protests and boycotts).
They are often triggered by NGO campaigns.
- The financial community’s typical focus on short-term profits is associated with
significant disinterest and resistance to CSM. However, several trends point to a less
deterrent and potentially promoting part in the future (e.g. increasing attention to climate
change risks): Inter alia, capital markets have shown significant ad hoc reactions to NGO
campaigns and consumer boycotts.
- Public pressure groups clearly play the role of catalysts, i.e. they are contextual
stakeholders (Steger, 2003, p. 102). Their demands for CSM are very high, sometimes
even naive. Their activities provide a context within which companies’ primary or
transactional stakeholders exercise a certain discretion by either supporting NGOs’
demands or not: In several cases NGO campaigns have been found to trigger an increase
in outside pressure on companies from governments and regulators, customers/consumers
and the financial community.
Obviously those individual demands for CSM exhibit sector- and region-specific variations
that will be expanded in more detail below. However, overall the demand for CSM from
external stakeholders and the corresponding outside pressure is rather low. This is also a
major explanatory factor for the rather incremental approach to CSM diagnosed in section 8.4
Companies.
Determinants of outside pressure
The study also sheds light on the determinants of outside pressure (see Figure 8-15). Overall
outside pressure on a specific issue results from individual stakeholders’ demands for CSM
and their respective power to amend or revoke companies’ current license to operate.
Stakeholders’ individual demand for CSM depends on three factors that were identified
through the qualitative analysis (see also section 8.1.3):
1. The visible issue (e.g. social conflicts due to a lack of community involvement in
developing countries, loss of biodiversity due to an oil spill) – see Figure 8-6 for the
determinants of issue visibility.
129
2. Organizational visibility (Bowen, 2000): Organizational visibility is determined through
company size, consumer name recognition, the location and profile of headquarters and
facilities, the corporate attitude and reputation (Is the company responsive or “stubborn”?)
and profitability. A large and very profitable company is a better and more legitimate
target than a firm that may have to lay off part of its workforce in its struggle to survive.
3. The local, regional or global limits of legitimacy: They are issue-specific and determine at
what level of issue visibility and organizational visibility stakeholders attempt to amend or
revoke companies’ current license to operate (Davis, 1973, p. 314). They are contingent
upon regulatory and non-regulatory standards. E.g. in terms of climate change, European
societies have adopted a more precautionary stance than the US.
Visible issue
Visible social or environmental effect
attributable to corporate activity
e.g. floods, storms, rising sea level
Issue significance
Current and future
Outside pressure
to minimize the effect
Local, regional or
global limits of legitimacy
• Societal standards, values
• Regulations
Organizational visibility
(Bowen 2000)
•Size
• Consumer name recognition
• Location of headquarters
• Approach to the issue: negation,
climate change strategy, pilot projects
to develop renewables
Demand for CSM
to resolve the issue
Power
to amend or revoke
current license to operate
Corporate activity
Regulators/
governments
Financial
community
Consumers/
customers
Public pressure
groups
Transactional stakeholders Contextual stakeholders
Potential impact on
Formal
license to
operate
Informal license to operate
Figure 8-15: Determinants of outside pressure
Different individual demand levels for CSM to resolve the issue under consideration result
from the fact that the visibility of the issue, of the company and the limits of legitimacy often
vary for the different pressure groups. In addition, the power to amend and revoke the current
license to operate moderates the outside pressure originating from an individual group of
stakeholders.
The power of regulators and governments is relatively high if they are able to revoke the
formal license to operate easily. This depends on the following factors:
- The location of the key social or environmental intake geographically: It is difficult for
governments in industrialized countries to influence corporate activities in developing
countries.
- The location of the key social or environmental intake within the value chain: Companies
are more opportune targets of policy instruments than consumers and households for
reasons of political acceptance.
130
- The certainty and the transparency of the issue: It is difficult to legitimate regulation if the
issue under consideration is neither directly attributable to the company nor clearly
measurable.
- The general bargaining power of governments as suppliers, i.e. the owners of the primary
energy source (e.g. oil deposits). In both sectors this kind of bargaining power is not
overwhelmingly high. If one compares it between the two sectors, it is greater in the OG
sector, in which companies face high switching and opportunity costs if an upstream
permit is revoked or lost to a competitor. However, it should be noted that this potentially
strong position of governments is at least partly weakened by their reliance on steady oil
revenues, particularly in the case of developing countries. Governments’ bargaining power
over UT companies is lower, as firms are able to source from a variety of countries and
domestic deposits.
The power of the remaining stakeholders is high if they are able to revoke companies’
informal license to operate easily. The determinants of their bargaining power comprise:
- The vulnerability of reputation, brands and profits, particularly in the short term, which is
determined through organizational visibility and the level of downstream competition
within the sectors. It in turn is influenced by the existence of substitutes (Do competitors
and competitive products exist?) and the bargaining power of customers (How costly and
time-intensive is switching to a competitor, how large are the purchase volumes?).
Companies’ vulnerability can be exploited through various activities such as NGO or
media campaigns, consumer boycotts, occupation of facilities (as has occurred in
developing countries).
- The location of the key social or environmental intake does not matter. Boycotts and NGO
campaigns are largely independent of national borders through modern media and the
internet in particular.
- Certainty and transparency of the issue are also significant but less important factors.
However, sound argumentation and evidence is particularly important for NGOs to ensure
long-term credibility (e.g. Greenpeace’s Brent Spar campaign) (Steger et al., 1997).
The relative importance of the formal and informal license to operate depends on the balance
between regulatory and non-regulatory stakeholders’ power. Results about the minor
significance of governments and regulators as outside pressure groups in both sectors show
that companies’ formal license to operate is not challenged at the regulatory level today. In
comparison, the informal license to operate is more strongly threatened, even if only through
selective, ad hoc reactions from consumers and capital markets to NGO campaigns. The
author suggests that ongoing processes of globalization and liberalization could increase the
importance of the informal license to operate in the future, because (1) domestic regulation
will become more and more inadequate for targeting transnational, global corporate activities,
and (2) international regulations can only be introduced through time-intensive consensus-
building (e.g. Kyoto Protocol). Furthermore, some aspects of companies’ informal license to
operate will likely be “internalized” by regulators and thus incorporated into the formal
license to operate (e.g. the introduction of mandatory emission trading schemes after leading
companies had already established internal systems). This development mostly likely puts
leading companies at an advantage over laggards.
Nevertheless, it should be noted that there is no general first-mover advantage. The
determinants of companies’ license to operate as listed above have a connotation that strongly
emphasizes the minimization of downside potential by companies, i.e. the avoidance of
damage to the current informal license to operate through boycotts, NGO campaigns, etc. This
reflects that the upside potential of expanding the license to operate through more
131
environmentally benign products (e.g. biodiesel, electricity from renewable primary energy
sources) and operations is indeed marginal. Stakeholders are more likely to selectively punish
failures and weaknesses than to reward first movers.
Finally the author diagnoses two limitations in the methodology: Quantitative methods only
measured individual stakeholders’ demand for CSM, not their power. It is likely that a
combination of both measures as independent variables could significantly improve the
explanatory power of the principle of legitimacy. Furthermore, quantitative methods only
measured individual demands for CSM at an overall, not an issue-specific, level. Since
demands for CSM were found to be issue-specific, the explanatory power of the variables
most likely suffered.
Contingency perspective on the role of outside pressure
The study’s contingency approach provided several sector- and region-specific findings.
Cross-sector variation in the demands of external stakeholders can be attributed to differences
in the way these groups perceive the visible issue (issue visibility), the companies
(organizational visibility) and the respective limits of legitimacy.
The UT sector is driven by the motivation to retain and expand its formal license to operate.
Its main issue can be “conveniently” regulated, since it is associated with the production and
not – as in the OG sector – with the use phase of its product. However, it is important to note
that governments’ demand for CSM does not influence companies’ CSM intent, despite the
UT sector’s focus on the formal license to operate, i.e. the relatively great bargaining power of
governments and regulators. This clearly points to a lack of strategic guidance and long-term
outside pressure on their part. Advanced statistics have shown that the informal license to
operate also represents a relevant driver of CSM in the sector. This may reflect growing
awareness of brand value and reputation in Europe’s liberalizing energy markets, in which
capital markets are also expected to exert more outside pressure on companies in terms of
climate change risk.
The OG sector features a greater importance of the informal license to operate due to greater
organizational visibility, greater downstream competition (e.g. lower switching costs of
customers, liberalized markets), and the fact that their main issues are difficult to regulate due
to their location (geographically and within the value chain). They are more strongly driven
by NGOs and capital markets, which compensates for a relative lack of regulatory pressure.
Consumers can exert significant ad hoc pressure through boycotts but overall their role is less
proactive than in the UT sector.
There are no significant cross-disciplinary variations in the perceptions of external
stakeholders’ demand for CSM, which gives additional assurance on the results presented in
the previous two paragraphs. However, both qualitative and quantitative data reveal some
notable differences between several regions. E.g. the US and developing countries have higher
limits of legitimacy: The US in particular is less concerned with climate change mainly
because of certain societal values (e.g. less risk averse); developing countries largely ignore
social and environmental risks and are mainly interested in steady revenues.
8.3 Managers
In the present section the author aims to shed light on the importance of managers as internal
determinants of CSM, i.e. the significance of managerial discretion as a motivating principle
(Wood, 1991). The section features an analysis of managers’ mindset, experience and
knowledge and how they influence managers’ awareness and perception of issues, external
pressure groups, the importance of legitimacy and their companies’ approach to CSM.
132
8.3.1 Qualitative analysis and basic statistics
It is difficult to draw any serious general sector-specific conclusions on managers’ attitudes
and knowledge based on the interviews because the data are largely case-specific. The
following quotes are indicative of relatively high levels of awareness and expertise which are
not representative of the entire sample, but tend to be found more often among respondents
from the OG sector:
In the short term, sustainability (e.g. a strong environmental policy) costs money.
Hence, one trades off short-term and possible long-term costs (i.e. avoiding
problems and bad press associated with them). Thus sustainability is about
gaining long-term competitive advantage (OG1, supply chain).
The main elements of corporate sustainability are environmental and safety risks.
It is difficult to move away from efficiency and investor return. Opportunities are
more elusive, but we would like to become better at identifying them (OG6,
E&P).
As a sustainability officer from a leading OG company also noted, it is unlikely that general
managers fully understand the dynamics of today’s energy systems which are driven by long-
term depletion, short-term supply risks and climate change.48 Qualitative data suggest that
individual resistance to corporate sustainability management appears to be contingent on
several factors:
1. Level of process orientation: More process-oriented managers (e.g. in the UT sector and
the OG downstream business units: gas & power, refining and marketing) have a tendency
to “sweat” their assets (Berg & Moors, 2002).
2. Level of competition: Managers in the downstream OG business face a more competitive
environment (lower margins in a typical commodity business) than their counterparts in
the upstream business. In the UT sector, market liberalization has also led to rising cost
pressure (through inefficiencies, overcapacities) and investment risk (customers can
switch suppliers more easily).
3. Issue visibility: Managers in the UT sector and OG downstream business units operate
mainly in developed countries (power plants and refineries), in which social issues are
negligible and environmental standards are high.
4. Management level: Lower management levels are reported to exhibit greater resistance.
The greatest challenge is the very bottom, “first line” management on the site due
to mindset – people are ten years or less away from retirement – and lack of
education (OG4, SO).
5. Business functions: Some functions (e.g. finance) resist more strongly than others (e.g.
R&D), which reflects their different roles and responsibilities. Finance officers have to
deal with “hard-nosed” short-term profit oriented financial analysts; R&D managers are
paid to have a more long-term perspective on the business. However, interviewees also
reported that an individual’s strong attitude is able to “dominate” those generic levels of
resistance.
48 A recent Shell scenario concludes that price increases due to internalized emission costs would not be a
sufficient driver for a fuel change, since it would only bring electricity prices in 2010 up to 1980s level. As far as
this goes, the depletion effect and geopolitics as additional drivers may eventually trigger a possibly unsmooth
transition period (Shell International Ltd, 2001, p. 40).
133
It is difficult to generalize on a more or less proactive role of business functions. It
often depends more on the individual, not on the function: In our case, the CFO
was one of the biggest supporters (OG7, SO).
What matters a lot in terms of decision-making is: Who is in the room (OG2,
GM).
6. Company-specific factors such as corporate culture:
Our company has an open corporate culture, which is based on its core values and
encourages proactive behavior: For example, a personal assistant’s initiative led to
the introduction of a waste separation and recycling scheme at our corporate
headquarters (OG2, SO).
It is not possible to draw any sector-specific conclusions on qualitative data only. This void is
filled through the quantitative data, which suggest that mindset and knowledge generate more
individual resistance in the UT than in the OG sector: UT sustainability officers consider
mindset and lack of knowledge more important than OG sustainability officers (see Chart
8-16 and Chart 8-17), even if this difference is not statistically significant.
Managers' lack of
knowledge
15%
Regulation
12%
Organization culture
15%
Opposition or lack of
interest from
investors
10%
Lack of interest from
customers
10%
Other
4% Managers' mindset
19%
Absence of
appropriate tools
15%
Managers' lack of
knowledge
22%
Regulation
8%
Organization culture
14%
Opposition or lack of
interest from
investors
11%
Lack of interest from
customers
11%
Other
0%
Absence of
appropriate tools
11%
Managers' mindset
23%
Chart 8-16: Barriers (Sustainability officers – OG) Chart 8-17: Barriers (Sustainability officers – UT)
In contrast, UT general managers less frequently consider managers’ mindset and lack of
knowledge and expertise an important barrier to CSM (see Chart 8-18 and Chart 8-19). The
difference in terms of managers’ mindset is statistically significant. This suggests that UT
general managers are largely unaware of their own shortcomings and constitute a more
important barrier in their sector. The only statistically significant cross-disciplinary difference
additionally supports this conclusion: UT sustainability officers more frequently report
managers’ mindset as barriers than “their” general managers do. Their assessment should be
more “trustworthy” because they are more likely to have a better overview of the strength of
resistance within their company due to their role as advisors and change agents.
134
Managers' mindset
12%
Managers' lack of
knowledge/expertise
11%
Absence of appropriate
tools and processes
8%
Organizational culture
14%
Opposition or lack of
interest from investors
7%
Lack of interest from
customers
8%
Other
2%
NR
34%
Regulation (e.g.
subsidies & low
environmental/social
standards)
4%
Other
4%
NR
39%
Managers' lack of
knowledge/expertise
5%
Absence of appropriate
tools and processes
8%
Organizational culture
11%
Opposition or lack of
interest from investors
5%
Lack of interest from
customers
14%
Regulation (e.g.
subsidies & low
environmental/social
standards)
5%
Managers'
mindset
9%
Chart 8-18: Barriers (General managers – OG) Chart 8-19: Barriers (General managers – UT)
Initial evidence hints at greater individual resistance and less proactive attitudes of managers
in the UT sector. The greater proportion of top management commitment and leadership (see
Chart 8-20 and Chart 8-21) as a promoting factor of CSM in the UT sector only contradicts
this finding at first sight. If one takes into account the relatively prominent role of top
managers (such as John Browne of BP and – until recently – Philip Watts of Shell) in the OG
sector, it is more likely that the greater proportion in the UT sector indicates less
organizational alignment (which is diagnosed more comprehensively in section 8.4.4
Implementation) and hence greater reliance on top management support.
Process and product
innovations
17%
Corporate values
16%
Dialogue with
stakeholders
6%
New business
opportunities
16%
Other
0% Public pressure
8%
Open organizational
culture
0%
Top management
commitment and
leadership
19%
Autonomy and
internal scope of SO
2%
Demands of
individual
shareholders and
institutional investors
2% Increased
competition on
environmental and
social issues in
industry
14%
New business
opportunities
13%
Top management
commitment and
leadership
25%
Autonomy and
internal scope
of SO
0%
Corporate values
5%
Other
0% Public pressure
15%
Increased
competition on
environmental and
social issues in
industry
8%
Process and product
innovations
5%
Dialogue with
stakeholders
8%
Demans from
individual
shareholders and
institutional investors
21%
Open
organizational
culture
0%
Chart 8-20: Promoting factors (Sustainability
officers – OG)
Chart 8-21: Promoting factors (Sustainability
officer – UT)
The most conclusive and strongest evidence for generally more reactive attitudes of managers
in the UT sector is generated through respondents’ different levels of agreement with
statements that describe the role of business in society; these are the BBB attitude (“The
business of business is business”), the WW attitude (“CSM only if there are win-win
situations”), the CA attitude (“CSM to gain long-term competitive advantage”) and the UCA
attitude (“CSM despite unproven long-term competitive advantage”).
135
0
1
2
3
4
5
BBB attitude WW attitude CA attitude UCA attitude
Strength of attitude
1 = "Agree not at all" to 5 = "Agree very much"
UT General managers
OG General managers
BBB attitude
Group Mean Std. Dev. Freq.
UT GM 2.06 0.96 54
OG GM 1.84 0.91 118
Total 1.91 0.93 172
WW attitude
Group Mean Std. Dev. Freq.
UT GM 3.31 1.22 55
OG GM 3.58 1.30 119
Total 3.49 1.28 174
CA attitude
Group Mean Std. Dev. Freq.
UT GM 3.84 0.76 55
OG GM 4.34 0.81 119
Total 4.18 0.82 174
UCA attitude
Group Mean Std. Dev. Freq.
UT GM 3.18 1.04 55
OG GM 3.48 1.01 119
Total 3.39 1.02 174
Chart 8-22: Personal attitudes towards corporate sustainability (General managers)
Chart 8-22 shows that the CA attitude is the strongest, followed by the WW, UCA and BBB
attitude in both sectors. The chart also illustrates that proactive attitudes (WW, CA and UCA)
are stronger, and the reactive BBB attitude weaker, in the OG sector than in the UT sector.
Most importantly the differences in the CA and UCA are statistically significant.
This more proactive stance of OG respondents can be attributed to greater issue significance
(and awareness), greater organizational visibility and outside pressure (see sections 8.1 Issues
and 8.2 External stakeholders, industry and partnerships) and fewer internal deficits such as
corporate cultures (see section 8.4 Companies).
8.3.2 Advanced statistics
8.3.2.1 Correlations
Figure 8-16 to Figure 8-19 show the correlations detected between the four attitudes and other
variables respectively. They will be discussed in more detail in the following paragraphs.
136
Managers
Issues Companies
Damage to legitimacy
External stakeholders
Governments
PPPs
Industry
NGOs
Importance of legitimacy
CSM intent
SD importance
Strategic disposition
CSM success
OG
UT
+_
T
WW
Social issues
Consumers
Structure
Cross-disciplinary potential
Capital markets
UCA
SD familiarity
Env. issues
Cross-disciplinary collaboration
CA
BBB
Figure 8-16: Correlations – BBB (“business of business is business”) attitude
Managers
Issues Companies
Capital markets
Damage to legitimacy
External stakeholders
Governments
PPPs
Industry
NGOs
CSM intent
SD importance
Strategic disposition
CSM success
OG
UT
+_
T
BBB
Social issues
Consumers
SD familiarity
Env. issues
Structure
Cross-disciplinary potential
Importance of legitimacy
UCA
Cross-disciplinary collaboration
CA
WW
Figure 8-17: Correlations – WW (”CSM if there are win-win situations”) attitude
137
Managers
Issues Companies
External stakeholders
Governments
Industry
NGOs
Strategic disposition
OG
UT
+_
T
Consumers
Structure
Capital markets
Damage to legitimacy
PPPs
Importance of legitimacy
CSM intent
SD importance
CSM success
BBB
WW
Social issues
SD familiarity
Env. issues
Cross-functional potential
Cross-functional collaboration
CA
UCA
Figure 8-18: Correlations – CA (“CSM to gain long-term competitive advantage”) attitude
Managers
Issues Companies
Damage to legitimacy
External stakeholders
Governments
Industry
NGOs
Importance of legitimacy
Strategic disposition
CSM success
OG
UT
+_
T
WW
Consumers
SD familiarity
Structure
CA
Capital markets
PPPs
CSM intent
SD importance
BBB
UCA
Social issues
Env. issues
Cross-disciplinary potential
Cross-disciplinary collaboration
Figure 8-19: Correlations – UCA (“CSM despite unproven competitive advantage”) attitude
138
Issues
The figures show that more proactive managers consider social and environmental issues
more significant, more reactive respondents consider them less significant. As already
discussed above, this is because managers with more proactive attitudes have different beliefs
and concepts, more proactive cognitive maps, and a more comprehensive understanding of
cause-effect relationships than respondents with a more reactive mindset (Dutton et al., 1983,
p. 311).
Managers’ attitudes
As one would expect, results show that the two more proactive attitudes (CA “CSM to gain
competitive advantage”, UCA “CSM despite unproven competitive advantage”) negatively
correlate with the reactive BBB (Business of business is business) attitude. The fact that the
WW attitude is only positively associated with the CA attitude provides some evidence that
the former may be slightly on the proactive rather than the reactive side of the continuum
provided by the four attitudes.
SD roles of external stakeholders, industry and public-private partnerships
Results reveal that proactive respondents have more positive expectations of the future SD
role of capital markets, and consider the current SD role of NGOs more proactive.49 This
suggests that proactive managers are more aware of current and possible future demands from
external pressure groups and/or are biased in the sense that they wish for more proactive
engagement from capital markets in the future (for a more detailed and sector-specific
discussion refer to section 8.2.4 Financial community and section 8.2.2 Public pressure
groups).
Moreover, proactive attitudes are linked to a more proactive SD role of industry and public-
private partnerships, which indicates that proactive managers are (1) more optimistic about the
SD role of the sector as a whole and of PPPs due to their greater awareness of current sector-
specific initiatives and best practices; and/or (2) positively biased (“wishful thinking”) due to
their greater awareness of issues that remain unresolved despite current activities in the sector
(see section 8.2.5 Industry and partnerships).
Legitimacy
Proactive managers also exhibit greater sensitivity to companies’ legitimacy (see also section
8.2.6.1 The role of legitimacy). In contrast to the three more proactive attitudes, the BBB
attitude does not exhibit a statistically significant link with either the importance of or the
damage to legitimacy. Nevertheless, the sign of the coefficients also indicates that reactive
respondents consider legitimacy less important, and report less damage to it.
Overall these results indicate that more proactive managers – due to greater knowledge,
expertise and more “activist” personal values – more strongly recognize the financial stakes
associated with informal legitimacy.
Strategic disposition
Overall data exhibit a clear positive link between proactive managers’ attitudes and greater
strategic disposition. The author suggests that the detected link between personal attitudes and
strategic disposition may be synergistic: Proactive managers drive corporate sustainability
within the organization (from the bottom up) – as postulated by the motivating principle of
managerial discretion (Wood, 1991). Conversely, companies’ more accentuated approach to
49 The correlations between the CA attitude and NGOs’ SD role is statistically significant at a just above 5%
level in the total, at a just above 10% level in the OG sample.
139
CSM may attract more proactive employees and strengthen proactive attitudes of their
employees (from the top down) (Anonymous, 2004a, p. 2; Dechant et al., 1994, p. 8)
A strong BBB attitude is negatively related to SD familiarity, SD importance and CSM intent
in both sectors. The correlation with SD familiarity is statistically significant. The WW does
not exhibit any statistically significant association with strategic disposition in either of the
two sectors. This results corresponds with conclusions drawn already in previous sections that
both proactive and reactive respondents are equally strongly related to the attitude described.50
The CA attitude is most clearly linked to strategic disposition: It is positively related to SD
familiarity, CSM intent (both at a 5% significance level) and SD importance (at a 10%
significance level) in the OG sector, in the UT sector only to SD importance. The UT
coefficients for the remaining variables SD familiarity and CSM intent are also positive but
lack statistical significance, which could be caused by the relatively smaller sample size
compared to the OG sector. However, the fact that the correlation between the CA attitude and
CSM intent are roughly twice as strong in the OG as in the UT sample provides reasonable
evidence for a more strongly developed proactive attitude.
Correlations detected between the UCA attitude and strategic disposition additionally support
this conclusion: Whereas the associations between the attitude and both SD importance and
CSM intent are positive and statistically significant in the OG sample, UT data do not yield
any statistically significant results.
Overall attitudes are more strongly linked to strategic disposition in the OG sector. This fits
with evidence presented above on OG managers’ greater issue awareness and concerns about
their companies’ legitimacy. However, as the author will also demonstrate in section 8.4
Companies, OG managers are not only more proactive because of stronger external drivers:
The more advanced approach of OG companies to the implementation of CSM is also a
significant determining factor.
Structure
Data also point to a significant relationship between managers’ proactive attitudes and both
closer cross-disciplinary collaboration and greater cross-disciplinary potential. Overall cross-
sector differences in the strengths and statistical significance of coefficients are minor and will
not be discussed in detail.
Coefficients describing the association between the BBB attitude and both cross-disciplinary
collaboration and potential are negative in the three samples. One of the six correlations,
namely the one with cross-disciplinary collaboration in the total sample is statistically
significant.
The WW attitude is positively related to closer collaboration, correlations being statistically
significant in the total and UT samples. This result clearly indicates that consultation with and
coaching through sustainability experts raises managers’ awareness of the win-win potential
associated with CSM. The CA and UCA attitude are positively associated with both cross-
disciplinary collaboration and potential.
50 Thus existing opposed relationships cancel each other out. In some cases this overlap causes notable
discontinuity in the correlation coefficients across all four attitudes, particularly in the UT sector. E.g. the
correlation coefficients between the four attitudes and NGOs’ contribution to sustainable development are as
follows (from the least to the most proactive attitude): 0.0887 (business of business is business), -0.1134 (win-
win), 0.1498 (competitive advantage) and 0.1237 (unproven competitive advantage). Correlation coefficients
with consumers’ and governments’ roles behave in a similar way.
140
One can conclude that correlations establish a clear link between managers’ proactive
attitudes and a higher level of implementation of CSM. This is to be expected, since more
intensive cross-disciplinary collaboration in any form (e.g. direct individual consultation with
sustainability experts, business teams) increases managers’ awareness of issues and external
pressure groups, changes their cognitive maps and thus contributes to more proactive attitudes
in the long rather than short term. The positive link between proactive attitudes and cross-
disciplinary potential also indicates that proactive managers are more inclined to collaborate
and consider cross-disciplinary collaboration more worthwhile.
CSM success
Finally, proactive attitudes are positively associated with CSM success. This link is visible in
the statistically significant positive correlation between the CA attitude and CSM success.
Possible associations with the remaining attitudes are most likely confounded by social
desirability bias which affected the UCA attitude in particular51 and little discriminatory
potential of the WW statement (both proactive and reactive respondents relate to it equally).
Overall the attitude-CSM success relationship points to the meaningfulness of managerial
discretion: It indicates that a significant potential of CSM is exploited more effectively by
proactive managers (Wood, 1991, p. 696).
Conclusion
In conclusion, the findings strongly suggest that proactive managers are more familiar with
existing issues and current and future demands from external stakeholders. They also report
greater strategic disposition and more advanced implementation of CSM in their companies.
Correlation coefficients do not differ substantially between the sectors. However, although
results across both sectors are not entirely comparable due to the smaller UT sample, overall
data indicate that proactive attitudes are more strongly developed in the OG sector.
8.3.2.2 Regressions
This section features regression models that examine the effect of the four attitudes (BBB,
WW, CA and UCA) on CSM intent and success, respectively (see Regression Table 8-8). The
author notes that the effect of “managers’ mindset” and “lack of knowledge and expertise” as
barriers to CSM will be included in regression analysis in section 8.4.2.2.2, because they fit
those models better in terms of their operationalization (all variables in those models are
operationalized as barriers to CSM) and measurement (all variables are nominal).
Regression models support both qualitative and quantitative evidence presented above on the
positive link between manages’ proactive attitudes and CSM: They show significant positive
effects of the CA attitude on CSM intent and CSM success.
The fact that the effects of the WW attitude and UCA attitude are not statistically significant
is not surprising in the light of the correlations results presented earlier, which showed that
social desirability bias and, in the case of the WW attitude, little discriminatory potential,
confounded possible associations. The influence of the BBB attitude is weak and not
statistically significant in any of the models, also presumably to due social desirability bias.
51 A more detailed examination of the correlation coefficients reveals an unexpected discontinuity in both
samples, similar to that visible in the coefficients of the WW attitude. In many cases, the coefficients indicate a
less proactive attitude than the coefficients of the CA attitude, which indicates a strong social desirability bias for
this attitude. E.g. In the OG sample, the correlation coefficients between the four attitudes and the importance of
social issues are as follows (from the least to the most proactive attitude): -0.0538 (business of business is
business), 0.0249 (win-win), 0.2564 (competitive advantage) and 0.1443 (unproven competitive advantage). A
similar pattern is observable for correlation coefficients with the role of public-private partnerships. The same
applies to the UT sample.
141
T model OG model UT model
Number of obs
F
Prob > F
R-squared
Adj R-squared
Root MSE
165
5.18
0.0000
0.2518
0.2032
.75002
112
6.13
0.0000
0.3510
0.2937
.68733
53
0.93
0.5083
0.1631
-0.0120
.85097
Independent variables Coefficients
BBB attitude: Business of business is business
WW attitude: CSM only in win-win situations
CA attitude: CSM to gain competitive advantage
UCA attitude: CSM despite unproven competitive
advantage
UT sector
Nordic
North America
Latin Europe
Developing economies
Other regions
Constant
-.0021984
.044665
.3394197
.021804
-.3536869
.0903376
-.5552745
.0178057
-.2761702
.181467
2.382804
.0537984
.0290978
.4166961
.0387211
-.4197257
-.7551018
-.2288685
-.47343
-.0890881
2.156873
-.0233499
.0357694
.1763691
.0068478
.7463102
-.231956
.4355066
-.4212515
.3858773
2.627776
Regression Table 8-8: CSM intent – managers’ personal attitudes (Expanded cluster models)
It should be noted that the effect of the CA attitude is only significant in one of the sector-
specific models. However, the size of the corresponding coefficient in the UT models also
provides some evidence for the existence of this effect in the UT sector, which may not be
statistically significant because of the limited sample size and/or because the underlying
attitude is less developed and so dominated by corporate or sector-specific factors (i.e. lack of
open corporate cultures, current or former state ownership, strongly regulated business
environment).
T model OG model UT model
Number of obs
F
Prob > F
R-squared
Adj R-squared
Root MSE
164
1.52
0.1369
0.0904
0.0309
.74957
110
1.71
0.0973
0.1331
0.0551
.75332
54
0.36
0.9479
0.0686
-0.1219
.75963
Independent variables Coefficients
BBB attitude: Business of business is business
WW attitude: CSM only in win-win situations
CA attitude: CSM to gain competitive advantage
UCA attitude: CSM despite unproven competitive
advantage
UT sector
Nordic
North America
Latin Europe
Developing economies
Other regions
Constant
.0699032
.0076743
.1726002
.0162969
-.3094356
-.19871
-.3799544
-.1066371
-.2649101
-.2171363
2.78972
.0924386
-.0374301
.203433
-.0160763
-.5040395
-.6086083
-.3413017
-.4774114
-.4391145
3.085305
.0801434
.0683858
.0759947
.0682392
.0840831
.2749738
.1920724
-.3097819
-.2373941
2.367402
Regression Table 8-9: CSM success – managers’ personal attitudes (Expanded cluster models)
Finally the effects of several dummy variables are statistically significant and indicate that
sector and region effects (North America and Nordic) moderate the relationship between the
dependent and independent variables. The negative dummy for the UT sector points to lower
levels of CSM intent and CSM success in UT companies, which can be attributed to both
external factors discussed above and internal barriers that will be discussed in more detail in
section 8.4 Companies. Most region effects have also been detected in previous models. They
can be attributed to differences in issue significance, outside pressure but also internal
company-related deficits (e.g. inadequate corporate cultures).
142
8.3.3 Discussion
Importance of managers’ attitudes and the principle of managerial discretion
Qualitative and quantitative evidence support the hypothesis underlying the study’s
conceptual framework about the significance of managerial discretion to CSM. Proactive
attitudes have been linked to greater issue significance, greater awareness of demands from
stakeholders (namely capital markets and NGOs) and greater importance of legitimacy.
Moreover they have been found to be related to more advanced approaches to CSM, which is
in parallel with findings from several authors (Andersson et al., 2000, p. 565; Bansal et al.,
2000, p. 731; Bichta, 2003, p. 17; Sturdivant et al., 1977; Winn, 1995, p. 151).
Quantitative data on managers’ attitudes was inter alia collected through a set of four
statements, to which respondents were asked to indicate their level of agreement or
disagreement. Results pointed to surprisingly proactive attitudes: Respondents showed the
strongest adherence to a statement that promoted CSM as a means of gaining long-term
advantage. This calls for a clear word of caution, since the data are obviously affected by
social desirability bias:
- As the author will illustrate in section 8.4.3 Economic rationale in particular, precisely the
inherently uncertain nature of long-term competitive advantage, i.e. lack of easily visible
short-term competitive advantage, constitutes one of the key barriers to CSM.
- Quantitative evidence presented in section 8.4.1 Company-specific determinants reveals
managers’ mindset as a significant internal barrier to CSM in the UT sector.
- Furthermore, sections 8.4.4.2 Structure and 8.4.4.3 Corporate initiatives point to a rather
reactive managers’ mindset and low level of awareness.
Determinants of managers’ attitudes
The principle of managerial discretion states that managers “constantly make decisions and
choices, […] some minor and others of great consequences” (Wood, 1991, p. 699). As
outlined earlier, these decisions and actions are based on the meaning the managers’
environment and stimuli have for them (Bortz et al., 2002, p. 304) – stimuli such as a visible
issue, outside pressure from stakeholders regarding that issue, incentives or disincentives from
within their companies that provide managers with a set of choices.
For example, if managers perceive an issue as significant, they will respond in a certain way
(e.g. gathering additional information, which may change cognitive maps and increase the
willingness to integrate the issue into decision-making); if they consider it insignificant, they
will respond differently. This link is reflected in the results of the study’s advanced statistics:
More proactive managers not only perceive the stimuli (e.g. issue, outside pressure) as greater
but also report greater strategic disposition to CSM, more advanced implementation and
greater CSM success.
Mainly qualitative data point to several factors that moderate – alongside the industry sector –
the effect of external and internal (company-specific) stimuli. They comprise:
- Management level and age: Both factors are likely to interact so that older top managers
are unlikely to display the same attitude as older managers at the bottom level: Interviews
pointed to reactive attitudes of older managers at the bottom level. Simerly (2003, p. 357)
found a positive link between top managers’ tenure (linked with age) and corporate social
performance, which he attributed to external pressure (in the chemicals and petroleum
industry) that had sensitized top managers over time. Thus the discriminating factors
appear to be knowledge and expertise, as well as contact with external stakeholders.
143
- Business function (e.g. finance vs. R&D) and business unit (e.g. upstream vs.
downstream): Both factors determine contact with external stakeholders, the issues that
are visible, and other parameters that affect individuals’ decision-making: the level of
competition and corresponding cost and time pressure.
- Corporate culture and structure, e.g. level of cross-disciplinary collaboration between
sustainability experts and general managers (Winn, 1995, p. 148).
- Region of operation: The region of operation affects managers’ personal attitudes through
different issues and socio-political influences such as regulation and public pressure
(Winn, 1995, p. 148).
It is also likely that other typical demographic variables such as gender and nationality
determine respondents’ personal attitudes (e.g. Marz et al., 2003; Sturdivant et al., 1977) but
qualitative methods in this study did not reveal that.
It should be noted that the factors listed above have been identified through largely qualitative
methods. Thus quantitative data would be desirable to cross-validate the findings and obtain
more generalizable results. Unfortunately a profound quantitative analysis in this respect
would have gone far beyond the limits of this study.
Contingency perspective on managers’ attitudes
The study’s contingency perspective revealed several differences in managers’ attitudes,
which can be attributed to the determinants listed above.
- Overall UT respondents exhibit less proactive attitudes, obviously due to less visible
issues, less outside pressure and organizational visibility but also – as section 8.4.1
Company-specific determinants will show – due to internal deficits.
- The existence of internal deficits in the UT sector is also reflected in different perceptions
of the main barriers to CSM between general managers and sustainability officers. The
study reveals that general managers are largely unaware of their lack of knowledge and
expertise, and their reactive mindset.
- Finally regression analysis pointed to several significant region effects. They most likely
reflect differences in outside pressure (i.e. local issue visibility, limits of legitimacy and
organizational visibility), but also regional variation in the internal capabilities of
companies.
8.4 Companies
In the present section, the author will examine the fourth and final unit of analysis, namely
companies. The analysis includes:
- Internal and especially company-specific determinants of CSM and their relative
importance in comparison to external determinants (section 8.4.1 Company-specific
determinants).
- Companies’ strategic disposition to CSM, i.e. companies’ willingness to and approach to
responding to the challenge of recognized environmental and social issues (section 8.4.2
Strategic disposition) and an overall assessment of CSM determinants.
- The business case for sustainability and companies’ approaches to integrating
environmental and social issues into decision-making based on economic rationale
(section 8.4.3 Economic rationale).
- The implementation of CSM, i.e. management tools and structures used to ensure
organizational alignment, and initiatives carried out to resolve environmental issues
(section 8.4.4 Implementation).
144
- The outcome of CSM and an overall assessment of its determinants (section 8.4.5
Outcome).
8.4.1 Company-specific determinants
In the present section, the author aims to round out evidence presented so far on the
determinants of CSM that relate to the principles of public responsibility (issues), legitimacy
(stakeholders) and managerial discretion (manager’ mindsets and attitudes):
- He will discuss the influence of company-specific determinants of CSM (promoting
factors and barriers), which, based on the principle of corporate discretion, provide
managers with a company-specific set of choices and thus affect their individual decision-
making.
- Furthermore, he will assess the relative importance of corporate discretionary barriers
compared with managerial discretionary barriers, and the relative importance of these
internal barriers compared with external ones.
8.4.1.1 Qualitative analysis and basic statistics
Promoting factors
It is not possible to single out one or two salient key factors promoting CSM in the OG sector
– based on the relative frequencies displayed in Chart 8-23. In the UT sector top management
commitment and demand from shareholders/investors take a significant lead over the
remaining items (see Chart 8-24). The greater share of top management commitment is
unlikely to indicate stronger top management in the UT sector but is rather due to UT
respondents’ stronger preconceptions about the obvious key role of top managers.
The more significant promoting role of shareholders and investors – compared to the OG
sector – could partly reflect sampling error, since the financial community was found to have
a stronger role in the OG sector above (see section 8.2.4 Financial community). It could also
reflect a more externally motivated and thus more compliance-oriented approach to CSM in
the UT sector.
Additional circumstantial evidence supports this finding: First, UT data exhibit a greater share
of public pressure (8% in the OG, 15% in the UT sector) and a lower share of competition on
issues (14% in the OG, 8% in the UT sector). Second, overall UT sustainability officers tend
to report external promoting factors more often than their counterparts in the OG sector:
External factors (public pressure, competition on issues and demands from capital markets)
account for 44% in the UT, for 24% in the OG sample.
145
Process and product
innovations
17%
Corporate values
16%
Dialogue with
stakeholders
6%
New business
opportunities
16%
Other
0% Public pressure
8%
Open organizational
culture
0%
Top management
commitment and
leadership
19%
Autonomy and
internal scope of SO
2%
Demands of
individual
shareholders and
institutional investors
2% Increased
competition on
environmental and
social issues in
industry
14%
New business
opportunities
13%
Top management
commitment and
leadership
25%
Autonomy and
internal scope
of SO
0%
Corporate values
5%
Other
0% Public pressure
15%
Increased
competition on
environmental and
social issues in
industry
8%
Process and product
innovations
5%
Dialogue with
stakeholders
8%
Demans from
individual
shareholders and
institutional investors
21%
Open
organizational
culture
0%
Chart 8-23: Promoting factors (Sustainability
officers – OG)
Chart 8-24: Promoting factors (Sustainability
officer – UT)
It should be noted that cross-sector differences are not statistically significant due to the
limited sample sizes. Nevertheless, they hint at a more reactive approach to CSM in the UT
sector, which can be attributed to both external factors as described in the previous sections
8.1 Issues and 8.2 External stakeholders, industry and partnerships and most likely internal
deficits that will be discussed further below.
Two findings are surprising, although they should not be overinterpreted, given the limited
sample size:
- Open organizational culture takes a 0% share in both sectors. This result suggests that
proactive corporate cultures are lacking and is in line with both qualitative and
quantitative evidence collected from general managers (particularly regression results
presented in section 8.4.1.2).
- The autonomy and internal scope of the sustainability/environmental officer appears to be
an insignificant factor. This strongly suggests that other internal factors such as top
management commitment and corporate values are more crucial than the individual role of
the officer. In addition it may point to the fact that the individual rather than the role
matters.
As the charts above show, internal drivers are reported more frequently than external drivers,
if one assumes that business opportunities and stakeholder dialogue require both internal and
external factors to coincide: Internal drivers account for 76% and 56% in the OG and UT
sectors respectively.52 This points to rather little outside pressure on companies to engage in
CSM more strongly, a conclusion that would be in parallel with companies’ largely
incremental approach to CSM, which is described in more detail in sections 8.4.2 Strategic
disposition and 8.4.4.3 Corporate initiatives: Apparently incremental innovations are adequate
to satisfy the key demands from external stakeholders. Thus it is also very telling that UT
respondents more frequently report external drivers although – as the sections on Issues (8.1)
and External stakeholders, industry and partnerships (8.2) revealed – they are under less
outside pressure. This mismatch points to a rather compliance-oriented and reactive approach
in the UT sector, which could be attributed to lower issue and organizational visibility and a
lower importance of the informal license to operate, i.e. brand value and reputation.
52 If stakeholder dialogue and business opportunities are accounted for as internal drivers.
146
Barriers
If one additionally assumes that respondents tend to overstate external barriers to blame
outside factors rather than to acknowledge corporate or individual faults, both sustainability
officers’ and general managers’ perceptions of barriers to CSM are clearly meaningful:
Respondents from both sectors more often report internal barriers (managers’ mindset, lack of
knowledge, organizational culture and a lack of appropriate tools and processes) than external
barriers (regulation, opposition or lack of interest from investors and lack of interest from
customers).
Sustainability officers
Chart 8-25 and Chart 8-26 display the relative frequencies of barriers as indicated by
sustainability officers. Although χ2-tests do not detect any statistically significant cross-sector
difference due to the limited sample sizes, results are indicative insofar as internal barriers
account for 64% overall in the OG sector, composed of 34% relating to managerial
discretionary factors (mindset and lack of knowledge) and 30% to actual corporate
discretionary factors (organizational culture and lack of appropriate tools). In the UT sector
internal barriers take a higher 70% share that allots a 45% share to managerial discretionary
factors and 25% to corporate discretionary factors.
Managers' lack of
knowledge
15%
Regulation
12%
Organization culture
15%
Opposition or lack of
interest from
investors
10%
Lack of interest from
customers
10%
Other
4% Managers' mindset
19%
Absence of
appropriate tools
15%
Managers' lack of
knowledge
22%
Regulation
8%
Organization culture
14%
Opposition or lack of
interest from
investors
11%
Lack of interest from
customers
11%
Other
0%
Absence of
appropriate tools
11%
Managers' mindset
23%
Chart 8-25: Barriers (Sustainability officers – OG) Chart 8-26: Barriers (Sustainability officers – UT)
The importance of internal barriers is also confirmed by the sustainability officers interviewed
who criticize
- managers’ lack of awareness and knowledge, short time horizon and narrow mindset
based on technology and engineering (see section 8.3 Managers for more details), but also
- companies’ “exaggerated” focus on production targets and financial performance, lack of
management commitment, inadequate corporate cultures and structures, opposition from
line management, lack of tools and operationalization of CSM, i.e. a failure to explain
what CSM means for the individual business unit, function or employee.
Interviews also point to differences in corporate cultures, which can be attributed to variations
in corporate history, e.g. former state ownership (in the case of UT firms), internal capabilities
and structures (Kolk et al., 2001, p. 505) and national cultures (Skjaerseth et al., 2001). The
influence of national cultures is particularly visible in OG companies’ positions on climate
change: European companies first adopted a more proactive approach to climate changes,
147
which is still reflected in different connotations of their public statements (see e.g. Browne,
1997; Dahan, 2001).
Overall US-based companies tend to focus on technology and engineering, they
are too immature to understand soft issues (“cowboy mentality”) and political
risks (OG7, SO).
General managers
The greater share of internal barriers detected in the quantitative data from sustainability
officers is mirrored in corresponding perceptions of general managers (see Chart 8-27 and
Chart 8-28): Internal barriers account for 45% in the OG (compared to a 19% share of
external barriers) and 33% in the UT sector (compared to a 24% share of external barriers).
However the sector-specific proportions between managerial discretionary barriers and
corporate discretionary barriers somewhat invert those of sustainability officers: Barriers
relating to managerial discretionary factors are reported more often in the OG (23%) than in
the UT sector (14%). As outlined in section 8.3 Managers, this suggests that UT general
managers appear to be less aware of their shortcomings, namely their mindset and lack of
knowledge and expertise.
Managers' mindset
12%
Managers' lack of
knowledge/expertise
11%
Absence of appropriate
tools and processes
8%
Organizational culture
14%
Opposition or lack of
interest from investors
7%
Lack of interest from
customers
8%
Other
2%
NR
34%
Regulation (e.g.
subsidies & low
environmental/social
standards)
4%
Other
4%
NR
39%
Managers' lack of
knowledge/expertise
5%
Absence of appropriate
tools and processes
8%
Organizational culture
11%
Opposition or lack of
interest from investors
5%
Lack of interest from
customers
14%
Regulation (e.g.
subsidies & low
environmental/social
standards)
5%
Managers'
mindset
9%
Chart 8-27: Barriers (General managers – OG) Chart 8-28: Barriers (General managers –
UT)
It is difficult to reach a final conclusion on the relative importance of individual internal, i.e.
managerial discretionary and corporate discretionary barriers based on qualitative evidence
and the basic statistics. Particularly in the pie charts there are no proportions that would
consistently point to one or two more important factors.
However, if one categorizes them into soft factors (managers’ mindset, lack of knowledge and
corporate culture) and hard factors (lack of adequate processes and tools), the former clearly
dominate the latter in numbers. The greater importance of soft factors is not implausible,
because the environmental and social issues are very complex and difficult to capture and
resolve through mere “hard technicalities,” i.e. in extreme terms standardized tools and
processes, which the interviews with sustainability officers, in particular, also revealed.
It should be noted that several interviewees also consider a lack of tools and processes a
significant barrier to CSM. It is possible that this perception partly reflects managers’
148
adherence to “technical procedures and standardization” that remove potential uncertainties.
One can expect that portfolios of tools (described in more detail in section 8.4.4.1
Management tools) will be expanded and refined in the future, and thus will be increasingly
able to fulfill this desired purpose. However, the author argues that they will still not be able
to adequately capture the complexity that is inherent in environmental and social issues and
their integration into decision-making. Hence soft factors will remain important.
Conclusion
Descriptive statistics presented above point to several conclusions.
1. Internal drivers and barriers are more important to CSM than external drivers and barriers.
2. “Soft” internal barriers (e.g. culture, mindset) are more significant than hard internal
barriers (e.g. tools).
3. Managerial discretionary factors such as managers’ mindset and lack of knowledge and
expertise are at least as important barriers as corporate discretionary factors (corporate
culture and lack of appropriate tools).
Regression results presented in the next section are largely in line with these findings.
The UT sector appears to feature a more basic and compliance-based approach to CSM, which
is also characterized through greater internal deficits. This result is in parallel with findings
about
- less proactive managers (section 8.3 Managers)
- lower issue significance as diagnosed in section 8.1 Issues
- weaker demand from external stakeholders as described in section 8.2 External
stakeholders, industry and partnerships.
Furthermore, interviews suggest that internal deficits, such as slow, bureaucratic structures
and “closed” rather than open corporate cultures may be due to former or current state
ownership, and a greater importance of the formal rather than the informal license to operate.
8.4.1.2 Advanced statistics
The following regression models shed more light on the relative importance of internal
barriers (also in comparison to external barriers) in determining CSM intent and CSM
success.
CSM intent
Whereas the expanded UT and OG models in Regression Table 8-10 are either invalid or not
very meaningful, the T model shows that managers’ lack of knowledge and expertise and
organizational culture have, as internal barriers, a statistically significant and negative effect
on CSM intent.
Alongside “other barriers” whose effect will not be discussed in more detail, two external
barriers, namely the lack of interest from investors and customers, influence companies’ CSM
intent at a statistically significant level. Obviously the signs of their coefficients are identical
to those in the regression model that examined the effect of external barriers on CSM only
(see Regression Table 8-5 and Regression Table 8-6). They suggest that (1) sustainability
leaders with greater CSM intent rather than laggards apparently consider customer behavior a
significant deterring factor for CSM, and (2) investors constitute a significant barrier to
greater CSM intent, mainly in the view of laggard companies, presumably because they are
largely unaware of recent trends.
149
T model OG model UT model
Number of obs
F
Prob > F
R-squared
Adj R-squared
Root MSE
76
2.45
0.0084
0.3595
0.2125
.74265
53
1.95
0.0534
0.3944
0.1926
.7727
23
1.36
0.3190
0.6195
0.1628
.72308
Independent variables Coefficients
Managers’ mindset
Managers’ lack of knowledge and expertise
Lack of appropriate tools and processes
Corporate culture
Regulation (e.g. subsidies, low standards)
Opposition or lack of interest from investors
Lack of interest from customers
Other barriers
UT sector
Nordic
North America
Latin Europe
Developing economies
Other regions
Constant
.3023782
-.3394067
.0690948
-.4865689
.0537136
-.403575
.3824812
.5686706
-.6198976
.2548329
-.4919454
-.0767419
-.2027633
-.0053231
4.030497
.401663
-.3016703
-.0207926
-.3946652
-.0573084
-.2906728
.409117
.6293585
-.5662781
-1.110623
-.5610937
-.7262077
-.5128962
4.477314
.1706313
-.6624577
-.0104848
-.7700676
.2921082
-.9269448
.7717024
1.132074
.7935175
-.4918264
-1.263529
.4103157
(dropped)
3.359752
Regression Table 8-10: CSM intent – barriers (Expanded submodels)
In contrast to the expanded models above, the three reduced models in Regression Table 8-11
provide clear evidence for the relatively greater importance of internal over external barriers.
None of the external barriers attain significance at a 5% level when added.
T model OG model UT model
Number of obs
F
Prob > F
R-squared
Adj R-squared
Root MSE
76
11.14
0.0013
0.1308
0.1190
.78548
53
8.31
0.0058
0.1401
0.1232
.80522
23
3.56
0.0730
0.1451
0.1044
.74789
Coefficients
Corporate
culture
Constant
-.6015246
3.871795
Corporate
culture
Constant
-.6385714
3.96
Corporate
culture
Constant
-.6031746
3.714286
Regression Table 8-11: CSM intent – barriers (Reduced submodels)
Furthermore, results are congruent with conclusions presented in the previous section on the
key importance of soft rather than hard internal factors: They reveal statistically significant
effects for corporate cultures and lack of knowledge and expertise, whereas the lack of tools
and processes features coefficients that are close to zero and do not reach adequate
significance levels in any of the models.
CSM success
In contrast to the expanded models on CSM intent, those on CSM success feature probabilities
of a greater F-statistic that are somewhat unsatisfactory (see Regression Table A 15 in the
Appendix F – Regression models). Since the number of observations on which the models are
based is almost identical to the number in the models on CSM intent, the reason for the lower
probabilities is a lower ability of the independent variables to explain variation in the
dependent variable rather than constraints in the degrees of freedom. This could suggest that
respondents’ assessment of CSM success varies more greatly than that of CSM intent,
presumably since the former’s operationalization does not account for the three-
dimensionality (economic, environmental and social outcome) of the underlying concept.
The reduced models shown in Regression Table 8-12 below consistently reveal organizational
culture as a significant barrier to CSM success. Furthermore, as the T model indicates,
companies in the energy industry as a whole, which achieved greater CSM success, feel held
150
back through inadequate regulation.53 This could hint at two weak spots in the regulatory
environment of leading companies:
1. Lack of environmental, social and ethical (e.g. corruption) standards in developing
countries, which may put sustainability leaders at a competitive disadvantage in the short
term: E.g. obviously a comprehensive stakeholder dialogue requires a significant amount
of resources (in terms of time and money). However, interviewees also mention that they
improve the license to operate and grow in the long term. This obviously applies to OG
companies in particular because they are more active in developing countries.
2. Lack of market incentives for renewable energies (e.g. direct or indirect subsidies for
fossil fuels).
T model OG model UT model
Number of
obs
F
Prob > F
R-squared
Adj R-
squared
Root MSE
75
6.35
0.0029
0.1499
0.1263
.70708
52
6.23
0.0039
0.2026
0.1701
.72227
23
4.98
0.0176
0.3324
0.2656
.57777
Coefficients
Corporate
culture
Regulations
Constant
-.5174538
.3722594
3.290985
Corporate
culture
Investors
Constant
-.571134
-.5225331
3.593814
Corporate
culture
Mindset
Constant
-.5196078
-.5882353
3.382353
Regression Table 8-12: CSM success - barriers (Reduced submodels)
The OG model also points to a negative link between CSM success and opposition or lack of
interest from investors, which is similar to the one found in the models above on CSM intent
(see Regression Table 8-10). Thus interpretations are congruent:
1. Investors negatively affect the success of CSM, which most likely refers to sustainability
laggards whose less proactive approach critically impinges on the social and
environmental characteristics of upstream joint ventures in the OG sector.
2. Laggards that are less successful at CSM tend to consider investors as external barriers
more often because they are less aware of recent developments (e.g. Equator Principles,
the World Bank’s Prototype Carbon Fund).
The reduced UT model provides strong evidence for the importance of internal (mindset and
culture) rather than external barriers in the UT sector. This finding matches interview data that
also suggest that UT companies lack internal capabilities due to state ownership and little
external pressure in the past.
In contrast to the reduced models on CSM intent, two out of three reduced models on CSM
success (Regression Table 8-12) comprise both internal (corporate culture) and external
barriers (regulation and opposition from investors). This impedes a definite conclusion on the
relatively greater importance of internal over external barriers. Hence the author ran additional
regression models to examine their effects on CSM intent and CSM success separately (see
Regression Table A 9: to Regression Table A 14 in Appendix F – Regression models). The
models do not yield any meaningful additional findings about the statistical significance and
signs of correlation coefficients. However, the model parameters support the findings based
on qualitative analysis and basic statistics above about the key importance of internal deficits
rather than external barriers: The parameters (foremost Prob > F and adjusted-R2) of most
53 Despite a 10% level of significance, Regulation was included in the model to illustrate this point.
151
expanded and all reduced models that only included internal barriers are superior to those of
the “competing” models.
Conclusion
Results of the regression models are in parallel with qualitative and quantitative evidence
presented in the previous section: They show that both CSM intent and CSM success are
negatively affected by
1. internal rather than external barriers and
2. more specifically by soft internal barriers (inadequate corporate culture) rather than hard
internal barriers (lack of tools and processes).
8.4.1.3 Discussion
Importance of company-specific determinants and the principle of corporate
discretion
Both qualitative and quantitative methods point to a significant role of corporate discretionary
factors in determining CSM. Results are thus in line with those of previous studies (Henriques
et al., 1996; Lawrence et al., 1995; Swinth et al., 1995; Winn, 1995).
The importance of corporate discretionary determinants has been assessed in several ways
(see Figure 8-20):
Figure 8-20: Systemization of barriers to CSM
- Their importance jointly with managerial discretionary factors, i.e. the importance of
internal organizational determinants relative to external determinants
- The importance of soft internal barriers relative to hard internal barriers
- Their importance relative to that of managerial discretionary factors.
Internal vs. external drivers
Quantitative methods reveal a greater importance of internal compared to external
determinants, i.e. drivers and barriers, of CSM. At first sight this result is puzzling. Other
empirical studies do not provide any meaningful benchmark for this result:
- Skjaerseth and Skodvin (2001) concluded that political contexts have influenced the
corporate climate change strategies of Shell and Exxon more strongly than company-
specific factors. They considered the most important factors determining climate change
152
strategies to be societal demands for environmental protection through consumer behavior,
government supply of environmental policy (policy mix), and the institutional linkage
between the demand for climate change actions and corporate reactions (exclusive
confrontational vs. inclusive and collaborative approaches). However, it is most likely that
their findings only apply to a well-defined and strategic issue such as climate change,
which on a global scale is still in a politicization phase and will only affect companies
substantially in the long term. Today most significant outside demands for CSM do not
require a radical change of business model, i.e. modifications of processes and products to
minimize environmental and social effects could very well originate from internal driving
forces.
- Winn analyzed the adoption of environmental policies in four US companies at the
beginning of the 1990s. She pointed to several internal and external determinants
including society, the organization and individuals. She also strongly emphasized the
importance of internal factors such as history of social responsibility, hierarchical
organizational design and, above all, key individuals (personal values, issue awareness) in
driving environmental responsiveness (Winn, 1995, p. 144).
- Other studies (Bansal et al., 2000; Henriques et al., 1996; Rhee & Su-Yol, 2003; Rojsek,
2001) also discuss possible external and internal determinants of environmental or social
responsiveness but do not provide any additional insights into the relative importance of
internal vs. external barriers.
It should be noted that evidence on the importance of internal drivers is only based on the
small samples drawn from sustainability officers and thus results should be handled with due
caution. Nevertheless, they are insightful and in parallel with qualitative data that point to a
rather incremental approach to CSM (see e.g. sections 8.4.2 Strategic disposition and 8.4.3
Economic rationale): Since outside pressure is relatively weak, companies are able to respond
on a “business-as-usual” basis.
Internal vs. external barriers
Quantitative methods (regression models in particular) provide sound evidence for the greater
significance of internal (rather than external) barriers in terms of both CSM intent and CSM
success. This may have been expected in terms of CSM success – because CSM success is
more strongly internally determined through companies’ strategic disposition and approach to
implementing CSM. It may be somewhat surprising at first sight with respect to the impact on
CSM intent, particularly since several interviewees blamed external barriers such as ignorant
customers, investors and capital markets for little corporate engagement in the area of CSM.
However, the greater importance of internal barriers is in line with the greater importance of
internal (rather than external) drivers discussed above, and the corresponding conclusion: The
results point to a relatively “feeble” and incremental approach to CSM in general: Innovations
to processes and products are mostly minor and incremental. Hence the effects of external
barriers (e.g. lack of interest from customers and investors as well as inadequate legislation)
are negligible.
The greater importance of both internal drivers and barriers also points to significant but
unexploited potential for CSM: Removing the internal barriers will most likely lead to more
proactive approaches to CSM in the future.
Soft vs. hard internal barriers
Quantitative methods also provide additional insights into the relative importance of soft
internal (e.g. mindset, knowledge and culture) vs. hard internal factors. Hard internal factors
such as a lack of tools and processes appear to be less strong barriers to CSM due to the “soft”
and complex nature of corporate sustainability, which makes it rather inaccessible for such
153
inflexible resources. In highly complex (and hence uncertain) situations, soft factors such as
corporate culture and managers’ mindset are more important factors, since managers have to
fall back on them when making decisions (Badaracco & Webb, 1995; James Jr., 2000;
Tinsley, 2002; Trevino, 1999).
This does not mean that tools are irrelevant. In fact empirical studies suggest that certain tools
are highly effective: Scenario-based planning played a substantial role in influencing Shell’s
position on climate change (Kolk et al., 2001, p. 506; Skjaerseth et al., 2001, p. 53). Incentive
systems positively affect environmental responsiveness because they create an environment in
which managers are better informed and more inclined to adopt opportunity-rather than threat-
driven approaches (Sharma et al., 1999). Results provided in section 8.4.4.1 Management
tools support this conclusion, as they show that specific tools are in demand and influence the
success of corporate social and environmental initiatives.
Managerial vs. corporate discretionary barriers
Overall evidence points to a greater importance of corporate discretionary than managerial
discretionary barriers. However, this conclusion is only based on a few regression models and
thus should not be overinterpreted. The results are plausible because companies define the
space (i.e. a set of choices) through, e.g. corporate cultures and structures, in which the
individual manager can then exercise his or her own discretionary power, based on his or her
more or less proactive attitudes (Wood, 1991, p. 699).
It is also telling that in the UT sector CSM success is affected by both managerial
discretionary barriers (managers’ mindset) and corporate discretionary barriers (corporate
culture). This hints at the following conclusions: (1) UT managers exhibit stronger reactive
attitudes than OG managers, which is in parallel with evidence provided in section 8.3
Managers). (2) Their individual attitudes have a stronger effect, since corporate discretionary
factors (e.g. corporate cultures, tools and processes) are less developed.
Determinants of corporate discretionary factors
It is obvious that corporate discretionary factors are influenced by the same determinants that
also impact on managers’ attitudes: The more companies are affected by certain issues and
stakeholders, the more they are inclined to respond through a process of strategy formulation
(such as Shell and BP in terms of climate change in Europe), and through the creation of tools
and structures (e.g. incentive systems). Of course, leadership (e.g. BP’s John Browne’s 1997
Stanford speech on climate change) also plays a key role.
Qualitative methods in this study additionally point to three factors that moderate the
development of organizational capabilities determining corporate discretionary effects. They
comprise:
- State ownership: State ownership is reported to be associated with more bureaucratic
structures and cultures, and thus likely to be linked to a more reactive and compliance-
oriented approach to CSM.
- The license to operate: A generally greater importance of the informal license to operate,
e.g. brand value and reputation, calls for a more proactive approach to CSM and
corresponding capabilities, since the risk of short-term reaction through customers and
capital markets is higher.
- National roots: The national roots (location of corporate headquarters) also influence
corporate attitudes towards certain issues such as climate change, since they determine the
dominant socio-political and cultural paradigms (Hofstede, 1994).
154
Contingency perspective on corporate discretionary determinants
The study also reveals some differences between the two sectors and some regions of
operations:
- As mentioned briefly above, the UT sector exhibits more internal deficits and thus a rather
compliance-oriented and reactive approach, which could be attributed to lower issue and
organizational visibility, a lower importance of the informal license to operate and, in
some cases, state ownership.
- Region effects can be diagnosed on the basis of qualitative and quantitative data, which
point to a negative bias of North American regions of operation compared to Mid-
Northern European regions. This appears to reflect a less strong societal demand for CSM.
8.4.2 Strategic disposition
In the present section the author will elaborate on how strongly companies in both sectors
adhere to CSM at a strategic level, i.e. how they react to the issues recognized from a strategic
point of view.
In section 8.4.2.1 he will assess their strategic disposition based on quantitative data on the
concepts of SD familiarity, SD importance and CSM intent, which are then put into
perspective through qualitative data obtained from the interviews as well as secondary
qualitative data (company documents, newspaper and journal articles).
In section 8.4.2.2, he will assess the determinants of companies’ strategic disposition in more
detail, as well as the effects of strategic disposition to CSM on implementation and outcome.
8.4.2.1 Qualitative analysis and basic statistics
Quantitative data
SD familiarity and CSM intent
Chart 8-29 displays the means of SD familiarity and CSM intent obtained from the four
different samples. The cross-sector difference clearly points to a greater strategic disposition
to CSM in the OG sector, with the following being statistically significant:
- OG general managers report greater SD familiarity and CSM intent than UT general
managers.
- OG sustainability officers also report greater SD familiarity than UT sustainability officers
(being statistically significant at a 10% level).
155
0
1
2
3
4
5
SD familiarity CSM intent
1 = "Not at all" to 5 = "Very much"
UT general managers
OG general managers
UT sustainability officers
OG sustainability officers
SD familiarity
Group Mean Std. Dev. Freq.
UT GM 3.40 1.13 55
OG GM 4.09 0.98 118
UT SO 3.92 0.76 13
OG SO 4.65 0.61 17
Total 3.94 1.05 203
CSM intent
Group Mean Std. Dev. Freq.
UT GM 3.54 0.84 54
OG GM 3.87 0.81 118
UT SO 3.69 0.48 13
OG SO 4.00 0.61 17
Total 3.78 0.80 202
Chart 8-29: SD familiarity and CSM intent
The greater CSM intent in the OG sector can be confidently attributed to stronger drivers
(issues, outside pressure, proactive managers) and less internal deficits (e.g. lack of corporate
culture) compared to the UT sector – as the author diagnosed in the previous sections 8.1
Issues, 8.2 External stakeholders, industry and partnerships, 8.3 Managers and 8.4.1
Company-specific determinants. More details are also provided in the subsequent section
8.4.2.2 Advanced statistics.
Further data exhibit several cross-disciplinary differences: In both sectors sustainability
officers report higher levels of SD familiarity and CSM intent than general managers. The
mean differences in SD familiarity are – despite the small samples – statistically significant in
both sectors. These results match findings reported in section 8.2.5 Industry and partnerships
which showed that sustainability officers consider their industry more proactive than general
managers do. Thus the same alternative interpretations are valid, e.g. calculated optimism of
catalysts and, above all, greater awareness of existing best practices.
SD importance
Inter- and intra-sector mean differences in SD importance are marginal (see Chart 8-30).
Obviously this is partly because the underlying scale has only 3 points and is thus less capable
of measuring nuances in perception than the 5-point-Likert scales used to assess SD
familiarity and CSM intent.
156
0
1
2
3
Future SD importance
1 = "Decreasing" to 3 = "Increasing"
UT general managers
OG general managers
UT sustainability officers
OG sustainability officers
Future SD importance
Group Mean Std. Dev. Freq.
UT GM 2.84 0.37 55
OG GM 2.77 0.44 117
UT SO 2.77 0.44 13
OG SO 2.82 0.39 17
Total 2.79 0.42 202
Chart 8-30: Future SD importance
Results are prone to social desirability bias, but the small cross-disciplinary variation would
also tend to indicate that the importance of sustainable development to companies in the
future has been recognized not only by sustainability officers but also by general managers.
Qualitative benchmark
Values on SD familiarity and CSM intent range from 3.5 to 4.5, meaning roughly between
“more or less” and “very much.” Obviously those attributes are not very indicative. In the
following the author aims to cut through potential social desirability bias by briefly describing
companies’ actual strategic approach to CSM:
All in all corporate visions in both sectors are clearly based on the profitable extraction,
production and use of fossil fuel respectively. This is also clearly reflected in the main issues
discussed and the corresponding CSM focus (see Table 8-6).
157
Parameters of companies’
strategic disposition to CSM
OG sector UT sector
Current main drivers - Geopolitics
- Resource depletion
- Rapidly growing demand in Asia
- Growing energy demand
- Liberalization and privatization Î process
efficiency (Asmus, 2002; Birnbaum et al.,
2002).
Corporate vision - Economic growth and welfare improvements through profitable extraction, production and use of
fossil fuels
Strategic objectives - Profitable growth
- Competitiveness
- Profitable growth
- Competitiveness
- Diversification (geographically and in terms
of fuel mix) to ensure supply security
Issues discussed - Social issues in developing countries
- Local environmental impacts (e.g. oil spills)
- Climate change
- Local environmental impacts
- Climate change
CSM focus - Mainly: Efficient, environmentally and
socially responsible extraction and
production of oil & gas, reduction of gas
flaring (Kolk & Pinske, 2004, p. 309)
- Leaders: Committed approach to developing
renewable energies (Gehlen South, 2000, p.
5).54
- Laggards: “Wait and see” position (Buchan,
2001b; Salzmann, 2004, p. 137)55
- Mainly: Efficient and thus less carbon-
intensive generation of electricity, fuel
switching (Kolk et al., 2004, p. 309)
- Use of renewable energy technology,
depending on local geophysical conditions
and business environments (e.g. subsidies)
(Donnerbauer, 2003; Marsh, 2003)
Example of main activities (see
section 8.4.4.3 Corporate
initiatives)
- Community involvement
- Spill prevention
- CO2 emission reduction: corporate target
setting, internal emissions trading systems
(Shell and BP)
- CO2 emission reduction
- Community involvement
Table 8-6: Parameters of strategic disposition to CSM – based on interviews and analysis of corporate
reports/websites
Climate change is addressed on an incremental level through internal process improvements
to raise energy efficiency (Kolk et al., 2004, p. 312) in particular and through renewable
energy technologies that are gradually developed in niche markets. In the UT sector, the role
of nuclear power as a possible carbon neutral alternative to fossil fuels is uncertain (e.g.
Sweden has abandoned the phasing out agreed upon as early as 1980)56 and country-specific
(France vs. Germany).57
The following quotes from both sectors illustrate how uncertain companies are about their
engagement in renewables and other alternatives to address climate change as the most
important strategic issue:
We intend to be in oil and gas for a very long time. The big transition takes place
from oil to gas. There is no plan for renewables, no 50 years scenario. Renewables
constitute a business development option: There is no strategic commitment to
them, more a “see what you can learn” attitude (OG3, SO).
Gas will be the “fuel of choice” until 2020. It is legitimate to watch developments
(renewables, hydrogen) for another 5 years and invest in the efficiency of gas, and
CO2 capture and storage as mid-term solutions (OG4, SO).
54 Shell Hydrogen is mainly working in joint ventures with neighboriing industries, focusing on fuel
infrastructure and reformer technologies. Shell Renewables is incorporating a range of activities in solar,
biomass, forestry, and rural electrification. BP Solar has reported profits since 2000 (Gehlen South, 2000).
55 see also e.g. www.shell.com: Our strategy – strategic direction, or www.bp.com/investor_centre/fin_oper
(27/03/2003).
56 Lofstedt (2001)
57 Pro-arguments used are climate neutrality and supply security, which have to compete with high costs of
disposal and safety (2003a; Bauquis, 2003; Herbst, 2003)
158
At the end of the day, it’s all about social (i.e. the consumers’) choice, OECD
countries could go off fossil fuels in 5-10 years time, but our main challenge is the
energy demand of the developing countries; facilitating their development is also
about sustainable development (OG2, SO).
At the moment, there is little potential for commercially viable radical
innovations, apart from fuel cells and maybe superconductivity. In the future,
generation will be more decentralized and based on natural gas (UT1, SO).
The strategic uncertainty is lower in the UT sector, since two of the strategic issues that OG
companies face – resource depletion and geopolitics – are less severe due to a more
diversified fuel mix and a geographical focus on Europe and the US.
The North-South energy divide as the second major strategic issues does hardly play any role,
since it does not concern both sectors’ key markets that are Europe, North-America and
Asia.58
Our expertise is to produce large amounts of electricity; we need clients who are
able to pay for that (UT2, SO).
In addition to the greater significance of issues and outside pressure as well as more proactive
attitudes of managers in the OG sector referred to above, there is another significant
difference between the two sectors which supports quantitative data above suggesting that
strategic disposition to CSM is greater in the OG sector: the greater importance of the
informal license to operate. In the past the OG sector acted less strategically aggressively in
environmental than in general business terms (Ketola, 1993, p. 32). However, this situation
appears to be changing gradually. Companies have increasingly recognized the competitive
advantage that can be gained from CSM through its positive effect on companies’ informal
license to operate. BP's “beyond petroleum” rebranding effort is probably the most obvious
“proof” of this development: However, it has been widely criticized by both NGOs and peers
for “greenwashing” (Buchan, 2001a). Sustainability officers interviewed in this study claimed
the an improved informal license to operate accelerates licensing procedures and construction
processes, and thus decreases the “time to market” (see section 8.4.3 Economic rationale for a
more detailed business case). Furthermore, the greater strategic disposition to corporate
sustainability in the OG sector is also reflected in the higher profile of statements from top
executives on CSM (Anonymous, 2003f; Browne, 1997; Dahan, 2001).
In comparison, the competitive aspect of CSM is smaller in the UT sector. However, it can be
expected to increase in Europe’s liberalized electricity and gas markets, since corporate social
and environmental records will become more relevant, as they support the building of brands
(Gray, 2003).
Conclusion
Companies in both sectors have a clearly incremental rather than a radical approach to CSM,
i.e. they generally respond to social and environmental issues on a “business-as-usual” level.
Traditional business models are not seriously questioned because they are clearly the most
profitable ones under the current market regimes. However, they are more “responsibly
58 There are a few exceptions:
E.g. the E7 – an initiative of nine leading electric utilities from G7 countries, formed in the wake of the 1992 Rio
Summit – has established a Fund for Sustainable Energy Development in developing and emerging countries to
implement renewable energy, rural electrification and greenhouse gas reducing projects. Shell and Eskom have
formed a joint venture bringing solar to 50,000 homes in rural areas of the Eastern Cape (www.shell.com – News
& Library 22/11/2000: International award for Shell-Eskom’s South African rural electrification project).
159
interpreted” than in the past. This also includes the development of radical innovations in
niche markets. Hence if respondents indicate a great strategic disposition of their companies
in this study, they actually refer to a very responsible interpretation of their sector’s
traditional business model.
Quantitative data also show that companies’ strategic disposition is greater in the OG than in
the UT sector, which reflects greater driving forces and lower internal barriers in the OG
sector diagnosed beforehand. Sustainability officers indicate a greater strategic disposition
than general managers do and thus confirm their role as catalysts and reviewers.
Finally, qualitative data reveal a high degree of uncertainty about future developments (e.g.
how and when to combat climate change through a transition to renewable energies),
particularly in the OG sector, which clearly reflects the complex dynamics of the global
energy systems that are driven and hindered by geopolitics, resource depletion, growing
energy demand and technological trajectories.
8.4.2.2 Advanced statistics
8.4.2.2.1 Correlations
In the present section, the author reports on correlations detected between the three variables
that operationalize strategic disposition – SD familiarity, SD importance and CSM intent –
and the remaining variables (see Figure 8-21 to Figure 8-23).
Managers
Issues Companies
Capital markets
Damage to legitimacy
External stakeholders
Governments
SD importance
Strategic disposition
OG
UT
+_
T
UCA
WW
Consumers
Structure
Cross-disciplinary potential
CA
PPPs
Industry
NGOs
Importance of legitimacy
CSM intent
CSM success
BBB
Social issues
SD familiarity
Env. issues
Cross-disciplinary collaboration
Figure 8-21: Correlations – SD familiarity
160
Managers
Issues Companies
External stakeholders
NGOs
Strategic disposition
OG
UT
+_
T
BBB
WW
Consumers
SD familiarity
Env. issues
Structure
Cross-disciplinary potential
CA
Capital markets
Damage to legitimacy
Governments
PPPs
Industry
Importance of legitimacy
CSM success
UCA
Social issues
Cross-disciplinary collaboration
SD importance
CSM intent
Figure 8-22: Correlations – Future SD importance
Managers
Issues Companies
Damage to legitimacy
External stakeholders
Governments
Strategic disposition
OG
UT
+_
T
BBB
WW
Consumers
Env. issues
Structure
Cross-disciplinary potential
CA
Capital markets
PPPs
Industry
NGOs
Importance of legitimacy
CSM intent
SD importance
CSM success
UCA
Social issues
SD familiarity
Cross-disciplinary collaboration
Figure 8-23: Correlations – CSM intent
Correlations between strategic disposition on the one hand and issues, managers’ attitudes and
external stakeholders on the other have already been discussed in detail in the previous
sections. Hence results and interpretation are briefly summarized in the following table:
161
Tested variables Detected link Brief interpretation Reference to sector-
specific interpretation
Issue significance Positive Issue significance drives strategic disposition to CSM. Section 8.1 Issues
Managers’ attitudes - Positive (for
proactive
attitudes)
- Negative (for
reactive attitudes)
Proactive (negative) attitudes of managers positively
(negatively) affect companies’ strategic disposition.
Conversely, companies with greater strategic disposition
may also attract managers with stronger proactive attitudes.
Section 8.3 Managers
Capital markets’
future SD role
Positive A more proactive SD role of capital markets drives strategic
disposition – more clearly in the OG than in the UT sector.
Section 8.2.4 Financial
community
NGOs’ current SD
role
Positive A more proactive SD role of NGOs drives strategic
disposition – more clearly in the OG than in the UT sector.
Section 8.2.2 Public
pressure groups
Consumers’ current
SD role
Insignificant The predominantly ignorant attitude of consumers makes
their role at determining strategic disposition insignificant.
Section 8.2.3 Customers
Governments’
current SD role
Insignificant The SD role of governments is only weakly linked to
strategic disposition which points to a lack of long-term
strategic guidance from legislators.
Section 8.2.1
Governments and
regulators
Importance of
legitimacy
Positive Greater current importance of and past damage to
legitimacy, i.e. the informal license to operate, lead to
greater strategic disposition.
Section 8.2.6.1 The role of
legitimacy
Damage to
legitimacy
Positive Greater current importance of and past damage to
legitimacy, i.e. the informal license to operate, lead to
greater strategic disposition.
Section 8.2.6.1 The role of
legitimacy
Industry’s current SD
role
Positive Greater strategic disposition is associated with a more
positive perception of the SD role of industry.
Section 8.2.5 Industry and
partnerships
Public-private
partnerships’ current
SD role
Positive Greater strategic disposition is associated with a more
positive perception of the SD role of public-private
partnerships and industry.
Section 8.2.5 Industry and
partnerships
Figure 8-24: Correlations with strategic disposition
The following correlations have not been previously mentioned, and thus will be discussed in
detail.
Strategic disposition
Correlation coefficients between the three variables that describe companies’ strategic
disposition are all positive, as one would expect. Only the link between SD familiarity and SD
importance is weak and lacks statistical significance, particularly in the UT sample. This
indicates that managers who report high levels of SD familiarity in their companies do not
necessarily expect an increase in the importance of sustainable development in the future,
which points to a significant degree of skepticism about the future of CSM.
Nevertheless, links between SD familiarity and CSM intent and SD importance and CSM
intent on the other reveal that companies are reacting to current and possible future trends:
Companies that exhibit greater SD familiarity (i.e. awareness of issues, external pressure, etc.)
and expect an increase in pressure tend to integrate social and environmental criteria more
comprehensively into their business strategies and operations. The link between SD
importance and CSM intent is weaker and not statistically significant in the UT sector, which
points to a relatively lower importance of CSM on the UT companies’ agenda.
Structure
Cross-disciplinary collaboration
Figure 8-21 to Figure 8-23 also show a significant link between the strategic disposition and
cross-disciplinary collaboration. The correlation between CSM intent and cross-disciplinary
collaboration is weak and statistically insignificant in the UT sector. This is in parallel with
evidence presented earlier in terms of internal barriers, which suggested that CSM is less
deeply implemented in UT companies.
Cross-disciplinary potential
In contrast to cross-disciplinary collaboration, cross-disciplinary potential is largely unrelated
to strategic disposition. This could be attributed to a significant variation in the way
respondents assess this potential, caused by differences in managers’ awareness and mindset,
162
and differences in corporate culture, structure, and the current level of collaboration. These
factors are likely to introduce greater variation in the assessment of the potential than in the
“assessment” of the level of collaboration (see also section 8.4.4.2 Structure).
A more detailed comparison of the correlation coefficients and their (lack of) statistical
significance reveals that SD importance, rather than SD familiarity and CSM intent, are linked
with cross-disciplinary potential, which suggests that companies that expect CSM to play an
important role in the future also put greater hope in more intensive cross-disciplinary
collaboration.
CSM success
Finally there is clear link between the strategic disposition and the success of corporate
environmental and social initiatives (CSM success). This is highly plausible, since a more
advanced and committed approach to CSM is most likely associated with greater effectiveness
of corporate initiatives (Perceval, 2003; Rowlands, 2000; Steger, 1998b). It is also in line with
the association of a more advanced approach with greater issue awareness; more proactive
attitudes of managers and greater awareness of outside pressure; the importance of retaining
and improving legitimacy; and closer cross-disciplinary collaboration, as the other
correlations revealed.
Conclusion
Correlations show that strategic disposition is driven by issue significance, greater CSM
demand from capital markets and NGOs, greater importance of and damage to legitimacy, and
more proactive attitudes of managers. Thus they clearly point to those factors that lead to
lower strategic disposition in the UT sector. They also indicate that companies with greater
strategic disposition have more positive perceptions of their industry’s contribution to
sustainable development and are more inclined to rely on public-private partnerships.
Results also point to notable skepticism about the greater importance of sustainable
development, i.e. a greater need for CSM, in the future. They thus corroborate evidence
presented earlier on a rather reactive mindset of general managers and currently limited
demands from stakeholders, which can be met through a “watery” approach to CSM.
However correlations also illustrate that companies that are more familiar with the concept of
sustainable development and its current and future implications exhibit greater intention to
respond to the issues they recognized. This clearly shows that companies are on an learning
curve in terms of CSM.
Greater strategic disposition is also associated with greater cross-disciplinary collaboration
and CSM success, which demonstrates that a more strategic and distinct approach to CSM
leads to a stronger and more effective (hence successful) implementation.
Overall the UT sector attaches less importance to the concept of sustainable development and
exhibits fewer links between strategic disposition and cross-disciplinary collaboration. This
points to its lower position on the CSM learning curve, which also reflects the sector’s
configuration of drivers and barriers referred to above.
8.4.2.2.2 Regressions
In the present section the author comprehensively assesses the internal and external
determinants of CSM intent by examining their joint effects in summary models (see
Regression Table 8-13) rather than their separate effects through the various submodels and
cluster models presented throughout the study.
163
T model OG model UT model
Number of
obs
F
Prob > F
R-squared
Adj R-
squared
Root MSE
76
11.24
0.0000
0.4453
0.4056
.64519
52
10.56
0.0000
0.5344
0.4838
.62268
51
6.51
0.0003
0.3613
0.3058
.71312
Coefficients
Imp. legitimacy
Customers
CA attitude
Corporate
culture
North America
Constant
.2749165
.3238749
.3955331
-.437983
-.316520
1.051468
Social issues
Imp. legitimacy
CA attitude
Knowledge
Corporate
culture
Constant
.2570981
.3261695
.308352
-.406914
-.470526
.4479149
Environmental
issues
Imp. legitimacy
Nordic
Female
Constant
.1857644
.2055168
.5611539
.6565826
1.862531
Regression Table 8-13: CSM intent – Summary models
The three summary models explain between 36% and 53% of the variation in CSM intent.
Various variables that have been included in the individual submodels and cluster models are
omitted from the summary model because their effect lacked statistical significance. This
happened for two reasons: (1) Their effect was picked up by a variable that is included in the
summary model. E.g. it is very probable that any effect of stakeholder-related variables is
reflected in the influence of the importance of legitimacy, which is significant in all three
summary models. (2) Constraints in the degrees of freedom prevented more variables from
becoming statistically significant. This applies particularly to the UT model due to the limited
sample size.
The OG model features coefficients from all four clusters that were individually tested
throughout the study: Issues, external stakeholders (legitimacy), managers and companies.
This is an important finding in itself, since it indicates that none of the organizing principles
hypothesized to determine CSM intent based on the study’s conceptual framework – i.e.
public responsibility, legitimacy, managerial and corporate discretion – dominates the
remaining ones.
The coefficients indicate that:
1. CSM intent is driven by the importance of legitimacy in both sectors. This clearly
corresponds to the evidence presented earlier in section 8.2 External stakeholders, industry
and partnerships, which suggested that external stakeholders are an essential driver of
CSM since they determine companies’ informal license to operate. CSM is hindered by
lack of interest from customers: The positive coefficient suggests that companies with
greater CSM intent tend to consider customers’ ignorance of CSM a greater barrier than
laggards with lower CSM intent (see section 8.2.3 Customers). It should be noted that the
individual influence of other external stakeholders’ demands (i.e. the SD roles of public
pressure groups, regulators, governments, capital markets and customers) and incidents
that damaged companies’ legitimacy in the past are omitted from all three models, since
they do not attain statistical significance. Their effect appears to be picked up by the
importance of legitimacy.
2. CSM intent is driven by proactive managers who consider CSM a means of generating
long-term competitive advantage (CA attitude). It is plausible that individuals who –
ceteris paribus – exhibit more proactive attitudes are more likely to exercise managerial
discretion (Wood, 1991, p. 698). The CA attitude is missing in the UT summary model (as
164
it was in the cluster model presented in section 8.3 Managers), presumably due to
constraints in the degrees of freedom and/or because proactive attitudes are less developed
or dominated by internal barriers (e.g. corporate culture) in the UT sector.
3. CSM intent is driven by the significance of social and environmental issues in the OG and
UT sectors, respectively. As already discussed in section 8.1 Issues, this indicates that
leading companies in the OG sector concentrate more strongly on social issues in
developing countries due to their relevance to companies’ informal license to operate. UT
companies’ focus on environmental issues points to their geographical focus on developed
countries, in which social issues are negligible and pressure on climate change stronger.
As discussed in section 8.1 Issues, issue significance already takes into account external
demands from stakeholders on that particular issue. Thus the effect of the importance of
legitimacy alongside issue significance in both sector-specific models suggests that CSM
intent is additionally moderated by the importance of the informal license to operate. This
suggests that the informal downside potential (e.g. consumer boycott) and the upside
potential (e.g. good community relations, goodwill from society speeds up licensing
procedures) are significant determinants of CSM, also because the informal license to
operate can be more quickly revoked than the formal license to operate (which mostly
relies on slower legislative modifications).
4. CSM intent is hindered by corporate discretionary barriers, namely corporate culture and
lack of managers’ knowledge and expertise. In contrast to the OG model, the UT model
does not comprise any internal barriers. This does not mean that they do not exist. On the
contrary, the data presented in section 8.4.1 Company-specific determinants illustrate that
internal barriers are greater in the UT sector. Hence it is most likely that corporate
discretionary barriers fail to attain statistical significance due to constraints in the degrees
of freedom.
The models also point to several influences of demographic variables: In the energy sector as
a whole, respondents who operate in North America report less CSM intent than their
counterparts in other regions of operation. This appears to reflect lower levels of societal
pressure in North America (Skjaerseth et al., 2001) and differences in corporate characteristics
such as top management commitment (Sharma et al., 1999) and level of centralization
(Ketola, 1993; Kolk et al., 2001).
The UT model shows positive effects of Nordic regions of operation and female gender. It is
likely that the region effect reflects stronger regulatory pressure (Midittun et al., 1999) and the
relatively strong use of renewable energy in Nordic countries, which requires companies to
take environmental issues into account more. The gender effect could indicate a stronger
social-desirability bias of female respondents.
8.4.2.3 Discussion
Strategic disposition put into perspective
Qualitative primary and secondary data have provided an important means of putting the
abstract quantitative data on companies’ strategic disposition into perspective. They show that
companies in both sectors have a clearly incremental approach to CSM.
As one would expect from sectors that are resource-intensive and produce commodities – as
e.g. also the chemical sector, CSM is clearly process-driven (rather than market driven),
triggered by regulatory and NGOs’ outside pressure (rather than green pull from consumers),
and leads to competitive advantages by reducing cost through process improvements such as
pollution control, energy efficiency and waste disposal (Holliday, 2001; Stead & Stead, 1995,
p. 44; Tapon et al., 1995). Long-range visions for corporate sustainability that require strong
(also moral) leadership, are shared by management and workforce, and could generate
165
significant internal pressure and enthusiasm (Hart, 1995, p. 102; Ketola, 1993, p. 32) are
clearly missing. As the author demonstrated in 8.2 External stakeholders, industry and
partnerships, this situation reflects the widespread ignorance of the primary transactional
stakeholders (customers, investors, etc.) in both sectors.
However, the author also notes that companies have moved beyond a purely PR-based,
“greenwashing” approach to CSM. Particularly the leaders in both sectors have systematically
implemented new structures and processes (as explained in more detail in section 8.4.4
Implementation). OG firms in particular have changed business practices, to improve their
informal license to operate in developing countries.
Strategic responses to the major strategic issues (North-South energy divide and, especially,
climate change) include – based on Ansoff’s systemization of response strategies (Ansoff,
1975):
1. Environmental and self-awareness: In particular companies that are sustainability leaders
have recognized the major issues through their relationship to the external environment
and internal configurations (e.g. scenario building).
2. Flexibility: Internal emissions trading systems and diversification (e.g. renewable energy
technology) enhance future potential rather than create tangible changes in profits and
growth.
Direct responses (the third and strongest response category), which would avert the threat
through external action (strategic planning & implementation) and internal contingency
planning, are essentially lacking. However, one could argue that the creation of independent
business units for renewable energy technologies and services and a corresponding strategic
commitment by sustainability leaders, particularly in the OG sector, constitute direct
responses (Ansoff, 1975, p. 26). But this view could be overoptimistic, as strategic planning
largely revolves around fossil-fuel based energy, and renewables activities are still largely
pilot projects.
It remains to be seen when and how the major long-term issues of climate change and energy
divide will be more comprehensively addressed. The timing will depend on a variety of
interdependent factors that drive the global energy system. The challenges will be significant,
since distinct responses to both issues require new technologies and business models that
companies are still largely unfamiliar with. They are tested in pilot projects and gradually
developed in niche markets, since they (1) rely on partnerships with “neighboring” industry
sectors (e.g. automotive, technology) to switch technological trajectories, particularly in the
OG sector; and (2) lack a stronger and competitive business case in today’s business
environments, as the author will discuss in more detail in the next section 8.4.3 Economic
rationale.
166
Determinants and effects of strategic disposition
Evidence obtained from correlation and regression analysis provides the following significant
insights into the determinants and the effects of companies’ strategic disposition to CSM.
Cluster modelsSubmodels
External
stakeholders
• Importance of
legitimacy (both sectors)
• Conflicts with authorities
(both sectors)
• Capital markets (OG)
CSM
intent
Managers
• Proactive attitude:
“CSM to gain
competitive
advantage“ (both
sectors, primarily OG)
• Lack of managers‘
knowledge and
expertise (both sectors)
CSM
intent
Companies
Corporate culture
(both sectors)
CSM
intent
Issues:
• Social issue signifiance (OG)
• Environmental issue
significance (UT)
Legitimacy:
Importance of legitimacy
(both sectors)
External barriers
Lack of interest from
customers (both sectors)
Managers
• CA attitude (both sectors,
primarily OG)
• Lack of managers‘ knowledge
and expertise (OG)
Companies
• Corporate culture
(both sectors)
CSM intent
Summary model
Issues:
• Social issue
significance (OG)
• Environmental issue
significance ((UT)
CSM
intent
CSM
intent
Legitimacy:
Importance of legitimacy
(both sectors)
CSM
intent
SD roles:
• Capital markets (OG)
• Public pressure groups (UT)
CSM
intent
Incidents
Conflicts with authorities
(both sectors)
CSM
intent
External barriers
• Customers (both sectors)
• Investors (both sectors)
Figure 8-25: Determinants of CSM intent
The summary model suggests that companies’ intention to integrate issues into operations is
determined by their perception of the financial threat or opportunities associated with the
issues they face. The greater the threat or opportunity, the greater the CSM intent, which is
additionally moderated by corporate culture, managers’ attitudes and knowledge, and two
legitimacy-related variables. The effect of the importance of legitimacy shows that companies
are more inclined to respond to issues if they have recognized the importance of the informal
license to operate, most likely because:
1. The informal license to operate can be more quickly revoked than the formal one. This
means that they are more likely to respond if the threat or opportunity is more immediate.
2. The formal license to operate is not seriously challenged. This result is particularly
plausible if one takes into account complementary evidence about the insignificant role of
governments and regulators in driving CSM.
The influence of largely ignorant customers reflects the demotivating effect of being largely
unable to leverage more responsible business practices into greater sales. It should be noted
that this influence is only perceived by companies’ with higher CSM intent.
Strategic disposition is jointly determined by four factors: issues, external stakeholders,
managers and company-specific characteristics (see Figure 8-25). Thus the evidence is in line
with that of other studies also pointing to the significance of some of the four determinants
referred to above (Banerjee et al., 2003; Bansal et al., 2000; Greening et al., 1994; Henriques
167
et al., 1995; Henriques et al., 1996; Lawrence et al., 1995; Sharma et al., 1994; Skjaerseth et
al., 2001; Winn, 1995). However, this study’s results also go beyond those of most previous
studies. They show that:
1. A differentiation between managerial discretion (i.e. individuals’ attitudes and knowledge)
and corporate discretion (i.e. corporate culture) is valid, since, as hypothesized in the
conceptual framework, corporate discretionary factors determine the space in which
individuals may or may not exercise their discretionary power.
2. The four motivating principles featured in the study’s conceptual framework have such a
clear individual effect on companies’ strategic disposition that they do not dominate each
other: At least one variable from each of the four principles remains in the final summary
model without being picked up by a “competing” one. This means variation in companies’
strategic disposition can be comprehensively explained through a holistic assessment of
differences in issue significance, the importance of the informal license to operate,
managers’ attitudes and knowledge, and corporate culture.
3. The influence of the four determinants of CSM is moderated by sector (Banerjee et al.,
2003; Henriques et al., 1996) and region effects (Skjaerseth et al., 2001).
It should be noted that the regression analysis was not designed to assess whether one
determinant of CSM intent is more important than another, because the author chose a rather
conservative approach to interpreting regression results to counteract possible biases (as
outlined in section 5 Method). However, based on the qualitative and quantitative analysis
undertaken in section 8.4.1 Company-specific determinants, one could cautiously conclude
that internal drivers of CSM are at least as important as external ones, if one takes into
account that current approaches are largely characterized by a more responsible interpretation
of “business-as-usual.”
Correlations above also show the effects of strategic disposition on implementation and
outcome: Greater strategic disposition leads to (1) a higher level of organizational alignment,
indicated through more intensive collaboration between sustainability experts and general
managers, and (2) greater CSM success. This is highly plausible, since the recognition of
issues and top management’s decision to integrate them into business strategies and
operations triggers a process of organizational redirection that becomes visible in changes in
companies’ business principles, corporate values, visions, structures (e.g. cross-disciplinary
task forces), and allocation of resources. These changes contribute to CSM success (Doz et
al., 1988; Steger, 1998b, p. 99).
Contingency perspective on strategic disposition
The study’s contingency approach provides several sector-, discipline- and region-specific
findings.
Qualitative analysis and basic statistics reveal lower strategic disposition in the UT sector,
which can be clearly explained with the sector-specific influence of the determinants
identified through the regression models: UT companies generally not only face weaker
drivers (lower issue significance, lower importance of the informal license to operate and less
proactive managers) but also stronger internal barriers to CSM (less open corporate cultures).
The only statistically significant cross-disciplinary variation, namely the greater SD
familiarity reported by sustainability officers compared to general managers, can be mainly
attributed to general managers’ lower awareness of existing best practices in generally large
and complex organizations and the (possibly calculated) optimism sustainability officers
exhibit as catalysts in their companies.
168
Region effects found in regression models are likely to be caused by differences in societal
and regulatory pressure (e.g. US vs. European stance on climate change) and organizational
settings (Ketola, 1993; Kolk et al., 2001; Sharma et al., 1994; Skjaerseth et al., 2001).
8.4.3 Economic rationale
In the present section the author will describe how companies approach the economic
rationale for CSM, which relates to both their strategic disposition, i.e. their willingness to
integrate issues into strategies, and their implementation of CSM. The section includes a
discussion of
- the importance and elements of the business case, i.e. what economic arguments (value
drivers) for CSM managers consider most compelling (section 8.4.3.1)
- the tools, structures and processes that are used to integrate environmental and social
issues into business strategies and operations (section. 8.4.3.2).
- how systematically and comprehensively the business case is, could and should be built
(section 8.4.3.3).
Evidence provided will be based on qualitative analysis and basic statistics. Advanced
statistics are not used because relevant data obtained from sustainability officers lacked an
adequate number of observations.
8.4.3.1 Importance and elements of the business case
Elements of the business case
Overall interviewees easily relate to the concept of the business case for sustainability and the
value drivers. This applies to sustainability officers in particular because they strongly rely on
a sound economic rationale for corporate sustainability initiatives due to their role as change
agents in their company. They indicate that the identification of the most important value
drivers is, unlike the quantification of the economic potential itself, relatively easy (Salzmann,
2004, p. 136):
A first guess about the most important value drivers usually takes you pretty far.
You do not need to crunch numbers to identify them (OG2, SO).
Attracts Talent and
increases employee
satisfaction
10%
Improves our access
to capital
2%
Leads to cost
reductions
12%
Is essential to
maintaining our
'license to operate'
28%
Improves brand value
and reputation
16%
Leads to innovation
of products and
services
8%
Helps us to manage
our risks better
20%
Other
4% Helps us to manage
our risks better
18%
Leads to innovation
of products and
services
5%
Improves brand value
and reputation
26%
Improves our access
to capital
0%
Attracts Talent and
increases employee
satisfaction
8%
Leads to cost
reductions
13%
Is essential to
maintaining our
'license to operate'
27%
Other
3%
Chart 8-31: Value drivers (OG sustainability
officers)
Chart 8-32: Value drivers (UT sustainability
officers)
169
As Chart 8-31 and Chart 8-32 indicate, sustainability officers’ understanding of the business
case for sustainability goes beyond a mere “cost reduction focus.” Three value constructs,
namely the license to operate, brand value and reputation, and risk management, appear to be
the most compelling elements of the business case for sustainability. The innovation of
products and processes plays a marginal role as a value driver accounting for only a 5% and
8% share, respectively.
The proportions in the charts are clearly mirrored in and explained through the statements of
the interviewees. They clearly differentiate between a “robust” and “elusive” part of the
business case for sustainability depending on the value drivers used, and report a significant
focus on risks rather than opportunities:
The business case on environmental, health and safety performance has almost no
limits, it’s a “no-brainer”. Investments are built around that. More radical
innovations are the tricky part. They are pushed only by enthusiasts in R&D and
environmental affairs rather than top management (OG3, strategy).
Risk reduction is the major issue and value driver. X [UT company] has so far
solely identified opportunities through measures of risk reduction., but we have
recognized this shortcoming and are currently looking for ways of improvement
(UT4, SO).
This differentiation between a robust, short-term and risk-based (essentially pragmatic)
business case and an elusive, long-term and opportunity-based one can be attributed to several
systemic and organizational factors:
1. General managers’ expertise and responsibilities: Sustainability officers consider risk
reduction a more powerful argument for corporate sustainability (than opportunities for
strategic innovation), since it is much more strongly related to general managers’ daily
work (hence much more tangible for them) than radical innovation such as the
development of renewable energies.
2. Markets and regulation: Due to current market and regulatory frameworks (see
stakeholders’ demands for CSM discussed in section 8.2), the business case for radical and
long-term innovation in particular is marginal. Hence significant paradigm shifts do not
take place. To obtain buy-in from general managers and top management, it is obvious to
build the business case on a more solid value proposition, which under the current
business environment favors the “incremental approach,” i.e. more efficient and (socially
and environmentally) responsible fossil fuel production (Salzmann, 2003a, p. 135).
3. Technology: All sustainability officers and most key decision-makers recognize the
strategic risks and opportunities (climate change, North-South energy divide) and the
eventual need for a radical innovation of technologies and business models. Nevertheless,
uncertainty is substantial, in particular in the OG sector, which is strongly locked into
technological trajectories (through high fleet inertia) with the mobility sector.
4. Complexity (time and scope of CSM): The more long term the perspective and the broader
the scope of an initiative (i.e. level of aggregation, number of issues to be addressed), the
more complex is the building of a business case, as it relies on more data (which need to
be compatible for aggregation) and is subject to more contingencies (How do issues
develop? How is initiative implemented across different business units?). In addition the
business case for long-term activities is further marginalized, since future cash flows are
strongly discounted (Schaltegger & Figge, 1998, p. 7). As the quote above illustrates, it is
easy to build a business case for short-term and ad hoc initiatives that improve efficiency
or health & safety performance. A risk focus, i.e. the seizing of opportunities through risk
170
reduction, is also less complex and resource intensive than an active search for
opportunities, which requires more “out-of-the box” thinking.
Cross-sector differences
The quantitative data show only one notable difference between the two sectors, which is also
statistically significant: Compared to OG sustainability officers, UT sustainability officers
more frequently consider brand value and reputation one of the three most important
arguments when promoting the concept of sustainable development.
At first sight this result is not fully in line with GM data presented in section 8.2.6.1,
according to which OG general managers consider brand value and reputation more important
than UT general managers do. However, this supposed contradiction can be explained and
solved as follows:
- The higher importance indicated by OG general managers– compared to their counterparts
in the UT sector – appears to adequately reflect the higher visibility of their companies
and brands.
- The fact that UT sustainability officers concentrate their responses more strongly on brand
value and reputation (in addition to risk management and the license to operate) illustrates
that they are less aware of the potential of other value drivers such as employee
satisfaction, innovation and improved access to capital. Their counterparts in the OG
sector appear to have a wider and more holistic perspective on the business case: Their
portfolio of value drivers is more balanced, which points – in parallel with evidence
presented earlier – to a more advanced and sophisticated approach to CSM.
This interpretation is also supported by qualitative data, which suggest that value constructs
appear to be the current key elements of the business case in the OG sector. Beyond the
traditional focus on efficiency, health & safety (to cut costs), the informal license to operate
(or grow) in developing countries is considered particularly important: The aim is to improve
it through environmental and social initiatives (e.g. community development, fair allocation of
oil revenue through revenue management) and stakeholder dialogue, because it improves
access to capital from private banks and international financial institutions such as the World
Bank), accelerates licensing procedures and shortens the time to market.
In the UT sector the importance of value constructs is lower, most likely because the
competition on such concepts is less strong. Time will tell whether market liberalization in
Europe will bring them – brand value and reputation in particular – more into focus, since
CSM may be increasingly recognized as a means to gain competitive advantage, provided that
regulations will spur competition through e.g. appropriately priced network access (Gray,
2003; Tack, 1999, p. 51).
8.4.3.2 Issue integration
Having discussed the elements of the business case in the previous section, the author now
deals with the tools, structures and processes used to integrate issues into corporate decision-
making based on sound economic rationale. The level of detail is, however, limited for three
reasons:
1. Given the substantial breadth of the study, the interview time was insufficient to
obtain more detailed qualitative data.
2. Interviewees were somewhat reluctant to provide deeper insights into processes and
systems used to integrate issues, as they are considered proprietary information.
3. Lack of complementary quantitative data.
171
Tracking:
What issues
is the company facing?
Decision-making:
How are issues and their
economic significance integrated
into strategic decision-making?
•Stakeholder dialogue
•Business intelligence
•Networking with
personal contacts
•External stakeholder
panels
•Environmental and
social impact
assessment
•Measuring material and
energy flows
•…
•Qualitative and
quantitative
risk assessments
•…
•Full cost accounting
•Cost benefit analysis
•…
Mapping:
Which of the company’s activities
are associated with the issues
in particular?
Prioritization:
What issues are
economically most significant?
•Internet platform
(e.g. Tell Shell)
•Internal networks
•Surveys
(internal and external)
Figure 8-26: Processes of issue integration (Salzmann, 2003b, p. 15)
Figure 8-26 features the categories developed to systemize these processes and tools, along
with several examples. It remains difficult to accurately assess how well equipped companies
are with processes and tools to detect, assess and integrate issues into decision-making.
However, given the systematic factors of marginality and complexity, which make these tasks
rather difficult, it is safe to assume that laggard companies in particular tend to lack the
necessary technical and human capacity to systematically take account of their social and
environmental issues.
Depending on the complexity and the importance of the issue, various organizational units are
involved in the process of issue integration (Salzmann, 2003a, p. 14). Most importantly, they
include:
- The corporate sustainability function: It usually tracks issues at the corporate level,
also based on data collected from business units, and reviews business plans in terms
of whether they sufficiently take into account social and environmental risks (in some
companies they even have the authority to reject inadequate plans).
- The corporate strategy team: It coordinates input from corporate staff and prioritizes
strategic (including important social and environmental) issues to incorporate them
into strategic decision-making.
- Issue teams: Their composition varies depending on the importance of the issue. For
very important issues, they tend to be “more comprehensive, cross-functional and
cross-business and senior” (p. 15). They are considered effective means of assessing
clearly definable issues, developing strategies and application tools, and building
internal consensus for issue integration.
- Corporate sustainability committees: They are composed of top management,
corporate sustainability staff, and key heads from functions and business units. They
take key strategic decisions on corporate sustainability.
172
As the somewhat broad roles and responsibility of units reveal, the following processes of
issue integration should not be seen as isolated steps, but ideally as parts of a fluid, iterative
and multi-unit procedure.
Issue tracking
Tools to track issues and detect emerging ones differ depending on the nature of the issue
(global, regional or local). They comprise inter alia direct representation at the federal, state
and local levels of government (business intelligence); coordination with other companies
through trade associations, improvement of media relations; and issue advertising (Arrington
et al., 1984; Heugens, 2002). Personal contacts and networks in industry associations and
platforms as well as stakeholder dialogues are considered most effective at the corporate level.
At the project level, environmental and social impact assessment additionally play an
important role.
Issue mapping
Once issues are detected, their relevance to the individual company, project or business unit
needs to be assessed. Corporate social and environmental effects are examined to facilitate a
meaningful prioritization (What are our main social and environmental effects and where do
they occur?) Obviously the more corporate activities are involved, the more important issue
mapping becomes, because it facilitates informed and thus more confident decision-making
(Sharma et al., 1999, p. 94). Thus data management tools (e.g. environmental accounting to
track material and waste flows) and impact assessments are essential to facilitate internal and
external benchmarking and prioritize areas of action (e.g. country, region or a particular
corporate activity). Interviewees also pointed to the role of local management’s awareness,
buy-in and expertise because they are most familiar with the actual situation.
In some cases it is difficult to clearly differentiate between issue tracking and mapping: E.g.
although environmental and social impact assessments are generally undertaken to map issues
(that are already on a company’s “radar screen”), their use can also result in the detection of
new and emerging issues.
Issue prioritization
Again interview data point to the importance of experienced and well-trained staff,
particularly if the issues are of strategic importance. In both sectors, companies use risk
management procedures to prioritize issues. Ideally they comprise bottom-up and top-down
procedures:
- Business units and country managers naturally focus on more short-term and local
issues. They submit risk reports to the corporate function.
- Corporate sustainability experts take a more holistic and long-term approach and
assesses potential cross impacts.
The tools as such comprise both qualitative and quantitative (risk score, financial figures)
assessments and take different parameters – such as probability of occurrence, possible
consequences, degree of control – into account. They yield risk priority lists at the corporate
level but also for individual countries and projects (Salzmann, 2003a, p. 18).
Integration into decision-making
Once issues are found to be of significant importance they need to be integrated into decision-
making. Interview data suggest this final step remains the most important challenge. The
following factors are most significant:
- Presenting the business case to managers: Managers are presented with the economic
rationale for integrating the issues under consideration, e.g. face to face by the
173
sustainability officer or through successful case studies that are published internally and
externally. Such presentations comprise (1) an ex-ante and universally quantifiable
business case for improvements in environmental, health & safety performance, (2) ex-
post and case-study-based evidence of the positive effects of corporate activities on value
constructs such as brand value, reputation and the license to operate. They do not
necessarily present a quantified business case, but may also be designed to make
employees feel good about their (environmentally and socially responsible) employer.
- Top management commitment, corporate values and policies: They provide an
organizational context that facilitates issue integration in the decision-making of
individuals (e.g. Bichta, 2003, p. 16).
- Other management tools: Management tools such as metrics (e.g. global community
spending, emission to air), targets (e.g. relative emission reduction by x%), modifications
to investment appraisals and accounting procedures (e.g. to account for carbon costs),
scenario analysis and backcasting directly relate to one or several specific issues.
- Management structures: Cross-functional and cross-business teams comprise executive
managers from a diverse range of business units and/or functions, and thus facilitate not
only consensus-building but also issue prioritization through cross-impact assessment.
Overall, companies appear to be at different stages of the learning curve. Whereas leaders
have metrics, targets and incentive systems in place (e.g. remuneration contingent upon the
group’s balanced scoreboard which also incorporates environmental and social criteria),
laggards have less systematic frameworks:
Sustainability is “hardwired” into its systems and processes (e.g. new business
proposal must take account of environmental and social issues, carbon cost
accounting, etc.) and “softwired” into the hearts and minds of our people
(awareness, excitement and knowledge) (OG2, SO).
There is no formal procedure so far. Targets are set, approaches (e.g. coal vs. gas-
fired power plant) to achieve targets are discussed with business units (UT1, SO).
Overall, there is little framework, we are concentrating on the hot topics (OG3,
SO).
8.4.3.3 Building and quantifying the business case
Although several companies stress the potential to create economic value by internalizing
issues (e.g. enhancing the license to operate or to grow, being a preferred partner for host
governments, reputation, innovation, etc.) in their public documents, interviews suggest that
only very few companies have attempted to systematically map out their business case for
sustainability, i.e. to link corporate response to certain environmental and social issues and the
different value drivers and value constructs (as depicted in Figure 8-27), either at the
corporate level, or even the project level (Corbett & Wassenhove, 1993 p. 118; Epstein et al.,
2001 p. 588; Wheeler, G, & P, 2000 p. 291). This profit-oriented but yet intuitive integration
of issues into corporate activities is lacking in laggard companies in particular, and thus can
be confidently considered a significant stumbling block to corporate sustainability
management. There are several reasons for this missing link:
1. High level of complexity and uncertainty: Figure 8-27 is a very simplified depiction of
the real situation, since issues are numerous and highly fragmented. In some cases
such as an emissions reduction scheme (e.g. reduce flaring), it is quite straightforward
to link an initiative to cost reductions. In other cases such as community involvement,
the net economic effects and thus the business logic may be highly dependent on local
174
and regional conditions. It also appears that laggard companies in particular lack
motivation, resources and systems for tracking their issues and correspondingly their
social and environmental initiatives.
2. Marginality of economic value created through CSM activities: As outlined above, the
expectations of external stakeholders for CSM are so moderate that they can be met
(or even exceeded) through an incremental approach to CSM (Steger, 2004, p. 72).
The incremental approach is dominated by initiatives such as efficiency improvements
whose business logic is self-evident and marginal. The economic potential of radical
innovations to business models (e.g. renewable energies) is even less significant, as
their development in niche markets and pilot projects suggests. Hence companies
avoid the effort of modeling causal relationships between their social and
environmental initiatives and financial performance.
Economic value
Economic value
Net cost decreases through
incremental innovation
•Brand value and reputation
•License to operate
•Attract and retain talent
Net revenue increases
through radical innovation
Energy divide
Sustainability issues affecting
strategic risks and opportunities
Climate change
Radical innovation for new products
and markets
H&S
performance
Social
performance
Environmental
performance
Incremental improvements in
Systemization of sustainability issues, value
drivers and the relevant corporate activities
•Local air pollution
•Biodiversity
•Human rights
•Monetary flows
Sustainability issues affecting operational risks
and opportunities
•Health
•Safety
Figure 8-27: Mapping the business case for sustainability (Salzmann, 2003b, p. 11)
Obviously these barriers to establishing a sound business logic also apply to the quantification
of the business case. The ex-ante quantification of the business case for a “small” and well-
defined corporate environmental or occupational health-related activity is relatively feasible.
However, large projects or group activities are impossible to assess.
It works for lost workdays (insurance figures) and emissions trading (penalty cost,
average trading costs). We have tried, but it is difficult for the soft issues (OG5,
SO).
Building a quantified business case for sustainability is not possible. We have
generated quantitative case-based, ex-post evidence, which is not generally
applicable. With the exception of carbon cost accounting, one has to “jump”
175
between corporate strategy and individual case studies. So, we are looking for
additional tools (UT3, SO).
Interviews suggest that decisions are primarily taken based on projects and issues whose
relevance is assessed through risk assessment procedures described above. As the second
quote above illustrates, most companies perceive their current methodologies for quantifying
the business case as insufficient. This is not surprising if one takes into account the diagnosed
lack of causal modeling: Quantification and necessary methodologies are only meaningful if
they can be based on business logic that postulated a causal link between a social or
environmental initiative and changes in economic performance.
It is important to note, however, that neither sustainability officers nor general managers
called for an ex ante quantification in all situations. Interviewees often argued that the
business case for more efficient and safer processes is obvious and does not necessarily
require quantification – investments are already built around environmental, health and safety
issues. A plausible business logic without exact quantification was claimed to convince
bystanders in the company, provided that positive moderating factors such as a proactive
organizational culture exist:
Business plans and projects to increase environmental and social performance
should be based on an “earnest logic,” quantification is not necessary, even if –
obviously – a RoI figure would be the most compelling (OG5, finance).
However, this claim raises two important questions:
1. How convincing is business logic (without quantification) in times of financial
pressure or after changes in strategy or management?
2. How compelling can business logic be, if external pressure on companies and hence
financial threats and opportunities are marginal?
In light of the two questions above, it is obvious that quantification remains on companies’
agenda: One of the leading OG companies is currently developing methodologies to quantify
the economic potential of certain corporate activities. It focuses on value constructs such as
the formal and informal license to operate and employee satisfaction. However, it would be
unrealistic to expect tools that go far beyond a project- and issue-based quantification of the
business case, i.e. for example
- a quantified link between CSM and employee satisfaction (e.g. through multivariate
analyses of employee surveys) and resulting financial effects
- case-based evidence for economic gains of obtaining permits faster and minimizing
disruptions of operations in developing countries through comprehensive stakeholder
dialogues, community involvement and sound environmental management.
8.4.3.4 Discussion
Focus on operational risks rather than strategic opportunities
Overall evidence reveals a clear dilemma in the business case for sustainability, which can be
briefly depicted as follows:
1. Cost reductions can be rather easily achieved through incremental innovations. They are
easy to quantify and provide a robust business case for improvements in environmental,
health and safety performance. However, corporate initiatives in this area only resolve
some of the environmental and social issues both sectors face.
2. Value constructs such as brand value, reputation and employee satisfaction are currently
considered the most important value drivers (constructs) but are intangible. The actual
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economic value attached to them – as either cost decreases or revenue increases – can be
created through both incremental and radical innovation but is yet to be leveraged. Brand
value does not per se improve financial performance, hence it is often difficult to quantify
as most interviewees pointed out.
3. The business case for radical innovation through revenue increases is weak. However,
only a sound business case for more radical innovation (beyond e.g. incremental process
modification to improve eco-efficiency) would lead to more accentuated approaches to
resolve the two major strategic issues: climate change and the North-South energy divide.
In this situation, companies have moved beyond a mere cost reduction focus and also consider
value constructs such as brand value and reputation, i.e. the informal license to operate,
compelling arguments for CSM. Current demands for CSM from stakeholders are satisfied by
incremental improvements to corporate activities, which clearly reflects the fact that the
strongest business case can be built and quantified for the management of operational risks
rather than strategic opportunities.
Overall, the business case for corporate sustainability is rather marginal, and therefore – as
Steger (2004, p. 72) also argues based on recent cross-industry evidence – corporate
sustainability is largely dominated by the “daily grind of business and maximizing
shareholder value.” Several significant barriers to a “breakthrough business case” exist –
including technological trajectories and business systems (upstream and downstream) into
which industries are locked; consumer inertia; and managers’ attitudes (p. 68)
Issue integration
Qualitative data provide an overview of companies’ structures, processes and tools used to
identify, map, prioritize, and integrate issues into corporate decision-making. It appears that
laggard companies have a rather inadequate portfolio of such tools, although the exploratory
interview-based approach, on which this conclusion is based, inherently lacks generalizability.
The author suggests that a further more intensive rather than extensive study (i.e. based on
more in-depth analyses in fewer companies) could more closely analyze organizational
settings (cross-business teams), procedures (risk reviews) and tools (e.g. carbon cost
accounting) used to integrate issues into corporate decision-making, and thus more precisely
identify gaps, best practices and success factors for issue integration.
Evidence shows that the portfolio of tools, particularly for issue prioritization, are
characterized by a distinct focus on risk, which reflects the predominantly risk-based business
case for sustainability – as described in the previous paragraphs. It also points to the
importance of the principle of managerial discretion: Individual managers or issue teams have
a great effect on CSM, since their efforts in identifying and evaluating issues result in
assumptions, cause-effect understandings, predictive judgments, languages and labels, which
determine “in large part, however implicitly, the subsequent of course of decision making”
(Dutton et al., 1983, p. 310).
This finding offers an additional explanation for companies’ largely incremental and reactive
approach to CSM. Reactive attitudes and lack of knowledge and expertise among individuals
who identify and prioritize issues may negatively affect issue integration, particularly if issues
are complex and thus require a substantial amount of personal judgment. This insight calls for
the employment of experienced and well-trained staff for processes of issue prioritization in
particular.
Building and quantifying the business case for sustainability
Obviously managers would prefer more robust, quantified business case for sustainability
over a more elusive one, which is associated with greater uncertainty of decision-making
processes. Qualitative data obtained in this study show that the business case for sustainability
177
at the robust end of the spectrum is limited to rather obvious situations (e.g. efficiency
improvements).
Universal ex ante quantifiable business case
Compelling business logic without ex ante
quantifiable business case
Backed up by anecdotal, ex post evidence
Corporate values and culture
Moral case for sustainability
Robust
Elusive
The case for sustainability
Figure 8-28: Different cases for corporate sustainability
This finding can be attributed to several reasons:
1. Complexity caused by a plethora of often highly fragmented issues. Figure 8-29 illustrates
how difficult it would be to comprehensively assess the financial opportunities and threats
that relate to only one issue such as climate change. Although complexity is largely
systemic, some of it could be reduced by decreasing the diagnosed lack of organizational
resources (see point 2 below).
2. Lack of resources. Data management (to track issues and activities) can be challenging,
particularly in large multinational organizations, and thus requires certain tools and
systems. Furthermore, it is difficult to develop and retain the managerial expertise
necessary to assess and process the data available.
3. Marginality of the business case and companies’ corresponding lack of interest. As
mentioned earlier, the outside pressure to respond to social and environmental issues – e.g.
the scrutiny from the financial sector, mandatory emissions trading systems, increased
demand for renewable energy products, etc. as depicted in Figure 8-29 to illustrate the
example of climate change – is limited. Companies can do very little in the short term to
influence this marginality. The viability of more sustainable technologies and business
models and hence a more substantial financial effects of CSM clearly depends on
contributions from multiple stakeholders (changes in regulations, customer behavior).
From the company side, the development of pilot projects and lobbying for new business
systems are possible but also highly risky options.
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The business case:
Financial threat or opportunity
Corporate activity
Issue significance
as perceived by the managers:
Managers’ mindset, knowledge
(e.g. cognitive maps)
Corporate culture and tools
Costs Revenues
Consumer protests and boycotts
NGO campaigns
Shareholder resolutions
Increased demand for
renewable energy
(e.g. production and use of fossil fuels likely to be associated with climate change)
Current and future
Outside pressure
to minimize the effect
Scrutiny of CO2 intensity
by financial sector
Eco-taxes
Brand value and reputation
Employee satisfaction
Access to capital
etc.
Figure 8-29: The complexity of the business case for sustainability
In this situation companies claim that a proactive organizational culture is as an equally
pragmatic and effective “strategy” to ensure the integration of issues into decision-making
(Salzmann, 2004, p. 136). This result is also in line with cross-sector findings from Steger
(2004, p. 41) suggesting that a “corporate culture of doing the right thing” – in addition to the
realization that the monetary costs of initiatives is small – relieves managers from the pressure
of providing monetary quantification. Several authors have also argued along these lines,
maintaining that corporate sustainability is essentially driven by a normative case (Schendler,
2002; Simms, 2002). However, it is obvious that strategies and projects that exhibit such
elusive justification become vulnerable to cutbacks in times of increased financial pressure or
changes in leadership (Henriques et al., 1996; Morsing, 2003).
If a business case cannot be quantified ex ante, one can also fall back on a less robust case
such as a compelling business logic that can be backed up by anecdotal evidence and
supported through an ex post quantified case (Andersson et al., 2000, p. 564). This finding is
also in line with conclusions from Steger (2004, p. 39, 62) across several industry sectors. He
states that the difficulty of quantifying the business case beyond project-related estimates does
not present a serious barrier to social and environmental initiatives, as long as the initiatives
support the core business strategy. However, the diagnosed lack of approaches that aim to
systematically link corporate activities resolving issues with a positive economic effect
suggests that a conclusive business logic is largely missing, particularly in laggard companies
(Wheeler et al., 2000, p. 291). This most certainly is another strong explanatory factor for
companies (and stakeholders) falling back on normative justification.
The author suggests that individual proactive attitudes and greater experience (as discussed in
section 8.3 Managers) may be particularly effective in a situation in which the business case
for sustainability is elusive rather than robust. A mandate for CSM without a strong,
quantified business case is more likely to come from a corporate executive who is able to
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understand the issue under consideration and to perceive an economic logic for its integration
(Schendler, 2002, p. 29).
Overall the present study is able to hint at several conclusions on the quantification of the
business case for sustainability. However, it also clearly points to the need for further – and
rather quantitative – research in this area to obtain (1) more generalizable results and (2)
deeper insights into the importance of quantification, the nature and effect of initiatives aimed
to quantify the business case, and the significance of systemic and internal barriers to
quantification efforts (e.g. marginality of the business case, complexity, organizational
deficits).
Based on the findings presented above, IMD’s Forum for Corporate Sustainability launched a
follow up empirical study (Salzmann, Steger, & Ionescu-Somers, 2005b) to:
- examine the role quantification plays in companies in building the business case for
corporate sustainability
- identify the main factors deterring quantification.
It is based on a sample of 300 managers, mainly sustainability experts in rather exposed
industries (such as also oil & gas) and large multinational companies, and features a
conceptual framework depicted below:
CSM LEVEL
Tools
Business logic
DETERRING
FACTORS
Insufficient issue
tracking
Marginality
of business case
Complexity Strong
soft factors
Lack of staff time and
experience
Strong
business logic
Data managementSystemic factors Demand/Need
IMPORTANCE
LACK
Importance of quantification
Location of lack
Lack of quantification
ACTIVITIES
Benefits - ex ante
Benefits - ex post
Costs - ex ante
Costs- ex post
Frequency of quantification
Organizational factors
Figure 8-30: Conceptual Framework (Salzmann et al., 2005b, p. 6)
The authors drew the following conclusions:
- Costs and risks are less diffuse and immaterial, hence they are also more easily understood
by managers (as suggested above in the present study), and traceable by existing systems
and tools (investment proposals, accounting systems). Hence they are more frequently
quantified than benefits and opportunities (Salzmann et al., 2005b, p. 13). Companies’
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portfolio of quantification tools is limited and – as expected from the interviews in the
present study – dominated by pragmatic (rather than sophisticated) and risk-oriented
methodologies.
- Companies fail to produce more ex post, i.e. case-based, quantified evidence for
opportunities and benefits due to a lack of staff time and experience as well as complexity.
This lack of ex post evidence is likely to be very critical, as opportunities and benefits in
most cases only materialize over time. If they cannot be tracked, the upside potential of
sustainability initiatives remains undetected (Salzmann et al., 2005b, p. 14).
- Causal modeling (or business logic) is essential to CSM for two reasons: First, in many
cases quantification is hindered by organizational factors (lack of resources and need) and
systemic barriers (e.g. complexity). Second, quantification without business logic has no
meaning (Salzmann et al., 2005b, p. 15). It is important at least to attempt a validation of
causal models through quantification, as corporate decision-making could be seriously
affected by half-baked assumptions and false preconceptions (Ittner & Larcker, 2003, p.
91; Salzmann et al., 2005b, p. 15). Both quantification and business logic (without
quantification) contribute significantly to CSM.
- There is significant lack of quantification, which prevents corporate sustainability
initiatives from being undertaken. As Salzmann et al. (2005b, p. 16) are able to show, this
lack is determined by organizational factors (and not – as often presumed – by systemic
factors), namely (1) companies’ inability to track the social and environmental effects of
initiatives, which clearly makes a comprehensive quantification of the resulting economic
effects impossible; (2) corporate culture and management education; and (3) the role and
sophistication of causal modeling/business logic. Lack of quantification also become
greater at more aggregated levels (corporate or policy level and the business unit level),
whereas quantification at the project level appears to be less challenging, obviously since
the compatibility and quantity of relevant data is less of a problem. The significant lack of
quantification at the more aggregated levels also clearly reflects managers’ desire for more
holistic and comprehensive measurement to support their decision-making (as suggested
above in the present study). Overall this suggests that companies should initially focus on
projects and quick wins whose social, environmental and thus economic effects are easier
to measure.
- Systemic factors play a clearly less significant role than organizational factors in
determining companies’ activities to quantify the economic effects of their sustainability
initiatives. However, their influence is not insignificant. Marginality of the business case
is linked to less frequent quantification. It is important to note that Salzmann et al. (2005b)
also reveal companies’ tendency to marginalize the business case if they exhibit
organizational deficits, i.e. to a certain extent marginality reflects an inaccurate
preconception. This clearly puts interviewees’ arguments of marginality (as discussed
above in the present study) into perspective.
- The study furthermore shows that companies’ data management has an essential
weakness. The inability to measure the social and environmental effects of initiatives, and
thus generate data on the basis of which economic effects can then be quantified. To
clarify: The economic effect of an initiative – e.g. cost savings in the form of reduced
fines, lower insurance costs, etc. through improvements in corporate environmental, health
or safety performance – can only be seriously measured if its social or environmental
effects are measured, i.e. fewer lost workdays, reduced number of spills, etc. Since
companies are largely unable to generate the basic data, the processing of the data by
experienced staff represents a less significant bottleneck.
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- Demand-related factors were found to be of significant but generally overstated
importance (Salzmann et al., 2005b, p. 17): Strong causal modeling/business logic makes
quantification less important, i.e. sustainability initiatives are indeed less likely to be
rejected if their economic effects have not been, or could not have been, quantified.
However, it is clearly no panacea either, as companies indicating a strong dominance of
business logic, making quantification obsolete, suffer from insufficient data management
and thus also greater complexity. The overstatement of soft organizational factors was
particularly obvious. It appears that a proactive corporate culture and management
education – supposedly meant to make quantification less important – are often associated
with insufficient data management capacities and with a consequent tendency to blame
external systemic factors for a lack of quantification.
Salzmann et al. (2005b) were unable to detect any differences across different industries, most
likely due to an insufficient sample size per industry. However, it appears likely that more
risk-exposed sectors such as energy and chemicals exhibit a greater capacity for data
management than others. The study leaves room for further research, since it differentiates:
- neither between different kinds of value drivers and constructs. This differentiation
remains particularly interesting, since value constructs such as risk reduction, the license
to operate, brand value and reputation (see Chart 8-31 and Chart 8-32) are the current key
arguments for promoting CSM internally.
- nor between different kinds of sustainability initiatives. Hence there is still a lack of
quantitative evidence on which social or environmental initiatives primarily lend
themselves to quantification and are thus easiest to promote. A comparison with
companies’ current portfolio of initiatives could then also reveal to what extent the
quantifiability of effects determines companies’ selection process for certain
environmental and social activities.
Based on the findings presented above and in complementary sections of this study, the author
developed the following model to capture the main determinants of the business case for
corporate sustainability: The financial opportunities and threats associated with social and
environmental issues are determined by systemic and organizational factors. Systemic factors
are largely beyond corporate control (at least in the short term).
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Business
case
Issues
Marginality
Financial
opportunities
and threats
Complexity
Tools/Systems
Structures
Soft org. factors
Causal
modeling
Validation
Systemic factors Organizational factors
• Corporate culture
• Top management
commitment
• Impact assessment
• Early awareness
system
•etc.
• Cross-functional
• Cross-business
Managers
• Knowledge
•Awareness
• Availability
• Regulatory and
market frame-
work
• Technology
(lock-in)
•Time
• Scope (corporate
vs. plant level,
single vs.
multiple issues)
Figure 8-31: The business case and its determinants
This also means that there are interactions between both factors: Companies with elaborate
structures, tools and systems as well as more skilled and proactive managers are likely to
consider financial threats and opportunities less complex and less marginal. The framework
conceptualizes companies’ motivation to improve on their organizational capacities, which
contribute to causal modeling (formulated business logic) and subsequent validation (through
quantification). They include:
- Tools and systems to collect and process relevant data
- Structures that improve data management, facilitate decision-making and strengthen
organizational alignment
- Skilled managers who complement the “technicalities” of tools and systems
- Soft organizational factors that can have a significant moderating force, which
however should not be overestimated.
The author concludes with the following remarks:
First, the empirical findings presented above point to one further dilemma: As long as social
and environmental initiatives (e.g. initiatives to stop flaring, or other investments in eco-
efficient processes, improvements in labor conditions) are undertaken “on the side” (as an
add-on), their relevance to core business strategies is rather difficult to prove and
communicate. However, their effects are also easier to isolate. This means conversely that
building a quantitative business case for sustainability becomes more difficult, the more
integrated companies’ approaches to CSM become (Salzmann et al., 2005b, p. 19), i.e. the
more relevant CSM becomes to the core business strategy. How will the importance of
quantification develop if CSM becomes more and more integrated? It is obvious that higher
183
levels of integration into business strategies (and eventually a “sustainable” business model)
would make “special treatment” through complex causal models and their validation
increasingly obsolete.
Second, the lack of quantification described above is not inherent to CSM only. It has also
been discussed in the context of non-financial measurement. Non-financial measurement has
developed during the 1980s and 1990s to facilitate a more holistic and strategic assessment of
corporate performance (Kennerley & Neely, 2002, p. 145). It goes beyond the traditional
focus on financial measures and often lagging indicators (e.g. accounting figures treating
investments merely as costs and thus failing to recognize the potential generation of future
revenues), but obviously bears the challenge of measuring future and intangible effects. Hence
it is not surprising that empirical research in this domain yields results very similar to those
presented above: Most importantly studies found a significant lack of non-financial
measurement, mainly due to laziness and thoughtlessness (Ittner et al., 2003, p. 90; Reid,
Tarbert, & Thomson, 2000). Here the author points to significant unexploited potential for
cross-pollonization between both domains in both practice and research. The following
questions are particularly interesting:
- To what extent can methodologies and staff expertise be pooled?
- Is there a link between companies’ capacity for non-financial measurement and their
ability to quantify their business case for sustainability?
Third, there appears to be a certain parallel between the role of systemic and organizational
barriers and the importance of external and internal barriers to CSM: Companies’ current
approach to CSM is incremental and hindered by internal barriers, hence existing external
barriers, namely the lack of awareness of the key transactional stakeholders, have not yet had
a significant effect. In line with this, the systemic barriers to quantification – a marginal
business case for corporate sustainability and the complexity associated with environmental
and social effects – play a minor role. A lack of quantification is mainly caused by
organizational barriers. Overall this suggests that companies have – as legitimate as blaming
external barriers may be – failed to build up the necessary capacity for a fully systematic
approach to CSM. This most certainly applies to laggard companies in particular.
Contingency perspective on the business case for sustainability
Evidence presented suggests that OG companies have more developed processes to integrate
issues and a broader perspective on significant value drivers, which reflects their sector’s
higher position on the CSM learning curve. Obviously OG companies have been confronted
with issues and an economic argument for their integration more often than UT companies
due to higher issue and organizational visibility in their sector. This also means that OG
sustainability officers are more often required to conclusively articulate the economic
rationale for corporate sustainability.
Overall the study clearly reveals a strong contingency character of the business case for
sustainability, which also explains why the plethora of instrumental studies that tried to link
(mostly) social and financial performance produced largely inconclusive results: There is a
business case for sustainability, if a process of issue integration leads to an increase in social
and/or environmental performance and has a positive net effect on financial performance (see
Figure 8-27). Issues and corporate activities to resolve them – and thus obviously their social,
environmental and economic effects – vary between countries (e.g. different regulatory and
societal pressure), industry sectors, business units and sites (e.g. different processes and
products) (Lankoski, 2000, p. 150).
This strong contingency character points to the need to assess all three dimensions of
corporate performance (financial, environmental and social) at less aggregated levels than
184
earlier studies which used e.g. reputation scores and multi-dimensional measures of
sustainability indices as measures of social performance. Such measures obviously mask
individual issue-specific relationships between social/environmental and financial
performance: Whereas one corporate response to a certain issue may lead to a positive net
economic effect, another response to another issue may be associated with a negative net
economic effect, depending on various parameters such as individual cost structures; the level
of outside pressure, which influences the level of issue integration; etc. Thus instrumental
studies would clearly become more meaningful if they focused on only one issue or
environmental/social intake and corresponding corporate activities.
8.4.4 Implementation
The following section deals with the implementation of CSM. It respectively focuses on the
following key areas:
- the use of management tools, their current focus and gaps, as well as their effect on CSM
success (section 8.4.4.1 Management tools)
- structure, i.e. the level and potential of cross-disciplinary collaboration, and its effects on
CSM success (section 8.4.4.2 Structure)
- corporate initiatives, their current focus and their link with CSM success (see section
8.4.4.3 Corporate initiatives)
8.4.4.1 Management tools
8.4.4.1.1 Qualitative analysis and basic statistics
Chart 8-33 to Chart 8-36 exhibit the portfolio of tools used in companies in relation to
corporate sustainability as reported by both general managers and sustainability officers. It
difficult to single out one or two dominant tools based on the proportions, but it is notable that
corporate values, policies and standards takes the greatest share in all charts. This is not
surprising since they – as the interviews also suggest – are the basic, essential means of
integrating CSM into the organization: They primarily create a common understanding within
companies.
However, categorization into data management, managers’ management and conflict
resolution yields several additional insights (see Table 8-7):
The proportions point to an early stage in companies’ phase of strategic redirection to CSM.
For both sectors they reveal a dominance of (1) data management tools that provide relevant
infrastructures and information needed to use other management tools; and (2) soft managers’
management tools such as corporate values, policies and standards and management
development, which alter perceptions of the management. In contrast “harder” tools such as
reward and punishment systems, which are rather at the end of a redirection process, only
account for a minor proportion (Doz et al., 1988, p. 76).
185
Business teams and
task forces to resolve
conflicts and push
improvements on an
operational level
11%
Coordination
committee discussing
and pushing strategic
decisions at corporate
level
11%
Reward and
punishment systems
8%
Management
development
9%
No initiatives
1%
NR
0%
Other
0%
Measurement tools to
increase transparancy
17%
Tools measuring
resource allocation
11%
Strategic planning and
accounting procedures
10%
Corporate values
policies and standards
22%
Tools measuring
resource allocation
12%
Management
development
8%
NR
1%
Measurement tools to
increase transparancy
21%
Strategic planning and
accounting procedures
12%
Other
1%
Reward and
punishment systems
4% Corporate values
policies and standards
23%
Coordination
committee discussing
and pushing strategic
decisions at corporate
level
8%
Business teams and
task forces to resolve
conflicts and push
improvements on an
operational level
7%
No initiatives
3%
Chart 8-33: Tools and systems related to corporate
sustainability (General managers – OG)
Chart 8-34: Tools and systems related to corporate
sustainability (General managers – UT)
Corporate values,
policies and
standards
22%
Tools measuring
resource allocation
6%
Measurement tools
to increase
transparency
14%
Management
development
16%
Reward and
punishment systems
7%
Strategic plannin
g
and accounting
procedures
10%
Coordination
committee
discussing and
pushing strategic
decisions at
corporate level
13%
Other
0%
Business teams and
task forces to
resolve conflicts and
push improvements
on an operational
level
12%
No initiatives
0%
Management
development
10%
Reward and
punishment systems
10%
Other
5%
Strategic planning
and accounting
procedures
12%
Corporate values
policies and
standards
19%
Coordination
committee
discussing and
pushing strategic
decisions at
corporate level
15%
Business teams and
task forces to
resolve conflicts and
push improvements
on an operational
level
7%
Tools measuring
resource allocation
7%
Measurement tools
to increase
transparency
15%
No initiatives
0%
Chart 8-35: Tools and systems related to corporate
sustainability (Sustainability officers – OG)
Chart 8-36: Tools and systems related to corporate
sustainability (Sustainability officers – UT)
Qualitative data similarly point to companies’ initial stage of redirection. Sustainability
officers in particular are clearly aware of the necessity for and lack of adequate tools. The
current gaps are mostly tools to ensure organizational alignment, i.e. managers’ management
tools and conflict resolution tools:
We are aware of social and environmental problems, but are looking for a sound
methodology to assess social impacts. So far, a we lack expertise and resources
(OG4, SO).
We, the industry, are quite good at issue tracking and evaluation. Organizational
alignment is the most difficult step (OG5, SO).
The use of more sophisticated strategic tools such as scenario analysis and backcasting is
rarely reported. The lack of such tools is justified by the fact that they are applied by industry
associations or multi-industry platforms. Carbon cost accounting is increasingly used in both
sectors to internalize current and future costs of CO2 emissions. At the project level,
186
investment appraisals also increasingly feature this full cost approach. Cost benefit analyses
incorporate issues that are hard to quantify.
OG sector UT sector Sector and
discipline
Tools
General managers Sustainability
officers
General managers Sustainability
officers
Data management tools
- Measurement tools
- Tools to measure resource allocation
- Strategic planning and accounting procedures
38% 30% 45% 34%
Soft managers’ management tools
- Corporate values, policies and standards
- Management development
31% 38% 31% 29%
Hard managers’ management tools
- Reward and punishment systems
8% 7% 4% 10%
Conflict resolution tools
- Coordination committees (strategic level)
- Business teams (operational level)
22% 25% 15% 22%
Table 8-7: Portfolio of management tools used in companies (based on Doz et al., 1988)
Differences in the use of management tools across the two sectors and disciplines displayed in
the table are difficult to interpret: They are partly contradictory, which could also be due to
the fact that the small SO sample has biased the results (SO respondents may not necessarily
come from the same companies as general managers):
1. Data from both management disciplines consistently point to a larger share of data
management in the UT sector, which could point to a more basic portfolio of tools in the
UT sector.
2. The share of soft managers’ management tools appears to be similar in both sectors,
judging from the GM data; and greater in the OG sector, judging from SO data. There is
also an inconsistency in the share of hard managers’ management tools: According to
general managers the share of hard managers’ management tools is greater in the OG
sector, according to sustainability officers it is greater in the UT sector. In both cases the
author prefers to trust the GM rather than the SO data due to the greater sample size, and
thus concludes that the greater share of hard managers’ management tools in the OG
sector reflects the OG sector’s higher level of implementation.
These results are also in line with the absolute frequencies of management tools used. The
following cross-sector differences are statistically significant, and also clearly point to a more
advanced approach to CSM in the OG sector, with more resources allocated to it:
- OG general managers more often report the use of corporate values, reward and
punishment systems, management development, coordination committees and business
teams than their counterparts in the UT sector.
- OG sustainability officers more often indicate the use of management development than
UT sustainability officers do.
Furthermore, statistically significant cross-disciplinary differences can be detected: OG
general managers more often report the use of tools to measure resource allocation, they less
often report the use of management development than OG sustainability officers. This
variation is somewhat indicative of the mindset and awareness of both groups: Sustainability
officers see a greater need to build expertise among general managers, whereas the latter tend
to be more focused on and concerned about the allocation of adequate financial resources for
corporate social and environmental initiatives.
The author concludes that both sectors have portfolios of management tools that point to an
early stage of strategic redirection to CSM, in which organizational alignment is the key
challenge. However, the greater number of management tools used in OG companies clearly
187
reveals a more advanced stage of their sector, which can be attributed to stronger external and
internal drivers elaborated on in the previous sections.
8.4.4.1.2 Advanced statistics
The following regression models (see Regression Table 8-14) show that several kinds of
management tools affect CSM success.
T model OG model UT model
Number of
obs
F
Prob > F
R-squared
Adj R-
squared
Root MSE
163
10.97
0.0000
0.1715
0.1559
.70013
113
9.19
0.0000
0.2019
0.1799
.7172
49
4.21
0.0209
0.1548
0.1181
.61235
Coefficients
Incentive tools
Strategy tools
Business teams
Constant
.4004324
.2821253
.2980669
3.08246
Incentive tools
Management
development
Coordination
committees
Constant
.3766003
.3814714
.3349719
3.065055
Business teams
Age - over 50
Constant
.4606742
.5200642
3.128411
Regression Table 8-14: CSM success - CSM tools (Reduced submodels)
In the total sample, incentive tools, strategy tools (e.g. strategic planning and accounting
procedures) and business teams have a positive effect on CSM success:
- Incentive tools such as “hard” managers’ management tools appear to be effective at
facilitating organizational alignment and thus contributing to CSM, since they effectively
change managers’ perceptions and expectations, since they strongly define “intra-
organizational rules of the game” (Doz et al., 1988, p. 76).
- Strategic planning and accounting procedures rather than tools that measure resource
allocation or increase transparency (through e.g. the measurement of material and waste
flows) appear to be the most effective data management tools. This is plausible, since
strategic planning and accounting procedures provide an important strategic context in
which other data management tools (such as e.g. resource allocation) function more
effectively. They indicate a more integrative and advanced approach to CSM as they (1)
inextricably link issues with corporate decision-making (e.g. Ontario Hydro’s approach to
full cost accounting described in ICF, 1996) and (2) deliberately set out “to contemplate
radical environmental change and pressures, and to challenge conventional thinking at the
senior management level” (e.g. scenario building) (Kolk et al., 2001, p. 506; Skjaerseth et
al., 2001, p. 53).
- The positive effect of business teams confirms the necessity to resolve conflicts within the
organization. However, it is not immediately obvious why conflict resolution at the
operational level (through business teams) rather than at the corporate level (through
coordination committees) is a significant determinant of CSM success in the T model. A
look at the sector-specific models reveals that CSM success is determined through conflict
resolution at the corporate level in the OG sector, at the operational level in the UT sector.
It is unlikely that this result suggests that OG companies exhibit greater conflict at the
corporate level than UT companies, which hence only have to rely on business teams to
resolve conflicts at the operational level. If one takes into account the qualitative data and
basic statistics presented in the previous section, this result most likely indicates a more
strategic (and thus corporate) approach to CSM in the OG sector. Thus the effect of
188
business teams in the UT sector indicates that CSM success is still merely pursued at the
operational rather than the strategic corporate level. Since business teams rather than
coordination committees feature in the total model, the author concludes that overall, in a
broader population of energy companies, the success of corporate environmental and
social initiatives is still largely determined at the operational level.
Compared to the UT model, the OG model features a greater number of independent
variables, which could be partly caused by smaller constraints in the degrees of freedom.
However, also based on the evidence presented in the previous section, it is just as likely that
more tools have a statistically significant positive effect on CSM success because OG
companies use management tools more effectively and to a greater extent: The OG model
shows two additional positive coefficients for the effect of incentive systems and management
development. In particular the influence of incentive systems as a hard managers’
management tool indicates a more advanced and integrative approach to CSM compared to
the UT sector. The positive effect of management development is also in line with the
importance that OG sustainability officers and general managers attach to this tool in
particular, and suggests that OG managers are better trained in the area of corporate
sustainability.
The UT model indicates that respondents aged 50+ tend to overestimate CSM success
compared to respondents who are younger than 35, supposedly because they are more
strongly settled in their senior positions and exhibit a more conservative and reactive mindset
(as suggested by qualitative data presented above). Hence they are less aware of the key issues
and the need to improve corporate environmental and social performance. The T model shows
a negative effect of North-American nationals compared to other respondents. This negative
bias corresponds to a negative bias of respondents operating in North America, and – as
suggested earlier – could be attributed to both stronger external (less interest from customers
and investors) and internal barriers (most likely corporate cultures) to corporate sustainability.
Based on the regression models, one can conclude that:
- All three types of management tools (data management, managers’ management and
conflict resolution) contribute to a more effective implementation of CSM.
- The OG sector has a more strategic and integrative approach through existing (and more
effective) incentive systems and management development.
8.4.4.1.3 Discussion
Portfolio of management tools
Quantitative data reveal an emphasis on data management tools and “softer” managers’
management tools and thus indicate a rather early stage in companies’ strategic redirection to
corporate sustainability. This also explains why interviews consider organizational alignment
the key challenge of CSM.
“Harder” management tools such as incentive systems are yet to be implemented
comprehensively. Their role is particularly significant, since soft tools become less effective
as soon as financial pressure increases. However, their introduction cannot be forced in large
multinational organizations. First softer tools are necessary to “unlock and challenge the
dominant perspectives” and thus gradually legitimize the strategic redirection (Doz et al.,
1988, p. 76).
The importance of data management tools should not be underestimated, since they reduce
information gaps and lack of direction, which prevent shifts in decision-making due to
uncertainty (Sharma et al., 1999, p. 95). They also effectively contemplate radical changes
189
and challenge conventional senior management thinking, as can be seen from the effects of
Shell’s scenario building (Kolk et al., 2001, p. 506).
The present study also reveals that different management tools are used at different levels of
the organization. But it is limited in terms of its depth and is thus unable to analyze either the
cross-level use of tools or the tools and their strengths and weaknesses in more detail. A more
intensive in-depth empirical approach could substantially contribute to a more thorough
understanding of existing bottlenecks and best practices in terms of management tools that
relate to CSM.
It should be taken into account that both quantitative and qualitative data were obtained from
leading companies in their sectors. If their managers, and sustainability officers in particular,
state a lack of tools, it is obvious that the portfolio of tools in laggard companies are even
more incomplete.
Effects of management tools
Both qualitative data and regression models provided show that management tools affect
CSM success. This finding is in parallel with the principle of corporate discretion
incorporated in this study’s framework. It also significantly complements results presented in
section 8.4.1 Company-specific determinants, which pointed to a rather low (statistically
insignificant) influence of tools (and processes) as barriers to CSM. The positive effects on
CSM success detected for certain tools in the present section suggests that the lack of tools
and processes did not attain statistical significance in the regression models above for two
complementary reasons: (1) constraints in the degrees of freedom, and (2) a lack of
differentiation between the plethora of different tools. The diagnosed significance of
management tools also matches findings from other authors such as Kolk (2001) and Sharma
(1999).
The present study does not allow for a detailed analysis of the relative effectiveness of
individual tools or tool categories such as e.g. data management, managers’ management and
conflict resolution tools. Such an assessment could contribute substantially to the more
effective development and application of management tools in the area of CSM. Since tools
are not equally effective throughout a process of strategic redirection (Doz et al., 1988, p. 76),
descriptive research in this area should also examine the effectiveness of tools contingent
upon companies’ stage of redirection.
Based on the qualitative and quantitative evidence gathered, the author argues that
management tools that effectively change managers’ perceptions and attitudes, e.g.
management development and incentive tools, tend to be particularly effective. This is
because these tools build motivation and expertise among managers who are thus enabled to
react more proactively in situations of great uncertainty and complexity, which frequently
occur when standardized systems and processes are unable to grasp the complexity and
dynamics of the plethora of current or emerging social or environmental challenges.
Contingency perspective on management tools
Both qualitative and quantitative data show that the UT sector lags behind the OG sector in
terms of the implementation of CSM: UT companies feature a relative lack of several soft and
hard managers’ management tools. Taking findings from the previous sections into account
(e.g. lower issue significance, less outside pressure, lower strategic disposition), this was to be
expected.
Cross-disciplinary differences in the reported use of two tools (measurement of resource
allocation and management development) are insightful insofar as they give away the
respective key agendas of respondents: General managers are concerned about their budgets
and are – as revealed in section 8.3 Managers for the UT sector – largely unaware of their
190
reactive mindsets, which constitute a significant deterrent factor for CSM. Sustainability
officers appear to have recognized this shortcoming and put more emphasis on changing
mindset through management training.
8.4.4.2 Structure
8.4.4.2.1 Qualitative analysis and basic statistics
The level of cross-disciplinary collaboration is rather low in both sectors: In the UT sector
almost 40% of the respondents do not work with their sustainability or environmental officer
at all.
Cross-disciplinary collaboration (1 = No collaboration” to 3 = “Collaboration on day-to-day basis”)
General managers
Sector Obs Mean Std. Err. Std. Dev. 95% Conf. Interval
UT
OG
48
120
1.8125
2.05
.1059249
.0601702
.7338691
.6591311
1.599407 2.025593
1.930857 2.169143
Table 8-8: Summary statistics – cross-disciplinary collaboration
The sector-specific means are just below or above a value of 2 (see Table 8-8), which stands
for collaboration on an ad hoc basis. The level of collaboration is lower in the UT sector, this
difference being statistically significant.
Furthermore, quantitative data also point to low levels of cross-disciplinary potential: The two
sector-specific means (located between 2 “little” and 3 “fairly”) reveal general managers’
significant skepticism of about the meaningfulness of cross-disciplinary collaboration (see
Table 8-9). This also suggests that cross-disciplinary collaboration has been rather ineffective.
In fact social desirability bias may have additionally concealed the real and most probably
higher level of skepticism.
Cross-disciplinary potential (1 = “Not at all” to 5 = “Very much”)
General managers
Sector Obs Mean Std. Err. Std. Dev. 95% Conf. Interval
UT
OG
45
117
2.4
2.940171
.1399856
.0918829
.9390517
.9938657
2.117878 2.682122
2.758185 3.122157
Table 8-9: Summary statistics – cross-disciplinary potential
General managers from the OG sector report greater cross-disciplinary potential than their
counterparts from the UT sector. Again this difference is statistically significant. The results
also give a clear indication of how cross-disciplinary potential should be interpreted:
Quantitative data point to more intensive cross-disciplinary collaboration in the OG sector.
Thus the OG sector’s greater cross-disciplinary potential is most unlikely to be an indicator of
a lack of structure. On the contrary, it suggests that respondents are more aware of the benefits
of cross-disciplinary structures, i.e. that CSM has been more effectively implemented. Results
of most correlations, particularly the positive association between cross-disciplinary
collaboration and potential, support this interpretation.
Overall the quantitative data reveal two clear findings: First general managers find it difficult
to collaborate. Second they consider collaboration ineffective. Both findings point to several
potential barriers within the companies surveyed, which are also found in the qualitative data:
- General managers have reactive mindsets and are under constant time pressure. Hence
they are unwilling and unable to deal with sustainability officers.
- In some cases environmental or sustainability infrastructure appear to lack resources
(personnel, training). In other cases corporate structure as such (bureaucratic, hierarchical)
is likely to prevent organizational alignment.
- General managers and sustainability officers lack a common language.
191
Furthermore, the low level of collaboration indicates that cross-disciplinary teams are (1) still
rare and (2) only bring together a small circle of managers. The data additionally suggest that
OG companies are less strongly affected by the internal barriers referred to above. This result
is in line with findings from the previous sections that point to a more advanced approach to
CSM in the OG sector, i.e. also to higher levels of implementation.
8.4.4.2.2 Advanced statistics
8.4.4.2.2.1 Correlations
Figure 8-32 and Figure 8-33 display all correlations between other variables and cross-
disciplinary collaboration and potential, respectively.
BBB
UCA
Managers
WW
CA
Issues Companies
Capital markets
Damage to legitimacy
Consumers
External stakeholders
Governments
PPPs
Industry
NGOs
Importance of legitimacy
SD familiarity
Structure
Strategic disposition
OG
UT
+_
T
Social issues
Env. issues
CSM intent
SD importance
Cross-disciplinary collaboration
Cross-disciplinary potential
CSM success
Figure 8-32: Correlations – Cross-disciplinary collaboration
192
Managers
Issues Companies
External stakeholders
PPPs
Industry
NGOs
Importance of legitimacy
CSM intent
SD importance
Strategic disposition
CSM success
OG
UT
+_
T
BBB
WW
SD familiarity
Structure
CA
Capital markets
Damage to legitimacy
Governments
UCA
Social issues
Consumers
Env. issues
Cross-disciplinary potential
Cross-disciplinary collaboration
Figure 8-33: Correlations – Cross-disciplinary potential
They will be discussed in the text that follows. For this purpose, both cross-disciplinary
collaboration and cross-disciplinary potential will be – in some cases – grouped together as
“cross-disciplinary structure.”
Issues
A more effective cross-disciplinary structure positively correlates with greater issue
significance. This indicates that (1) greater issue significance calls for more effective cross-
disciplinary structures, and (2) more effective cross-disciplinary structures lead to greater
issue awareness among managers (see section 8.1 Issues for a more detailed discussion).
Managers’ attitudes
A more effective cross-disciplinary structure positively correlates with more proactive
attitudes. This suggests that (1) more effective structures change managers’ attitudes, and (2)
proactive managers are more inclined to collaborate and perceive collaboration as more
worthwhile (see section 8.3 Managers).
External stakeholders and legitimacy
More effective cross-disciplinary structures are associated with the following:
- The perception of generally lower current demand for CSM from external stakeholders.
This indicates that leading companies (with more elaborate structures) feel less strongly
driven by external pressure (see section 8.2.3 Customers and section 8.2.1 Governments
and regulators). The positive correlation detected between cross-disciplinary collaboration
and governments’ SD role in the OG sample does not necessarily contradict this finding,
since governmental pressure on OG companies is generally low. Thus the positive link
could indicate a heightened awareness of future proactive government initiatives (e.g.
rising environmental standards in developing countries).
- Greater awareness of a future more proactive SD role of capital markets, which suggests
that more effective cross-disciplinary structures increase awareness of future demands
from external stakeholders (see section 8.2.4 Financial community).
193
- Greater sensitivity to the importance of retaining legitimacy (see section 8.2.6.1 The role
of legitimacy)
Furthermore, more effective cross-disciplinary structures positively correlates with the SD
role of industry, which suggests that cross-disciplinary collaboration increases respondents’
awareness of corporate activities and thus positively influences their view on the overall
performance of industry (see section 8.2.5 Industry and partnerships).
Strategic disposition
Cross-disciplinary collaboration positively correlates with strategic disposition (SD
familiarity, SD importance and CSM intent). This suggests that a more distinct and strategic
approach to CSM is characterized by more elaborate cross-disciplinary structures.
In contrast cross-disciplinary potential is unrelated to strategic disposition. As suggested
above, this missing link is probably caused through different mindsets, corporate cultures and
obviously structures that most likely subdue the associations (see section 8.4.2 Strategic
disposition).
Structure
Cross-disciplinary collaboration and potential positively correlate. This is in line with
conclusions in the previous section: The more closely respondents work with environmental
or sustainability functions in their company, the greater they consider the unexploited
potential of cross-disciplinary collaboration.
Hence greater potential indicates (1) respondents’ greater awareness of the complexity of
issues and the need to engage several business functions and units to resolve them, and (2)
more effective cross-disciplinary structures.
It should be noted that the correlation is positive but not statistically significant in the OG
sector, which suggests that the link exists but is subject to greater variation. As already argued
above, this points to several factors that moderate this relationship more strongly in the OG
than in the UT sector, since companies are larger and thus more complex and diverse. These
factors include corporate culture and structure, i.e. the current level of cross-disciplinary
collaboration: It is also possible that some respondents from leading OG companies that
already exhibit intensive cross-disciplinary structures may consider the still unexploited cross-
disciplinary potential relatively small.
CSM success
Cross-disciplinary collaboration is positively related to CSM success, which suggests that it
significantly influences the effectiveness of CSM, since obviously, as the remaining
correlations also suggest, it increases managers’ awareness of issues and thus changes
attitudes, facilitates cross-fertilization and consensus-building through individual and group
collaboration (e.g. business teams, coordination committees).
It should be noted that the link between CSM success and cross-disciplinary collaboration is
weak and statistically not significant in the UT sample. Again this finding matches evidence
presented in previous sections of a less advanced approach to CSM in UT companies.
Apparently the structures and processes needed to resolve environmental and social issues are
less evolved or simply lacking.
Unlike cross-disciplinary collaboration, cross-disciplinary potential is not related to CSM
success: Correlation coefficients are close to zero and not statistically significant. This is
plausible, since the assessment of potential is – alongside cross-disciplinary collaboration,
with which it positively correlates – also influenced by factors such as e.g. managers’ mindset
and corporate culture, and is subject to social desirability bias. These influences could subdue
an (expected) positive link with CSM success, which would have shown that more effective
194
cross-disciplinary structures increase the success of corporate environmental and social
initiatives.
Conclusion
Correlations presented above point to recursive relationships between cross-disciplinary
structures and several concepts of CSM, i.e. cross-disciplinary structures affect them and are
affected by them. Concretely, results suggest that
1. More effective cross-disciplinary structures increase issue awareness and are established
as a reaction to greater issue significance.
2. They lead to more proactive attitudes among managers due to increased awareness, and
they are used more frequently and effectively by proactive managers.
3. They lead to greater awareness of external stakeholders’ demands, and are established as a
reaction to greater demands from them.
Furthermore, correlations show that more effective structures tend to be established as a
consequence of companies’ greater strategic disposition to CSM and lead to more effective
CSM.
Links between cross-disciplinary collaboration and potential with the other variables are
largely congruent, but diverge in some cases, e.g. cross-disciplinary potential – unlike cross-
disciplinary collaboration – is not related to industry’s SD role (see section 8.2.5 Industry and
partnerships), strategic disposition (see section 8.4.2 Strategic disposition) or CSM success.
This points to a significant difference in the assessment of the two concepts. Cross-
disciplinary collaboration, i.e. the intensity of collaboration, is assessed very straightforwardly
(no collaboration, ad hoc or daily).
In contrast, cross-disciplinary potential, i.e. the effectiveness of cross-disciplinary
collaboration, is subject to several “hidden” influences that apparently comprise:
- Managers’ mindset: Some respondents may prefer teamwork, others not.
- Corporate culture: Does the corporate culture foster or promote collaboration?
- Corporate structure: How is cross-disciplinary collaboration organized, how intensive is it
and how great is the potential to improve it?
This conclusion could also explain why the links between cross-disciplinary potential and
other variables are more frequent in the UT than in the OG sector: OG companies are larger
and more complex organizations, thus the hidden influences referred to above could have a
greater impact and thus subdue expected relationships. For example, cross-disciplinary
collaboration was found to be significantly higher in the OG than in the UT sector. Thus OG
respondents who work relatively closely with their company’s sustainability experts could
consider the cross-disciplinary potential small since it is largely exploited.
8.4.4.2.2.2 Regressions
Regression Table 8-15 shows the effects of cross-disciplinary collaboration and potential on
CSM success:
195
T model OG model UT model
Number of obs
F
Prob > F
R-squared
Adj R-squared
Root MSE
152
1.90
0.0637
0.0963
0.0457
.7502
109
2.48
0.0214
0.1469
0.0878
.75357
43
0.34
0.9291
0.0639
0.1233
.73476
Independent variables Coefficients
Cross-disciplinary collaboration
Cross-disciplinary potential
UT sector
Nordic
North America
Latin Europe
Developing economies
Other regions
Constant
.1793314
-.0278079
-.4232727
-.2982675
-.4765598
-.4069706
-.4744258
-.2300761
3.52993
.2570444
-.0026728
-.4413747
-.6588283
-.4990745
-.5988299
-.3644252
3.42043
-.2031973
.1329407
-.0656289
.5008414
-.1971673
-.298766
-.298766
3.306339
Regression Table 8-15: CSM success – corporate structure (Expanded submodels)
The total and OG model show a positive effect of cross-disciplinary collaboration on CSM
success. The UT model’s parameters show that the independent variables chosen are not able
to adequately explain variation in CSM success, possible reasons being constraints in the
degrees of freedom and largely missing or ineffective cross-disciplinary structures in the UT
sector.
In contrast to the level of cross-disciplinary collaboration, cross-disciplinary potential has no
statistically significant effect on CSM success, which is in line with the conclusion presented
above: The assessment of potential, which should be seen as a proxy measure for the
effectiveness of cross-disciplinary collaboration, is influenced by internal factors (e.g.
mindset, corporate culture and structure) that confound an expected effect of effectiveness of
cross-disciplinary structures on CSM success.
The author concludes that a corporate structure that allows for intensive cross-disciplinary
collaboration is a significant determinant of CSM success. Furthermore, corporate structures
in the OG sector appear to be superior to those of the UT sector, which is in parallel with
findings in previous sections that revealed less close cross-disciplinary collaboration in UT
companies.
The sector and region effects in the T and OG model are in line with those of previous
regression models. They most likely reflect differences in external (e.g. issue significance,
demands from stakeholders) and internal (e.g. corporate cultures, mindset) determinants.
8.4.4.2.3 Discussion
Lack of cross-disciplinary structures
Qualitative and quantitative data point to a surprisingly low level of cross-disciplinary
collaboration and potential: Simply put, this means that general managers hardly work with
sustainability experts in their company because they do not see much sense in it. This is
particularly sobering if one takes into account that the study is naturally subject to an upward
bias, since generally speaking the leading and thus more interested companies participated.
Obviously these results point to a significant barrier to CSM, since the complex nature of
some environmental and social issues requires more flexible and egalitarian structures (Tapon
et al., 1995, p. 312), group-learning situations and organizational networks (Lober, 1996, p.
189; Swinth et al., 1995) such as board level committees and task forces composed of
managers from line and staff units (Sharma et al., 1999, p. 93). Such structures are particularly
meaningful, since they facilitate effective decision-making in situations in which strategies are
not adequately formulated and institutionalized (Fredrickson, 1986, p. 295), as is the case with
CSM. As sections 8.4.2 Strategic disposition and 8.4.3 Economic rationale have shown, CSM
196
lacks integration into corporate visions and strategies as well as an obvious and universally
strong economic rationale.
The low levels of cross-disciplinary collaboration and potential clearly correspond to general
managers’ lack of knowledge and expertise, as well as their mindset. Sustainability officers
consider these to be two of the most important internal barriers to CSM.
Determinants and effects of cross-disciplinary structures
Cross-disciplinary structures are related to several variables including issue significance,
demands from external stakeholders and damage to legitimacy, most likely “via” companies’
level of strategic disposition. Strategic disposition appears to trigger the creation of cross-
disciplinary structures. This is plausible, since a stronger willingness to integrate issues into
strategies and operations is often, as the interviews indicated, accompanied by the creation of
new structures, such as issue teams, coordination committees at executive level, etc.
Conversely, cross-disciplinary structures influence managers’ attitudes and consequently their
perceptions of issues, external stakeholders’ demands and legitimacy. Most importantly they
impact on the success of corporate environmental and social initiatives.
Contingency approach
Cross-disciplinary structures are more evolved in the OG sector. This is plausible, since it
reflects OG companies’ greater strategic disposition, and accordingly the greater significance
of outside pressure (e.g. greater issue significance and importance of the informal license to
operate) and the higher level of implementation (the use of management tools), which were
diagnosed in the previous sections.
Furthermore, the region effects detected are also in line with findings presented above, and are
obviously caused through several moderating factors such as external drivers (e.g. regulatory
or societal pressure) and company-specific characteristics such as corporate culture and
structures (Kolk et al., 2001, p. 506).
8.4.4.3 Corporate initiatives
8.4.4.3.1 Qualitative analysis and basic statistics
Corporate environmental and social initiatives obviously constitute an essential part of
implementing CSM, since they largely determine how managers and external stakeholders see
the role companies are playing in resolving their issues. In the following paragraphs the author
will elaborate on the portfolios of initiatives as indicated by the respondents.
It should be clearly noted that levels of awareness and consequently also activities, which
reflect the integration of environmental and social issues into operations, differ significantly
across business units and regions.
In the upstream business, people have to deal with changing environments and
technical challenges. In contrast, downstream people are “settled” in their
business, in their mindset (OG4, SO).
Thus the portfolios of tools displayed below show a “corporate average” which may deviate
substantially from those of e.g. a particular business unit.
197
Other
11%
NR
44%
External activities -
(Lobbying or
campaigning or
community
involvement)
13%
Changes in operations
and processes
20%
Product changes
3%
Policies and other
management tools
9%
NR
62%
Changes in operations
and processes
7%
Product changes
0%
Other
17%
External activities -
(Lobbying or
campaigning or
community
involvement)
7%
Policies and other
management tools
7%
Chart 8-37: Responses to environmental and social
issues (General managers – OG)
Chart 8-38: Responses to environmental and social
issues (General managers – UT)
General managers were asked to describe their companies’ responses to the most important
environmental or social issues. Most striking is the high share of no-responses in both sectors,
which strongly suggests that general managers are mainly concerned about “non-sustainability
issues” (see Chart 8-37 and Chart 8-38). Furthermore, they may not be fully aware of the
entire range of activities due to the immense scope of large multinational organizations.
There are a lot of activities relating to sustainable development, but our company
is big, so they [general managers] do not necessarily know about them (OG2, SO).
Data clearly point to an incremental approach to CSM in both sectors, which corresponds to
their current strategic disposition which was found to be rather low (see section 8.4.2).
Corporate environmental and social performance “on the ground” exhibits – as the
interviewees reported – little variation in the two sectors. Strategies are not only very similar,
but are also implemented through very similar modifications of operations and processes.
- Product changes take a minute 3% and 0% share in the OG and UT sectors, respectively.
This corresponds to a weak business case for a more radical innovation of commodities as
produced by both sectors, and to the deterrent role of largely environmentally ignorant and
highly price-sensitive customers.
- OG general managers most frequently report modifications in operations and processes As
interviews also revealed, these modifications comprise emissions reduction schemes and
efficiency improvements across the entire value chain such as reduced flaring, investments
in community infrastructures, comprehensive environmental and social assessments to
ensure that projects harmonize with local and regional infrastructures and environments,
and increased transparency. BP took the lead in “open” revenue sharing (see also section
8.1.1.1 Social and ethical issues) when it announced in 2001 that it would publish all the
payments made to Angola (the government promptly threatened to cancel BP’s contract)
(Fritz, 2003). Statoil became involved in the training of Venezuelan judges on human
rights (Murray, 2002). Other best practices include full impact assessment and community
participation in the project planning (Bamber, 2002; Gavin, 2003).
Overall, UT data point to even lower levels of awareness and a less advanced approach to
CSM: The share of no-responses is even higher. Furthermore, respondents report less changes
198
in operations and processes (largely limited to energy efficiency schemes to reduce emissions)
than the OG sector. This cross-sector difference is statistically significant.
Initiatives aimed to more or less radically innovate existing business models in the long term
exist but play a rather marginal role due to their weak business case compared to traditional
activities. They comprise the development of cleaner fuels and new energy technologies such
as photovoltaics, wind power, biomass (Jones, 2001; Ristau, 2004), and initiatives on rural
electrification in developing countries through solar home systems (e.g. Shell and Eskom in
South Africa). Furthermore, UT companies in particular undertake minor efforts in combined
heat and power, distributed generation (Biedenkopf, 2003), and energy services and
contracting (Jopp & Freisberg, 2003).
The proportions in Chart 8-37 Chart 8-38 above somewhat relativize the portfolios of
initiatives displayed in Chart 8-39 and Chart 8-40. Hence it is likely that particularly
responses from the UT sector are biased. The only notable difference in the proportions of the
charts lies in a higher share of initiatives that improve social conditions in the supply chain in
the OG sector, whereas UT companies appear to focus more strongly on environmental
conditions in the supply chain. This is plausible since social issues are more significant in
developing countries, in which an increasing share of extraction and production activities of
OG companies take place.
Better environmental
practices
25%
Business ethics
25%
Improved social
conditions in the
entire supply chain
12%
Improved
environmental
conditions in the
entire supply chain
16%
Community
Involvement
20%
Other
2%
There are no
initiatives whatsoever
0%
Business ethics
26%
Improved social
conditions in the
entire supply chain
7%
Improved
environmental
conditions in the
entire supply chain
20%
Community
Involvement
16%
Better environmental
practices
29%
Other
1% There are no
initiatives whatsoever
1%
Chart 8-39: Corporate initiatives (General
managers – OG)
Chart 8-40: Corporate initiatives (General
managers – UT)
A closer look at the absolute frequencies of individual initiatives being carried out (rather than
the relative proportions) reveals three statistically significant cross-sector differences. OG
general managers report more
- initiatives on business ethics. One may have expected a less significant difference due to
renewed interest in the corporate governance of UT companies after Enron. Several
interviewees actually confirmed increasing pressure in this area. However, overall a
greater interest in business ethics in the OG sector is not implausible, since corruption is
an ongoing issue in the developing world and strongly scrutinized by NGOs (Anonymous,
2003c, 2004b; Beattie, 2002; Schmitt et al., 2004).
- initiatives improving social conditions in the supply chain
199
- community involvement.
All three differences correspond to OG companies’ greater involvement in developing
countries. In conclusion qualitative and quantitative data reveal general managers’
surprisingly low awareness of existing corporate environmental and social initiatives. This can
be attributed to a narrow mindset that largely focuses on issues other than social or
environmental ones, as well as to the complexity and scope of multinational organizations
such as major OG companies in particular, whose activities differ across business units and
regions and are difficult to keep track of. They also reflect companies’ incremental approach
to CSM (as diagnosed in section 8.4.2 Strategic disposition, which is even more incremental
in the UT sector than in the OG sector.
Furthermore, the portfolios of initiatives reported show variations between the two sectors.
These variations reflect cross-sector differences in issues and regions of operations: OG
companies’ activities comprise significantly more initiatives to resolve social and ethical
issues in developing countries.
8.4.4.3.2 Advanced statistics
The regression models presented in Regression Table 8-16 show how the portfolios of
environmental and social initiatives carried out by companies affect CSM success:
T model OG model UT model
Number of obs
F
Prob > F
R-squared
Adj R-squared
Root MSE
172
11.15
0.0000
0.1660
0.1512
.70603
112
7.83
0.0000
0.2264
0.1974
.70119
55
5.31
0.0080
0.1695
0.1376
.66086
Coefficients
Env.
performance
Env. supply
chain
Other
initiatives
Constant
.6588786
.326536
.9115763
2.598637
Env.
performance
Social
supply chain
Other
initiatives
North
America
Constant
.8897349
.3809096
.7365061
-
.2731517
2.553522
Community
involvement
Marketing
Constant
.3854271
-.6482412
3.186432
Regression Table 8-16: CSM success – Corporate initiatives (Reduced submodels)
The T model shows a positive influence on CSM success of initiatives that (1) improve
environmental performance and (2) address environmental issues in the supply chain. This
suggests that, overall, companies in the energy industry are most successful in the
environmental dimension of CSM, presumably through effective measures to improve
efficiency and reduce emissions and the risk of environmental incidents.
The significant positive effect of “other initiatives” (which is also found in the OG sample)
most likely indicates that respondents with higher levels of awareness and expertise – who
were thus able and willing to “extend” the list of items provided in the multiple choice
question – tend to report greater CSM success.
The OG and UT models reveal some notable cross-sector differences:
- In the OG sector, corporate activities to resolve social issues in the supply chain have a
positive effect on CSM success, alongside initiatives that improve environmental
performance of corporate activities. This result is in parallel with both qualitative and
quantitative evidence presented earlier (see sections 8.1.1.1 Social and ethical issues and
200
8.4.2 Strategic disposition) insofar as they reflect the significance of social issues in
developing countries and a clear economic rationale for resolving them.
- In the UT sector, none of the environmental initiatives has a significant effect on CSM
success, although qualitative analysis pointed to significant and effective investments in
more efficient processes of power generation (tagesschau.de, 2003; WBCSD, 2002, p. 20).
Since constraints in the degrees of freedom are unlikely to be the cause, the results are
indeed puzzling. They could point to a more heterogeneous perception of CSM success in
the UT sector: Company-specific characteristics may have subdued the expected
relationship, reflecting differences in fuel mix and in the current levels of market
liberalization. The statistically significant and positive effect of community involvement
could indicate that good relationships with residents around power plants and extraction
sites constitute a key dimension of successful corporate initiatives since they improve the
license to operate (and grow).
Overall, evidence presented indicates that the undertaking of certain initiatives determines the
success of CSM. It is not surprising that the environmental initiatives are associated with
greater success, since companies are much more experienced with programs that improve
efficiency, reduce waste or avoid environmental incidents
Regressions also reveal, once again, the contingent, issue- and hence sector-specific nature of
CSM: In the OG sector initiatives that resolve social issues in companies’ supply chain and
initiatives that improve environmental performance are positively linked with CSM success.
This result shows that companies (successfully) focus on initiatives undertaken to address the
most important issues. It is also a clear sign of the sample bias toward leading companies.
Obviously they not only – in contrast to laggards – consider social issues relevant to their
license to operate but have also learned to carry out initiatives to resolve them effectively.
8.4.4.3.3 Discussion
Initiatives and awareness
The revealed lack of respondents’ awareness of existing environmental and social initiatives
is somewhat sobering, particularly if one takes into account that only the more interested, and
hence more likely to be leading companies in the sector participated in the survey. It clearly
illustrates how “preoccupied with the daily grind of business and maximizing shareholder
value” managers are, and how challenging it is for sustainability officers to promote
environmental and social initiatives in a large multinational organization (Steger, 2004, p. 72).
It also reflects companies’ largely incremental approach to CSM, which is primarily
characterized through a more responsible interpretation of business-as-usual, and corresponds
to a business case that is largely based on the management of operational risks. This finding
points to two requirements:
1. Issues need to be more strongly integrated into companies’ strategies and business
models. However, several challenges remain including an elusive business case,
managers’ mindset and other internal barriers described in the present study.
2. It is important to celebrate successful initiatives, feature them on the company’s
intranet, in company documents, within and across business units.
The incremental approach to CSM is also reflected in the portfolios of initiatives described by
respondents. They are largely limited to incremental innovations to processes and operations
and thus point to few differences in the overall corporate environmental and social
performance between companies in their sector (Friedl, 2003; Hoyos et al., 2003; Kuhnt,
2003).
201
Focus and effects
Quantitative methods also show a general environmental focus in the initiatives chosen. This
is plausible, since environmental issues are – as outlined in section 8.1 Issues – as long as they
are of local or regional nature, easier to assess and address. Social issues have only more
recently come into focus, particularly the through activities of human rights organizations and
other NGOs, and their use of internet and other media. They are more difficult to assess and
handle, as they go beyond companies’ traditional focus on their own facilities (e.g.
community involvement, fair allocation of revenues).
Furthermore, the portfolios of initiatives feature a certain contingency on issues. Obviously
this implies that they are sector-specific. A focus on the important issues is highly plausible if
one assumes that companies make a rational choice when attempting to address those issues
that most significantly threaten their license to operate. Results of the regression analysis also
suggest that this strategy is successful, they show that OG companies that undertake initiatives
to address social and environmental issues report higher levels of CSM success. However,
there are obviously several possible moderating factors, such as corporate culture and
structures, which are unaccounted for in the regression models. They will be included in the
regression models featured in the next section to facilitate a more differentiated analysis of the
determinants of CSM success.
Contingency perspective on corporate environmental and social initiatives
The present study shows that companies undertake initiatives to focus on their primary issues.
This implies that their portfolio of initiatives are not only sector- but also region-specific: OG
companies focus their social and ethical issues in developing countries (e.g. lack of
community infrastructures, human rights and corruption), UT companies more on
environmental problems, such as climate change, that present the prevalent issues in
developed countries, their main regions of operations.
8.4.5 Outcome
8.4.5.1 Qualitative analysis and basic statistics
General managers’ ratings of the success of their companies’ environmental and social
initiatives are – like those of the intensity and effectiveness of cross-disciplinary structures
(see section 8.4.4.2 Structure) – relatively low. The means displayed in Table 8-10 below
indicate that the success of initiatives is on average rated between 3 (“more or less”) and 4
(“much”).
OG general managers consider environmental and social initiatives in their companies more
successful than UT general managers do. This difference is statistically significant at a 10%
level and in line with findings from the previous sections which revealed lower outside
pressure, less strategic disposition, as well as a relative lack of implementation compared to
the OG sector (less management, less cross-disciplinary structures).
How successful were corporate environmental and social initiatives? (1 = “Not at all” to 5 = “Very much”)
General managers
Sector Obs Mean Std. Err. Std. Dev. 95% Conf. Interval
UT
OG
55
117
3.290909
3.512821
.0959543
.0724456
.711616
.7836188
3.098532 3.483286
3.369333 3.656308
Table 8-10: Summary statistics – CSM success
When asked to benchmark their companies’ and sectors’ progress in adopting more
sustainable business practices with other sectors and peers, respondents from both sectors
indicated that both their sectors as a whole and their companies achieved an above average
level of performance.
202
Overall a more than average sector performance seems more reasonable in the OG than in the
UT sector, because the former has been more strongly prompted to adopt more sustainable
business practices, and, implemented CSM more comprehensively (as shown in previous
sections).
0
1
2
3
Other industries Peers
Performance compared to other industries and peers
1 = "Underperformer" to 3 = "Outperformer"
UT Sustainability officers
OG Sustainability officers
Industry performance
compared to other industries
Group Mean Std. Dev. Freq.
UT SO 2.15 0.69 13
OG SO 2.29 0.47 17
Total 2.23 0.57 30
Corporate performance
compared to peers
Group Mean Std. Dev. Freq.
UT SO 2.31 0.75 13
OG SO 2.59 0.62 17
Total 2.47 0.68 30
Chart 8-41: Progress in adopting more sustainable business practices
Although it remains unclear on which reference points and criteria of comparison responses
are based, greater corporate performance compared to peers appears reasonable in both
sectors, since the samples are certainly biased toward the sector leaders (see Chart 8-41). The
typical laggards such as national oil companies and state-owned energy utilities in developing
countries were not targeted in this survey and were most unlikely to participate due to lack of
interest.
The low ratings of CSM success presented above are particularly surprising and telling if one
takes into account that (1) the survey is biased toward leading companies in their sectors, and
(2) responses are additionally subject to social desirability bias. They point to several
significant internal barriers discussed in the previous section. The sustainability officers
interviewed, in particular, attributed the lack of success and inconsistencies in practices to
internal deficits such as lack of knowledge/expertise and a predominantly reactive mindset of
the workforce, which points to a lack of organizational alignment as one of the most
significant challenges of CSM. Outside factors such as lack of interest from customers,
investors or other stakeholders are unlikely to play a significant deterrent role, since, as
already stated in several sections above, companies’ approach to CSM is largely incremental
and thus does not strongly rely on buy-in from external stakeholders (see e.g. section 8.4.1
Company-specific determinants).
8.4.5.2 Advanced statistics
In the present section, possible determinants of CSM success are assessed through both
correlation and regression analysis.
8.4.5.2.1 Correlations
203
Figure 8-34 displays all correlations between CSM success and the other variables accounted
for in the correlation analysis. They have all already been discussed in detail in the previous
sections, and thus will be only be summarized in a table below.
BBB
UCA
Managers
WW
CA
Social issues
Issues
Env. issues
Companies
Capital markets
Damage to legitimacy
Consumers
External stakeholders
Governments
PPPs
Industry
NGOs
Importance of legitimacy
SD familiarity
CSM intent
SD importance
Cross-disciplinary collaboration
Cross-disciplinary potential
Structure
Strategic disposition
CSM success
OG
UT
+_
T
Figure 8-34: Correlations – CSM success
Data show links between CSM success and all four determinants of CSM included in the
study’s conceptual framework: issues (public responsibility), stakeholders (legitimacy),
managers’ attitudes (managerial discretion) and company-specific determinants (strategic
disposition and structure).
Based on the study’s model of corporate sustainability performance (see Figure 4-1), the
outcome of CSM is determined by companies’ strategic disposition to, economic rationale for
and implementation of it. Correlation results clearly support the model insofar as they show a
clear link between CSM success on the one hand and strategic disposition and structure (as
one element of implementation) on the other.
204
Tested variables Detected link Brief interpretation Reference to sector-
specific interpretation
Issue significance Positive (10%
significance level)
Greater issue significance leads to greater strategic
disposition to and implementation of CSM and thus to
greater success
Section 8.1 Issues
Managers’ attitudes Positive (for
proactive attitudes)
More proactive managers report greater CSM success
because they implement initiatives more effectively and/or
they consider them more successful (as a way of “doing
good”)
Section 8.3 Managers
Importance of
legitimacy
Positive Greater importance of the informal license to operate drives
CSM success through greater strategic disposition and
consequently more effective implementation of CSM
Section 8.2.6.1 The role of
legitimacy
Industry’s current SD
role
Positive Respondents who consider their company’s environmental
and social initiatives more successful have a more positive
perception of the entire sector’s performance
Section 8.2.5 Industry and
partnerships
Public-private
partnerships’ current
SD role
Positive CSM success and a positive role of PPPs are linked because
(1) partnerships substantially contribute to the success of
corporate initiatives, or (2) CSM success is greater in leading
companies, which are also more aware of the need to engage
in PPPs
Section 8.2.5 Industry and
partnerships
Strategic disposition Positive Greater strategic disposition leads to stronger
implementation of CSM (tools, structures) and thus increases
CSM success
Section 8.4.2 Strategic
disposition
Cross-disciplinary
collaboration
Positive More intensive cross-disciplinary collaboration increases
CSM success through cross-fertilization
Section 8.4.4.2 Structure
Table 8-11: Correlations with CSM success
This also means that correlations between CSM success and both issue significance and the
importance of legitimacy are most likely caused through the correlation of CSM success with
CSM intent (most likely any variable that operationalizes companies’ level of strategic
disposition), which was found to be determined by both variables. The limited importance of
external factors (e.g. SD roles of governments, customers, public pressure groups) to CSM
success is highly plausible if one takes into account evidence presented above (in section 8.4.1
in particular): Companies’ approach to CSM features such incremental modifications to
business models and products that their success is primarily determined by internal drivers
and barriers rather than largely ignorant external stakeholders.
8.4.5.2.2 Regressions
In the following paragraphs, regression models are employed to assess the joint effect of two
different sets of independent variables on CSM success: (1) Corporate discretionary
determinants and (2) Corporate and managerial discretionary factors as well as external
barriers.
Corporate discretionary determinants of CSM success
The reduced models displayed in Regression Table 8-17 show several statistically significant
effects of hypothesized corporate discretionary determinants of CSM success:
205
T model OG model UT model
Number of obs
F
Prob > F
R-squared
Adj R-squared
Root MSE
71
9.15
0.0000
0.2906
0.2588
.65605
113
7.60
0.0000
0.2197
0.1908
.7124
49
4.21
0.0209
0.1548
0.1181
.61235
Coefficients
Env.
Performance
Incentive
tools
Corporate
culture
Constant
.6509395
.6724412
-.557211
2.650915
Social
supply
chain
Strategy
tools
Incentive
tools
Coord.
committees
Constant
.2935317
.2794148
.3234996
.3105709
2.993478
Business
teams
Age > 50
Constant
.4606742
.5200642
3.128411
Regression Table 8-17: CSM success – All corporate discretionary factors (Reduced cluster model)
The T model features statistically significant effects of initiatives that improve environmental
performance, as well as incentive tools and corporate culture. All three independent variables
have already been found to determine CSM success in their individual submodels above. The
fact that their effects remain statistically significant in the summary model reveals them as
particularly clear determinants of CSM success.
The three detected effect are highly plausible, and have already been interpreted in detail in
their respective sections above:
- The positive effect of initiatives improving environmental performance indicates that
companies are more successful at environmental initiatives, presumably because they are
easier to evaluate and address.
- The positive effect of incentive tools points to the importance of soft managers’
management tools. This effect is very plausible as incentive tools are used in a more
advanced stage of companies’ strategic redirection. They allow companies to effectively
shape managers’ perceptions and expectations and thus influence the “soft” capabilities
needed to deal with the complexity of CSM (Doz et al., 1988; Sharma et al., 1999).
- The negative effect of organizational cultures reflects the importance of “soft” internal
barriers, which can be mainly attributed to the complexity of issues and external demands,
which is likely to overwhelm companies’ “hardware,” i.e. their tools and systems.
Results of the two sector-specific models are also insightful in several ways.
The OG model shows positive effects of supply chain initiatives that resolve social issues, and
three management tools, namely strategy tools, incentive tools and coordination committees.
These results are in parallel with findings presented above, as they support the conclusion that
leading OG companies (1) have recognized the importance of resolving social issues in
developing companies and learned to carry out corresponding initiatives effectively, and (2)
have more frequent and effective use of management tools. It is also meaningful to note that
all three tool categories – data management, managers’ management and conflict resolution
(Doz et al., 1988, p. 76) – feature in the model. This suggest that all three categories of
management tools are meaningful determinants of CSM success and effectively complement
each other.
206
The UT model only features one statistically significant coefficient for a non-demographic
variable, namely business teams. Other management tools have no effect, because they are
lacking or ineffective.
Although the results could also be affected by the smaller sample size, the relative lack of
statistically significant independent variables strongly points to a less advanced approach to
CSM. This finding is also supported by the fact that – unlike in the OG sample – business
teams rather than coordination committees positively influence CSM success. Obviously CSM
is still pursued on a less strategic level in the UT sector (as also indicated by less strategic
disposition diagnosed in section 8.4.2). This is why business teams suffice to resolve conflicts
that tend to take place at the operational level.
OG companies, by contrast, rely on coordination committees because their approach is more
strategic and requires consensus building at the strategic or corporate level. The fact that the
UT model features a statistically significant effect of only one variable, namely business
teams, as a conflict resolution tool, suggests that the internal conflicts about the need for CSM
are greater than in the OG sector.
Corporate discretionary, managerial discretionary and external determinants
The summary models provided in Regression Table 8-18 show the effects of corporate
discretionary factors, managers’ attitudes and external barriers on CSM success. They were
obtained by expanding the scope of the models above on corporate discretionary determinants
only (Regression Table 8-17) on include external barriers and managerial discretionary
factors.
T OG UT
Number of obs
F
Prob > F
R-squared
Adj R-squared
Root MSE
71
8.24
0.0000
0.3332
0.2928
.64084
113
7.60
0.0000
0.2197
0.1908
.7124
49
4.21
0.0209
0.1548
0.1181
.61235
Coefficients
Env.
performance
Incentive
tools
Corporate
culture
Regulation
Constant
.6317153
.6890313
-.5648222
.4045182
2.595106
Social
supply
chain
Strategy
tools
Incentive
tools
Coord.
committees
Constant
.2935317
.2794148
.3234996
.3105709
2.993478
Business
teams
Age > 50
Constant
.4606742
.5200642
3.128411
Regression Table 8-18: Summary models - CSM success
Results illustrate that only regulations (e.g. subsidies and low social and environmental
standards) attain the required significance level, namely in the T model. The positive sign of
the coefficient suggests that only leading companies which report greater CSM success
perceive inadequate regulations as a barrier. This is most likely to be the case in developing
countries in which sustainability leaders feel at a competitive disadvantage compared to
laggards (e.g. no-bribe policies), but is also valid for the subsidization of fossil fuels which
affects the cost competitiveness of renewable energy technologies.
In the two sector-specific models none of the variables tested in addition had a statistically
significant effect. This points to the key importance of company-specific determinants rather
than external barriers or managerial discretionary factors at determining CSM success.
207
The effect of managerial attitudes found through the correlations presented above is not
significant in the regression models, presumably because it is picked up by variables that
remain in the model such as incentive systems. The fact that other external barriers such as the
lack of interest or opposition from investors or customers do not have a statistically significant
effect points to the largely incremental approach of both sectors to CSM, which is hardly
contingent upon the level of external buy-in or opposition. Thus the results are also in line
with those obtained for the main barriers to CSM intent, which is largely hindered by internal
factors.
Although it remains difficult to reach a definite conclusion about the role of tools and
initiatives as well as other possible internal determinants in the UT sector, because variables
may not become statistically significant due to constraints in the degrees of freedom, one can
reasonably infer from the comparison of the two sector-specific models and the basic statistics
presented in the previous sections, that OG companies feature a more resourceful and
advanced approach to CSM. This also includes a more effective use of tools to shape
managers’ perceptions and expectations.
Conclusion
Regression analysis points to several significant company-specific determinants of CSM
success, namely corporate initiatives, management tools and corporate culture. Corporate
culture and incentive systems are determinants that influence “soft” factors within the
organization (e.g. managers’ perceptions and expectations). They are complemented with
“hard” technical and structural factors such as data management tools (strategy tools) and
tools for conflict resolution (coordination committees and business teams).
The T model only features – alongside corporate environmental initiatives – determinants that
are linked to companies’ soft factors. This could – in line with previous findings – suggest that
soft factors contribute more to CSM success due to the complexity of social and
environmental issues which overwhelms companies’ hard factors (e.g. data management and
structures).
Furthermore regressions show that external barriers have a minor to insignificant influence on
CSM success. This result is in line with both quantitative and qualitative data presented in
several previous sections that point to an incremental approach of companies to CSM.
8.4.5.3 Discussion
Low levels of CSM success
The present study reveals a very skeptical view among general managers of the effectiveness
of environmental and social initiatives in their companies – surprisingly skeptical if one takes
into account that the sample is biased toward more proactive respondents. Results most likely
reflect their lack of awareness of the initiatives, and negative bias through a reactive mindset
but they also clearly show the existence of other strong barriers mentioned below.
One could argue that initiatives may be more effective in some business units than others: E.g.
interviewees noted that upstream units are more effective at such initiatives than downstream
units, since operations are less standardized, more diverse and managers are less pressured to
“sweat their assets.” This could partly relativize the sobering evidence. The present study was
designed to assess corporate sustainability management and its determinants across different
sectors and not business units, and thus leaves room for further empirical quantitative research
in this area.
Determinants of CSM success
Over the course of this study, the author has identified several significant factors that
determine the implementation and thus the outcome of CSM success.
208
As shown in section 8.4.2 Strategic disposition, companies have a clearly incremental and
process-driven approach to CSM. Their strategic disposition is largely limited to a “more
responsible interpretation of business-as-usual.” Hence the reason for the lack of success of
corporate initiatives cannot be found in overambitious strategic objectives. It is to be found at
the implementational level of CSM (Nicholson, 2002 p. 3; Simms, 2002) – see Figure 8-35:
Determinants of CSM success.
Cluster modelsSubmodels
External
stakeholders
• Opposition from investors
(OG)
• Regulation (both sectors)
CSM
success
Managers
Proactive attitude: “CSM
to gain long-
term competitive
advantage“ (both
sectors, primarily OG)
CSM
success
Companies
• Improving environmental
performance in general
(both sectors)
• Resolving social issues
in the supply chain (OG)
• Incentive systems
(both sectors, primarily
OG)
• Strategy tools (OG)
• Coordination
committees (OG)
• Business teams (UT)
• Corporate culture (both
sectors)
CSM
success
External stakeholders:
• Regulation (both sectors)
Initiatives:
• Improving environmental
performance in general (both
sectors)
•Resolving social issues
in the supply chain (OG)
Tools:
• Incentive systems (both
sectors, primarily OG)
• Strategy tools (OG)
• Coordination committees (OG)
• Business teams (UT)
Internal barriers:
•Corporate culture
(both sectors)
CSM
success
Summary model
CSM
success
Tools
• Incentive systems (both
sectors, primarily OG)
• Strategy tools (both sectors)
• Business teams (bother sectors,
primarily UT)
• Coordination committees (OG)
• Management development (OG)
CSM
success
Structures
Cross-disciplinary collaboration
(both sectors, primarily OG)
CSM
success
Initiatives
• Improving environmental
performance in general (both
sectors, primarily OG)
• Resolving environmental issues
in the supply chain (both sectors)
• Other initiatives (both sectors,
primarily OG)
• Resovling social issues in the
supply chain (OG)
• Community involvement (UT)
CSM
success
Internal barriers
• Corporate culture (both sectors)
• Managers‘ mindset (UT)
Figure 8-35: Determinants of CSM success
The challenge is clearly one of organizational alignment and reveals itself in various ways:
- “Soft” internal barriers such as managers’ reactive mindset and inadequate corporate
cultures are strong. Their effect is particularly significant, as the substance of CSM is very
complex, because of the variety of issues and stakeholders, and thus difficult to capture.
- The business case for sustainability becomes more elusive, the more it goes beyond a mere
cost reduction focus (e.g. eco-efficiency, health and safety improvement). It is particularly
elusive for those managers that lack knowledge and expertise. Due to managers’ mindset
and the elusive nature of the business case, sustainability officers are often forced to focus
on risk management arguments. As a result, any existing upside potential could be
ignored.
- Although cross-disciplinary structures do not feature in the summary models presented in
this section, the effect of their absence should not be underestimated. It is important to
establish cross-disciplinary structures to facilitate shared learning through cross-impact
analysis and consensus-building at the strategic and operational levels through business
teams and coordination committees, respectively. This applies in particular to large global
209
and multinational organizations that face a plethora of different issues in different
countries.
- The positive contribution of all three tool categories (data management, managers’
management and conflict resolution tools) points to the importance of introducing and
effectively applying management tools. The author suggests that especially managers’
management tools, more specifically management development and incentive tools, are
needed to effectively shape managers’ perceptions and attitudes and thus gradually
remove existing soft internal barriers.
By design the study is unable to assess the relative importance of the factors mentioned above.
However, more detailed knowledge about the strength of their effects and possible
interactions between them is clearly needed to more comprehensively assess the causes of the
low levels of CSM success.
Contingency perspective on CSM success
This section of the study identifies higher levels of CSM success in the OG sector – which is
in line with results presented in the previous sections – and can be explained through a variety
of factors that have been discussed in more detail above. All in all, this clearly points to a
relative lack of implementation, i.e. stronger internal barriers, in the UT sector.
Region effects are not visible in the regression models presented above. This is highly
plausible, since the implementation of CSM follows an incremental approach. Thus CSM
success is clearly internally determined through corporate cultures, structures and tools.
9 Synopsis
The present study set out to empirically examine the main external and internal determinants
(i.e. drivers or barriers) of CSM, companies’ approaches to CSM in terms of both strategic
disposition, the economic rationale, implementation of their approaches, and the outcome. The
author employed:
- a mixed method design featuring both qualitative and quantitative means of data
collection and analysis
- a descriptive contingency approach based on data collected from two groups of
managers, namely sustainability officers and general managers, in two different industry
sectors (integrated oil and gas vs. electric utilities sector) and several geographical
regions of operations.
In the following, he will elaborate on the study’s key findings, significance and limitations,
and make suggestions for further research.
9.1 Findings
The evidence presented in this study sheds significant light on the research field of CSM and
the current situation in both industry sectors. In the following paragraphs, the author will
briefly summarize his findings and relate them to the research questions listed in section 4.
More detailed presentations of these findings and their discussion can be found in the
respective discussion sections above.
It should be noted that results are based on the analysis of qualitative and quantitative data
obtained from GMs and SOs in two specific sectors – OG and UT. Obviously one should
avoid – under any circumstances – carelessly projecting its results on other sectors,
particularly due to the issue-specific nature of CSM. Nevertheless, some of the study’s key
findings facilitate some conclusions about sectors with very similar or very different
characteristics. The author will elaborate on these in the following paragraphs. It is worth
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noting that the OG sector most likely represents a rather high benchmark for other industries
in terms of both strategic disposition to CSM and its implementation due to the relatively high
visibility of issues and companies, which leads to a comparatively strong external demand for
CSM.
Most important issues and their effect on CSM
The study identified a substantial number of individual environmental and social issues that
affect companies in the energy industry. Only a few of them can be considered key issues that
influence CSM due to the financial risks and opportunities associated with them, which are in
particular climate change in the UT sector and a complex of local or regional social and
environmental issues (e.g. fair allocation of oil revenues, lack of infrastructure in
communities, biodiversity) in the OG sector.
The importance of issues to companies is essentially determined by the demand from
stakeholders: They sanction a corporate activity associated with a particular social or
environmental issue, and reward a corporate response addressing it. This outside pressure is
determined by the visibility of the issue, the visibility of the company (organizational
visibility) and the limits of legitimacy, which can be defined globally, regionally or locally
depending on the issue.
Although environmental issues were considered more important than social issues in both
sectors, it was surprising to note that the significance of social rather than environmental
issues affected their companies’ intention to integrate environmental and social criteria into
business strategies and operations. This points to an increasingly comprehensive approach to
CSM that goes beyond a mere environmental focus. One can reasonably expect that
sustainability leaders in other industries exhibit a similarly broadened view of CSM, i.e. they
will look beyond their typically dominant (environmental or social) issue dimension
(Salzmann, Steger, & Ionescu-Somers, forthcoming).
A separate consideration of both sectors revealed that the OG sector is primarily driven by
social issues, the UT sector by environmental ones. The influence of social rather than
environmental issues on strategic disposition to CSM in the OG sector is somewhat
counterintuitive due to the wide public attention given to the issue of climate change in
relation to current corporate activities. It can be explained as follows: As in the UT sector,
financial risk and opportunities associated with climate change can be mitigated and exploited
through incremental changes to current business models. Hence the focus of the two sectors
on different regions of operations appears to be the dividing factor: OG companies’ approach
is global, and increasingly focused on developing countries. The data show that social issues
in those regions more strongly threaten companies’ informal license to operate than climate
change, which is likely to develop increasing momentum only in the mid to long-term (Shell
International Ltd, 2001). In contrast, the UT sector’s approach is more regional and
concentrates, in the case of the companies surveyed, on Europe, where environmental issues
clearly dominate social issues (also due to e.g. stronger regulatory pressure in terms of climate
change). The sector-specific dominant issue dimensions are also reflected in each sector’s
portfolio of corporate initiatives: The OG sector features more social, the UT sector more
environmental activities.
The role of external stakeholders and legitimacy
The demand of external stakeholders for CSM is contingent upon issue visibility,
organizational visibility and the level of legitimacy, which is determined by regulation and
dominant socio-cultural paradigms. Hence it varies across sectors and regions of operations.
Customer, shareholder and regulatory demand for CSM is marginal. In some cases, NGO
activities have triggered selective, isolated and short-term actions by these transactional
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stakeholders. However, overall external demand is so limited that it can easily be satisfied
through companies’ “watery” approach to CSM, which is essentially a more responsible
interpretation of “business-as-usual.”
External stakeholder are able to amend or revoke two kinds of licenses to operate:
Governments and regulators target companies’ formal license to operate through rising
regulatory standards. The remaining stakeholders have the power to affect companies’
informal license to operate through boycotts, campaigns and shareholder resolutions. The
vulnerability of both kinds of licenses are dependent on several factors including the location
of the key social or environmental intake geographically or within the life cycle phase of the
product (production or use); the certainty and transparency of the resulting issue; the
bargaining power of governments and regulators; and the vulnerability of brands and
reputation. This degree of vulnerability also determines the amount of outside pressure on
companies. It is obvious that these findings apply to any sector or company: E.g. the financial
premium associated with the informal license to operate is higher for large companies that
exhibit strong consumer recognition and are closer to the end consumer (even if retailers are
in between as gatekeepers – as is the case in the food and beverage industry). It should be
added that a lack of regulatory pressure on corporate activities in developing countries may
also be compensated for by a civil society in developed countries, which increasingly
scrutinizes those very activities (Bowen, 2000; Steger, 2003).
The individual roles of external stakeholders differ across both sectors as follows:
- Governments play a more important role in the UT sector since it is strongly regulated on
its major environmental impact (emissions to air) in Europe, where most of the UT
respondents were from. In contrast, most emissions associated with the OG sector come
from the use phase of fossil fuels (primarily in the transport sector) rather than the
production phase. Furthermore, extractive activities will increasingly concentrate on
regions that feature relatively low regulatory standards compared to companies’ home
countries.
- This lack of regulatory pressure on the OG sector is overcompensated by stronger scrutiny
from public pressure groups. Due to higher issue and organizational visibility, OG
companies tend to be better targets than the on average smaller UT companies, with fewer
resources at their disposal.
- OG companies expect capital markets to take a more proactive role in the future than UT
companies, which also appears to increase OG companies’ greater intention to integrate
environmental and social criteria into business strategies and operations. This is also likely
to reflect capital markets’ greater interest in the OG sector in general but also in
companies’ position on climate change, as the growing number of, and support for,
shareholder resolutions shows.
- The potential of customers to play a more proactive role is slightly greater in the UT
sector. This outcome was rather unexpected, since customers in both sectors usually
exhibit a clear preference for cheap and convenient energy. It could, however, be
attributed to policy measures in some European countries that promote green electricity
production and customers corresponding growing awareness of this alternative in
liberalized markets.
External stakeholders play a clearly deterrent role. However, if one compares their demands
for CSM, results show that non-regulatory stakeholders such as customers (through boycotts
and “green” consumerism), capital markets and investors (through shareholder resolutions and
increasing scrutiny of corporate risk management), and NGOs as catalysts exert more outside
pressure on companies than governments and regulators. This means that challenges to
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companies’ informal rather than formal license to operate represent a significant driving force
for CSM, also because the informal kind can be revoked more swiftly.
Role of managers and the effect of their attitudes, knowledge and mindset on CSM
Managers’ attitudes, knowledge and expertise were identified as major internal determinants
of CSM. They are particularly relevant, since current systems and structures fail to provide the
necessary guidance for managers on how to assess and react to the issues they face.
Even if companies improve current systems and structures, the complexity inherent in CSM is
likely to “overstrain” their capabilities. This means that knowledge and mindset will always
remain key factors influencing managerial discretion, since they determine managers’
perceptions and expectations. This is clearly reflected in the finding that managers’ proactive
attitudes are associated with a stronger perception of the significance of issues.
Overall UT managers have less proactive attitudes than their counterparts in the OG sector,
which corresponds to UT companies’ lower issue and organizational visibility and less
proactive corporate cultures. It is also most likely a legacy from their past as natural
monopolists and state-owned companies.
Companies and their approach to CSM
Corporate discretionary determinants of CSM and their effects
Results on the importance of internal, and in particular corporate discretionary, barriers,
clearly hint at companies’ incremental approach to CSM, which is enough to satisfy the
marginal external demand: Changes to business models and corporate activities are so minor
that the lack of interest from customers, shareholders and regulators does not significantly
deter them. It is rather the internal deficits that negatively affect CSM. Hence the study points
to a significant unexploited potential of both managerial and corporate discretion:
Managers’ mindset, lack of knowledge and expertise as well as corporate cultures and lack of
processes and tools prevent a stronger and more effective approach to CSM. Soft factors
(managers’ mindset and, above all, corporate culture, rather than hard ones (lack of
appropriate processes, tools and structures) are the key internal barriers to CSM, most likely
due to the complex nature of issues, which overstrain companies’ “hard” instruments,
structures and processes.
Company-specific barriers appear to be more significant than barriers set by the individual
managers’ mindset and (lack of) knowledge. This is obviously because the former determine
to what extent managers are able (e.g. through management education, availability of relevant
information through adequate data management) and willing (e.g. corporate culture, incentive)
to exercise their discretion.
Overall corporate discretionary dimensions of CSM are less developed in the UT sector:
Companies feature greater internal deficits due to weaker outside pressure and the legacy of
former or current state ownership.
Strategic disposition, its determinants and effects
Companies’ approaches to corporate sustainability are still clearly operational and process-
driven rather than strategic and market-driven. Leaders in both sectors have recognized
current and emerging issues, and are attempting to improve their flexibility to respond to
future developments (e.g. emissions trading, pilot projects and niche markets to develop
renewable energies). Long-term strategies are mainly concerned with future carbon pricing,
and in the OG sector additionally with geopolitics and resource depletion. Distinct changes in
business models are mainly discussed in the OG sector but decades away from adoption.
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Greater strategic disposition was found to be driven through greater issue significance; more
proactive attitudes of managers; company-specific factors such as more adequate corporate
cultures; a more proactive role of public pressure groups; conflicts with authorities; and the
importance of the informal license to operate. These identified determinants are able to
conclusively explain the lower strategic disposition in the UT compared to the OG sector.
Finally, greater strategic disposition is also reflected in a more sophisticated implementation
of CSM, more specifically in structures that allow for closer cross-disciplinary collaboration
and more successful environmental and social initiatives.
Economic rationale for CSM and processes of issue integration
The business case for sustainability is clearly contingent in nature and bears a clear dilemma:
It can be “logically built” and rather easily quantified for incremental innovations (to improve
eco-efficiency, as well as health and safety) that have no potential to address the major
strategic issues.
Overall it is rather marginal. It cannot be seriously built for radical innovations to address the
strategic issues such as climate change and the North-South energy divide. This is due to
external stakeholders’ disinterest and opposition: e.g. shareholders’ focus on short-term
profits, consumers’ preference for cheap and convenient energy products. The current
business environment clearly provides the strongest business case for efficient and
environmentally/socially responsible extraction, production and use of fossil fuels. New
business models (e.g. hydrogen, renewable energy technology) are hard to introduce. This
applies to the OG sector in particular, because it is strongly locked in a technological
trajectory together with the mobility sector. Several pilot business units that produce and
market renewable energy technologies have been established. However, there is significant
disagreement within and across companies whether the money on these pilot projects is well
spent: Some companies have adopted a “wait and see” attitude and rely on being able to
acquire renewable energy companies later “when there is real money in it”; others have opted
for the creation of renewable energy subsidiaries to “learn as they go.”
Processes of issue integration mirror companies’ narrow focus on the minimization of risks,
which tends to lead to late and rather weak responses. Managers obviously prefer an ex ante
quantified business case over an unquantified or ex post quantified one, but a certain lack of
quantification is systemic due to the complexity of social and environmental effects and the
marginality of the business case for sustainability.
Overall the scope of the business case is determined by both systemic and organizational
factors (tools and systems, managers, structures, soft factors, causal modeling and validation).
A “presumptuous” focus on business logic only (i.e. without quantification) is careless, as it
prevents validation of expected causal links between initiatives and financial performance
through measurement, i.e. quantification, and thus leads to decision-making based on
(possibly wrong) preconceptions. Furthermore, companies’ claims that strong soft factors
make a quantified business case obsolete should not be taken at face value, since it often
associated with a lack of data management and a consequent tendency to blame external
factors for a lack of quantification.
In conclusion, the uncertainty is substantial among decision-makers and inherent in both the
business case for sustainability and most managerial decisions. Additionally, considering
companies’ internal deficits, it is very likely that even the relatively robust business case for
the management of operational risks and opportunities is not fully exploited, particularly not
in laggard companies.
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Implementation of CSM
Although tools are a less important determinant of CSM than soft company-specific factors
(e.g. corporate culture), they still play a meaningful role: In particular incentive systems,
strategic planning and accounting procedures, management development, and conflict
resolution tools (used at the strategic and operational level) determine CSM success. This
suggests that data management tools, tools that shape managers’ perceptions and expectations
and conflict resolution tools are necessary to effectively implement CSM. In both sectors, the
portfolios of tools used are dominated by data management tools and corporate values, which
confirms companies’ rather early stage in a potential process of strategic redirection to
corporate sustainability.
Overall companies exhibit clear deficits in terms of their structures: Cross-disciplinary
collaboration is ineffective or completely lacking. It is determined through corporate strategic
disposition to CSM. The importance of cross-disciplinary structures should not be
underestimated, since they influence managers’ awareness of issues and outside pressure from
stakeholders and, alongside other variables, determine he success of CSM.
Companies’ portfolios of initiatives clearly point to an incremental approach to CSM.
Managers’ awareness of ongoing initiatives is low, and initiatives are largely limited to minor
modifications to process and operations. The portfolios also exhibit a contingency on the most
important issues each sector faces. OG companies have increasingly attempted to take on
important social issues associated with their extraction and production activities in developing
countries; UT companies are more focused on environmental initiatives.
Overall the UT sector exhibits a lower level of implementation of CSM: Inter alia UT
companies more clearly lack management tools, effective cross-disciplinary structures, and
corporate social and environmental initiatives.
Outcome of CSM and its key determinants
Overall evidence on general managers’ perceptions of the predominantly little success of
CSM is quite sobering and reflects significant skepticism and a lack of corporate and
managerial capabilities: The study revealed several key determinants of CSM success that
comprise corporate cultures, managers’ mindset, management tools and the initiatives carried
out.
Internal rather than external factors such as lack of interest or opposition from customers or
investors determine CSM success. As discussed above, this points to an incremental approach
to CSM: Corporate social and environmental initiatives are so marginal in scope that they are
not affected by external stakeholders’ indifference or even opposition.
Primarily since UT companies face stronger internal barriers, it is coherent that CSM success
is lower in the UT sector.
Contingency perspective
The contingency approach taken in the present study has proved very effective. It enabled a
very differentiated analysis of the companies’ approaches to CSM, its determinants and the
outcome across two industry sectors, two management disciplines and various regions of
operations.
Sectors
The key cross-sector findings on corporate sustainability performance (referred to as a
company’s configuration of external and internal determinants of CSM, strategic disposition
to, economic rationale for and, implementation of CSM, and its outcome)
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Corporate sustainability management
Outcome
Issues
Public Responsibility
OG sector
• more aware of issues
in general
• more strongly affected
by social issues
than UT sector
Stakeholders
Legitimacy
OG sector
• Greater importance of brand
value and reputation
• More often subject of incidents
that damaged legitimacy
• More often targeted by NGOs
• More proactive capital
markets and PPPs
• Less proactive governments
and consumers
than UT sector
Managers
Managerial discretion
OG sector
• More proactive attitudes
of managers
than UT sector
Companies
Corporate discretion
OG sector
• More aware of lack of
managers’ knowledge
and expertise
than UT sector
Corporate sustainability performance
as business organization’s configuration of
Drivers of corporate sustainability management
Implementation (how to do it?)
Strategic disposition
and
economic rationale
Tools Initiatives Structure
OG sector
• greater SD familiarity
•greater CSM intent
than UT sector
OG sector
• brand value and reputation
less important as value drivers
than UT sector
OG sector
• More tools (corporate values,
incentive systems,
management development,
coordination committees,
and business teams
than UT sector
OG sector
• More initiatives (business
ethics, community
involvement and social
issues in the supply chain)
than UT sector
OG sector
• More cross-disciplinary
collaboration and potential
than UT sector
OG sector: Greater CSM success
Figure 9-1: Cross-sector differences
have already been presented in detail in the previous paragraphs. They will not be repeated
but the author provides an overview of the cross-sector differences in Figure 9-1. They clearly
illustrate a less advanced approach of UT companies to CSM compared with OG companies.
Management disciplines
The study revealed several cross-disciplinary differences, summarized in Table 9-1, which
show that the two groups have specific perceptions of determinants of CSM (issue
significance) and of CSM as such, more specifically their companies’ SD familiarity, internal
barriers and management tools as well as the role of their sector in contributing to sustainable
development.
Concept Description of cross-disciplinary differences Sector
Issue significance Sustainability officers consider social and environmental issues more significant than general
managers
OG, UT
Barriers to CSM Sustainability officers more frequently consider managers’ mindset an important barrier to
CSM
UT
SD familiarity Sustainability officers consider their companies’ SD familiarity higher than general managers OG, UT
SD role of industry Sustainability officer consider their industry’s role more proactive than general managers OG
Management tools Sustainability officers less frequently report the use of tools that measure resource allocation
Sustainability officers more frequently report the use of management development tools.
OG
Table 9-1: Cross-disciplinary differences
Thus the sample of sustainability officers confirms their greater knowledge and expertise in
the area of CSM, which was expected due to their role as advisors and catalysts in their
companies. They are more aware of social and environmental issues and internal barriers,
more specifically managers’ mindset. Hence they see a clear need to increase general
managers’ awareness through management development. In contrast, general managers are
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more strongly concerned with resource allocation, which likely reflects their perception of
CSM as a cost driver.
Finally, sustainability officers have a more positive self-perception (of their company and
industry), most likely because they are (1) calculatedly optimistic as catalysts, and (2) have a
broader and more strategic perspective on CSM (e.g. greater awareness of best practices) and
thus tend to overestimate organizational alignment.
Regions
The study pointed to several differences across regions of operations: The significance of
some issues depends on local social and biophysical conditions. Furthermore, outside pressure
from stakeholders is moderated through limits of legitimacy, which differ across regions of
operations. E.g. developing countries have lower environmental and social standards than
developed countries. Furthermore, public pressure on the same issue such as nuclear power
(e.g. France vs. Germany) and climate change (Europe vs. US) differs across countries. There
is some evidence that these country-specific differences are also reflected in managers’
attitudes and corporate cultures.
9.2 Significance of the study
9.2.1 Implications for theory
The present study is both exploratory and explanatory in nature. It relies on a conceptual
framework derived from those of Husted (2000) Greening and Gray (1994) and mainly Wood
(1991). The resulting model of corporate sustainability performance was tested through both
qualitative and quantitative methods. Empirical evidence reveals that the framework
developed is valid. The following implications for theory are significant:
Joint consideration of social and environmental dimension
The most significant models of corporate social performance (Cochran & Wood, 1984;
Greening et al., 1994; Husted, 2000; Wood, 1991) do not differentiate between social and
environmental issues and corporate activities undertaken to address them.
The present study has shown that a separate but simultaneous consideration of the social and
environmental dimension is worthwhile, since it takes into account the contingency character
of CSM: Both the social and environmental dimensions of CSM can differ in terms of
significance between industry sectors and regions of operations. Thus the study hints at even
finer differentiations, which would take into account parameters such as issue transparency,
certainty and urgency.
Economic rationale
In contrast to previous models, the study’s model of corporate sustainability performance
explicitly incorporates the economic rationale for CSM. It defines CSM as a profit-driven
corporate response to social and environmental issues. Given that the economic rationale for
CSM was a virtually untouched area of descriptive research, the study took a more
exploratory qualitative approach to shed more light on the importance and characteristics of
this concept.
The evidence gained points to the fact that the business case for sustainability plays a key role
in fostering CSM, and thus justifies the inclusion of the business case in the study’s
conceptual framework. It also provided the basis for an empirical follow-up study that
collected the first ever available quantitative data on companies’ activities to quantify the
economic effects of their social and environmental initiatives as well as on the importance and
drivers of quantification.
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Based on his study and follow up empirical research conducted at IMD (Salzmann et al.,
2005b), the author developed a framework that includes all relevant determinants of the
business case for corporate sustainability, i.e. systemic factors (marginality and complexity),
and organizational factors (system and tools, structures, managers, soft organizational factors,
causal modeling and validation).
Process orientation and corresponding systemization of subconcepts
None of the previous conceptual frameworks allowed for an examination of the relationship
between possible determinants of CSM, companies’ strategic disposition and approaches to
implementing it and the outcome.
The corporate sustainability performance model presented in this study facilitates this
sequential perspective. Data support the validity of the framework and show that:
1. Strategic disposition to CSM is driven by four (external and internal) determinants
2. Strategic disposition to CSM determines how it is implemented
3. Approaches to implementation determine the outcome of CSM.
Four determinants of CSM
To date the most comprehensive models of corporate social performance by Wood (1991) and
Greening and Gray (1994) have featured only some subsets of the motivating factors
accounted for in the present study, namely public responsibility, legitimacy and managerial
discretion (Wood, 1991), and resource dependencies, institutional pressures and managerial
discretion (Greening et al., 1994).
The present study has shown the meaningfulness overall of four determinants of CSM:
legitimacy (stakeholders), managerial discretion (managers’ attitudes, knowledge), corporate
discretion (resource dependencies) and public responsibility (issues).
9.2.2 Implications for practice
Issues
The study clearly reveals that most issues in both sectors can be momentarily addressed
through incremental modifications to operations and processes. The currently limited
relevance of environmental and social issues to companies’ core business clearly puts things
into perspective: It is fairly easy for general managers to dismiss CSM as “baloney.” It is
obvious that two factors will significantly affect the importance of CSM in the future:
1. Issue visibility: Some issues are likely to become more and more visible. Effects of
climate change are likely to show more clearly, e.g. higher sea levels, interference with
atmospheric and water circulation and weather variability. Furthermore, environmental
(e.g. biodiversity loss, environmental deterioration) and social pressures (e.g. income
disparities, poverty) are likely to increase (OECD, 2001, p. 14). Those developments of
issue visibility may be gradual or dramatic.
2. Societal reaction: It remains to be seen how societies will respond to this increasing issue
visibility, and whether the associated risks can be – depending on the future state of local,
regional or global ecological and social systems – avoided, mitigated or only managed
(e.g. building higher dams against rising sea levels). Depending on future trends and
countertrends (corporate social responsibility vs. radical capitalism; national protectionism
vs. globalization; multi- vs. unilateralism), societies may or may not decide to internalize
issues.
In the case of climate change, for example, direct taxes, tradable permits, reluctance of
shareholders and institutional investors (e.g. The Carbon Disclosure Project), litigation and
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changes in re-insurance policies could have a significant impact on current business models,
which are largely based on the production and use of fossil fuels (OECD, 2001, p. 350; The
Word Economic Forum, 2002, p. 2 ).
Provided that society is willing and able to internalize increasingly visible issues, companies’
financial threats and opportunities will increase. The stakes will also rise through an increase
in complexity and dynamics through geopolitics (e.g. terrorism) and the growing bargaining
power of countries that own non-renewable energy sources. Furthermore, the situation is
complicated by several systemic parameters driving the global energy system: Such factors
(e.g. domestic energy policies, technological lock-in through long life-spans for energy-
related capital stocks) can only be influenced by energy companies to a limited extent. In the
UT sector, ongoing liberalization and privatization could additionally increase competition.
These trends clearly call for a more systematic approach, with more resources, to correctly
evaluate emerging issues, detect the most important ones, and eventually launch activities to
address them. The timing and the type (e.g. which technology?) of such activities is largely
uncertain, but they will certainly become necessary and lead to a transition of energy markets
in the future (Shell International Ltd, 2001, p. 58). The key importance of this transition
becomes obvious if one takes into account the strategic importance of energy as a commodity
that facilitates mobility and the production of goods and services.
Stakeholders and legitimacy
The study revealed that companies face little outside pressure from stakeholders, apart from
NGO campaigns. In particular, the lack of strategic guidance from governments and
regulators in industrialized countries has become apparent and can be attributed to the limited
visibility of issues (e.g. climate change is a global long-term issue), which decreases the
political acceptance of possibly more drastic measures. As noted above, these issues will tend
to become more visible over the next decades, thus facilitating more demanding policy mixes
targeting both energy producers (companies) and users (households and industries). On the
other hand, globalization will decrease national governments’ power to amend companies’
licenses to operate. The slow Kyoto process suggests that effective transnational legislation is
still years if not decades away from being introduced (WBCSD, 1999, p. 2).
This points to an increasing role of civil society and other non-regulatory stakeholders in
amending companies’ informal license to operate. With increasing issue visibility, customers
(i.e. private and corporate customers) and the financial community are more likely to move
beyond their ad hoc responses to NGO campaigns and more consistently exert greater
pressure on companies. Two further motivating factors should be taken into account:
- With ongoing globalization, the organizational visibility (e.g. brand recognition) of the
major oil and gas companies in particular will increase.
- With ongoing economic development, limits of legitimacy will shift, i.e. external
stakeholders will become more demanding in terms of how issues should be addressed.
The increasing complexity and pressure companies will face points to the importance of
forming partnerships with stakeholders, to develop technologies in joint pilot projects or safe
niche markets (e.g. the hydrogen project of Norsk Hydro, Shell and DaimlerChrysler in
Iceland, rural electrification project undertaken by Shell and Eskom) and to resolve local
social and environmental issues in developing countries (e.g. human rights, allocation of oil
revenues).
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Managers
Since companies’ “hardware” of tools and systems can inevitably not capture the complexity
of CSM fully – even if gaps and failures diagnosed were removed – managers play a
particularly important role. The assessment of issues and their integration into business
strategies and operations (e.g. framing an issues as an opportunity) provides them with
significant potential to exercise their discretionary power. This involves personal judgment
that is based on the decision-makers’ knowledge (cognitive maps) and personal attitudes. It
should be noted that judgment is particularly difficult in the energy industry compared to
others since, as outlined above, the global energy system is so complex and dynamic.
Management development is strongly needed, particularly in laggard companies, to encourage
managers to exploit their discretionary power in the best possible way. In the current situation,
in which issues can still be addressed through incremental innovations, more experienced and
knowledgeable managers are more likely to acknowledge and strengthen existing links
between social and environmental issues and their companies’ core business, and thus more
strongly promote CSM within their organization. For this reason, the author has developed an
interactive web-based toolset to help managers build their business case for sustainability,
benchmark their company’s current approach to CSM and identify areas of improvements and
potential pitfalls.59
It appears that younger managers already exhibit greater awareness of issues than their older
colleagues, presumably due to their education (e.g. greater use of the internet) and heightened
awareness of NGO campaigns. Hence one can expect that future managers will more easily
sense a business logic to integrating issues. Greater visibility of some issues such as climate
change will additionally help them to build a business case for CSM.
Companies
In the long term, financial threats and opportunities associated with environmental and social
issues will become more significant to companies’ core business. The business case will
become clearer and easier to build. Thus companies’ strategic disposition to CSM will
increase beyond incremental improvements of operations and processes.
However the study identified – alongside managers’ attitudes – several other internal factors
that significantly affect companies’ strategic disposition to and implementation of CSM. This
means that a more optimal configuration of those internal factors leads to a greater willingness
and ability to integrate issues into strategies and operations.
The potential for corporate discretion at the strategic level is rather limited under the current
market regimes. However, it is likely to grow in the future and may thus lead to a gradual
removal of internal barriers: CSM will become increasingly difficult to dismiss because its
relevance to companies’ core business will increase.
The potential for corporate discretion at the implementational level is significant in all
companies today, particularly among laggards. How can this potential be exploited? The study
points to the need for a two-pronged approach: First, companies need to work on their “soft”
capabilities: Open proactive corporate cultures that can be most effectively fostered through
credible signals from top management, management development and incentive systems are
necessary to create a working environment in which managers feel empowered and
encouraged to exercise their individual discretionary power. Companies featuring such
corporate cultures have less need of a hard quantified business case and have a better “feel”
for the underlying business logic. They may even also engage in corporate environmental and
59 The toolset is available at the following web address: www02.imd.ch/research/project/bcs.
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social activities on a normative case, but only as long as financial pressure is moderate.
Second, “hard” internal capabilities are to be improved. They comprise inter alia:
- Corporate structures that foster effective collaboration between sustainability experts and
general managers, between business functions and business units. This pooling of
resources is necessary to cope with the complexity that comes with CSM and calls for
cross-impact analysis, cross-functional and cross-business consensus-building and
decision-making (through business teams and coordination committees at the operational
and strategic levels, respectively)
- Management tools that provide managers with relevant data (e.g. carbon cost accounting,
scenario building) that are necessary to establish a sound business logic for CSM or even a
hard quantified business case.
Economic rationale
It is essential for companies to establish a sound economic rationale for CSM, but it is also not
easy. Systemic factors such as the complexity associated with social and environmental issues
as well as the limited scope of the business case for sustainability (particularly for a radical,
“breakthrough” innovation) make it difficult and less worthwhile to establish business logic
for social and environmental initiatives and to quantify it.
However, with the current state of CSM and its business case, it is short-sighted to blame
outside and systemic factors when trying to build a sound business case. The actual
bottlenecks are of rather basic and internal organizational nature:
1. Companies tend to lack capacities for data management, in particular those necessary to
collect data on their initiatives and their effects.
2. Companies, particularly those exhibiting greater internal deficits, tend to overestimate the
positive effect of soft organizational factors such as corporate culture, management
education and top management commitment. Furthermore, business logic (without
quantification) is not established as often as claimed.
Overall results provide a clear recommendation for managers to systematically establish
business logic for social and environmental initiatives, and to confirm or disconfirm this logic
by quantification to avoid flawed decision-making based on half-baked assumptions. In most
cases this will have to go hand in hand with building organizational capacities in the form of:
- tools and systems to collect and process relevant data
- cross-disciplinary structures (across business units, business functions, regions, etc.) to
ensure consistent flow of information, facilitate decision-making and strengthen
organizational alignment
- management education, and
- more open and proactive corporate cultures.
9.3 Limitations and suggestions for further research
Apart from its analysis of determinants of strategic disposition to CSM which has been
undertaken in earlier studies (even if not in such a differentiated way), the study has largely
touched new areas of empirical research. The author has intended to capture the vast scope of
this new research field through a broad exploratory and explanatory approach. The breadth
and pioneering character of the study are inherently linked to some limitations that point to
several opportunities for further research. The author has identified three key directions of
future research: (1) research focus and operationalization, (2) refining the framework, (3)
issue integration and the business case for sustainability, and (4) methodology and data.
221
Obviously all three directions should respect the contingency character of CSM when drawing
multi-industry samples.
Research focus and operationalization
Sections 8.1 Issues, 8.2 External stakeholders, industry and partnerships, and 8.4 Companies,
in particular, feature several opportunities to focus on individual research areas that have
already been mentioned in the various discussions of the research results above. Naturally
every focus has to go hand in hand with a more accurate operationalization of concepts. The
following two directions appear particularly compelling:
- Both qualitative and quantitative methods employed in the study revealed that a
differentiation between the social and environmental issue dimensions is meaningful.
Future research can allow for a much finer distinction of issues or even a focus on the key
issues identified through qualitative methods in this study. As depicted in Figure 8-6
studies can also incorporate various parameters such as certainty, transparency (Bansal et
al., 2000), local, regional or global biophysical conditions to more comprehensively
explain variations in the visibility of individual issues. They can additionally include the
moderating factors of organizational visibility (Bowen, 2000) and limits of legitimacy to
assess outside pressure associated with an issue and the corresponding financial threat and
opportunity as perceived by managers. Thus results can also contribute to a more
conclusive prediction of companies’ strategic disposition to CSM.
- Quantitative methods linked several stakeholders’ demands for CSM to companies’
strategic disposition. Furthermore, demand for CSM was measured for the individual issue
but at an overall level. As qualitative methods revealed, the demand level is only one of
several determinants of outside pressure from a particular stakeholder and it is issue-
specific. Future studies can assess the importance of the principle of legitimacy more
accurately by incorporating additional factors featured Figure 8-15, such as the power of
the individual stakeholder relative to the company. They may concentrate on single
stakeholders only, or one issue only, and assess the corresponding outside pressure and the
financial threat or opportunity faced by the company.
Refining the conceptual framework
The present study was based on a conceptual framework depicted in Figure 4-1, which
featured four determinants of CSM comprising the principles of public responsibility (relating
to issues), legitimacy (relating to stakeholders), managerial discretion (relating to managers’
attitudes) and corporate discretion (relating to company-specific determinants). The business
case, i.e. the economic rationale for CSM, was integrated with the strategic dimension of
CSM next to companies’ strategic disposition.
222
The business case:
Financial threat or opportunity
Corporate activity
Issue significance
as perceived by the managers:
Managers’ mindset, knowledge
(e.g. cognitive maps)
Corporate culture and tools
Costs Revenues
Consumer protests and boycotts
NGO campaigns
Shareholder resolutions
Increased demand for
renewable energy
(e.g. production and use of fossil fuels likely to be associated with climate change)
Current and future
Outside pressure
to minimize the effect
Scrutiny of CO2 intensity
by financial sector
Eco-taxes
Brand value
Reputation
Employee satisfaction
Access to capital
etc.
Visible issue
Organizational visibility
(Bowen 2000) Local, regional or
global limits of legitimacy
• Societal standards, values
• Regulations
Figure 9-2: Integration of the business case into the conceptual framework
The central role of the business case for CSM revealed in this study calls, however, for an
enhancement of the conceptual framework, more specifically a refinement to take into account
its relationship with the motivating principles featured in the original framework. Figure 9-2
constitutes a proposition for such a refined framework. It features all concepts of this study,
which were found to be directly relevant. They comprise the corporate activity that leads to a
social or environmental intake (not shown, see Figure 8-6). This intake leads to an issue
whose quality depends on local, regional or global biophysical or social conditions. The
quality of the issue may additionally be visible to a varying extent depending on its
transparency and certainty (not shown, see also Figure 8-6).
The visible issue then triggers outside pressure from stakeholders which is contingent on the
organizational visibility of the company and the limit of legitimacy. This outside pressure can
take different forms, depending on the individual stakeholder, and it affects costs, revenues or
intangibles to a varying extent. The resulting financial opportunity or threat is then evaluated
by a manager or a group of managers. Their mindset, level of knowledge and expertise as well
as corporate culture and tools determines the outcome of this evaluation, which is the
perceived issue significance. The issue significance then determines – alongside other factors
– the willingness to address the issue, i.e. the strategic disposition.
The refined framework presented still reflects a rather exploratory stage of this research field.
Future studies can test and refine it to move from the descriptive end of the continuum more
toward a normative and predictive stage in this research field.
223
Issue integration and the business case for sustainability
The author developed the following framework depicting the major determinants of the
business case for corporate sustainability – largely based on qualitative evidence collected in
the course of this study and on empirical follow-up research:
Business
case
Issues
Marginality
Financial
opportunities
and threats
Complexity
Tools/Systems
Structures
Soft org. factors
Causal
modeling
Validation
Systemic factors Organizational factors
• Corporate culture
• Top management
commitment
• Impact assessment
• Early awareness
system
•etc.
• Cross-functional
• Cross-business
Managers
• Knowledge
•Awareness
• Availability
• Regulatory and
market frame-
work
• Technology
(lock-in)
•Time
• Scope (corporate
vs. plant level,
single vs.
multiple issues)
Figure 9-3: Developed framework – the business case for sustainability and its determinants
It is suggested that further empirical studies could test and refine this framework, in particular
if they take into account the contingent natures of CSM and its business case. This means the
author recommends a research design that allows the researcher to control for industry and
company effects as well as varying characteristics of diverse social and environmental
initiatives.
Furthermore, the author found a certain congruence in companies’ challenges to quantify their
business case for sustainability and measure their non-financial performance. He suggests that
a study reviewing research in both domains could facilitate a significant amount of learning
across the research disciplines. Furthermore, there is significant room for further empirical
studies examining commonalities and differences between both domains more closely in
terms of activities, tools, barriers and trends.
Finally the present study featured a largely qualitative analysis of corporate approaches to
issue integration to explore a virtually untouched research terrain. Results reveal one
particular compelling research opportunity. A more in-depth analysis (e.g. fewer companies
but more intensive in-company research, compared to this study) could shed more light on
how companies take their decisions to (or not to) address an issue and how: On what data
exactly do they base their decisions? Who takes the decision, based on what rationale, etc.?
224
Methodology and data
The third enhancement suggested concerns (1) methodology and (2) data. The former applies
to the quantitative methods used. They enabled the author to distinguish significant from
insignificant determinants of CSM on the basis of whether they would feature a statistically
significant coefficient in the regression models (and correlations) or not. However, due to
different operationalizations of the variables (some ordinal, some nominal) and the per-fiat
measurement through unnumbered equidistant Likert-type scales, a comparison of the
strengths of the effects detected in regression models on the basis of the values of the
coefficient would have been inadequate. Furthermore, an interpretation of the relative effects
would have been difficult in some cases, since – due to the broad scope of the study – the
author would have lacked the necessary qualitative data: The objective was to identify
significant variables rather than assess their relative importance.
With regard to data, the study followed a strict contingency perspective, which allowed for a
differentiated analysis across two industry sectors, two management disciplines and two main
regions of operations (North America, Europe). A similar approach could be chosen for
various other populations (sectors, management functions and levels, etc.), of which the
following would appear to be the most compelling:
- Obviously any other individual industry sector could be selected and compared with a
second one. For a cross-sector comparison, the selection could be based on a specific
factor that is expected to moderate the sectors’ approaches to CSM, i.e. the product (e.g.
specialty vs. commodity), the customer (consumer electronics vs. industrial equipment), or
material and energy intensity (e.g. mining or aluminum vs. service).
- The study also leaves several regions largely untouched. Above all, developing countries
and Asia offer themselves as compelling research objects, since that is where the greatest
potential for future growth – in the energy sectors as well as many other sectors – lies.
- It would be equally worthwhile to analyze small and medium-sized enterprises’ approach
to CSM and its determinants. A comparison with large corporations may be meaningful to
assess which group is more advanced in terms of CSM – this question is still unanswered
(Mathieu, 2002, p. 83) – and why.
- The approach taken in this study could be taken further down to the business unit or plant
level (Lankoski, 2000, p. 152), and thus attempt to identify and explain possible variations
in their approach to CSM, the reasons and the effects, within the same company.
- The samples of this study are biased toward the sustainability leaders of their sectors.
Obviously any empirical study targeting the laggards would produce a meaningful
benchmark for the research results presented.
The more advanced methods of data analysis were only applied to data obtained from general
managers, since the sample size for sustainability officers was too small. This had been
expected, since the underlying population is so much smaller than that of general managers.
As challenging as data collection may be, a descriptive study that can facilitate a
comprehensive comparison of general managers’ and sustainability officers’ perceptions of
CSM through measures of associations (e.g. regression as in the present study) could be very
insightful.
9.4 Conclusion
Elements of CSM were mainly examined under “kindred” concepts such as corporate social
responsibility, corporate social performance or environmental management. Empirical
research largely focused on studies aiming to confirm or disconfirm a link between corporate
social/environmental and financial performance or test different concepts of corporate social
225
responsibility. Descriptive studies on CSM or related concepts were in the minority and
limited in their scope. Most importantly they largely ignored the contingent nature of CSM
and left its business case as a research area untouched.
The present study represents a meaningful effort to fill these research gaps. It features a
conceptual framework that accounts for the clearly contingent nature of CSM. Its scope is
substantial, as it comprehensively examines companies’ approaches to CSM, the determinants
and the outcome across two industry sectors, two management groups and mainly two regions
of operations, namely North America and Europe.
Furthermore, it provides unique insights into how companies perceive their economic
rationale for or against CSM. Thus it clearly cuts through the usual rhetoric of corporate
communications and consultants. Its results point to the following key conclusions on CSM:
- Although CSM has clearly moved beyond the status of a “pet project” of some “activist”
companies or CEOs, it has clearly limited relevance to the core business of the companies
in the energy (and almost every other industry) sector.
- The business environment of companies, which is largely characterized by ignorance of or
even opposition from shareholders and customers, only allows for a more responsible
interpretation of “business-as-usual.”
- Internal barriers identified show that laggard companies in particular have significant
potential to use this scope of discretion more effectively, i.e. the mainstream transactional
stakeholders’ “allowance” for a more responsible “business-as-usual” is not fully
exploited.
It remains to be seen whether, when and how societal regimes will demand more significant
changes to existing business models, and what their effect with regard to the major strategic
issues of climate change and the North-South energy divide will be. Precisely because of these
open questions, CSM will continue to matter – to both practitioners and researchers.
226
227
Appendices
Appendix A – Interview samples
The author stresses that the numbering of the participating companies and stakeholders listed in the tables does NOT match the company and
stakeholder codes used in the text to identify individual interview quotes.
OG sector
Company Activity/Details Location of
headquarters
# of
sustainability
officers
interviewed
# of general
managers
interviewed
Interviewees
A. BG Group - Oil and gas
extraction and
production,
refining and
marketing
(mainly gas)
UK 1 2 - Margaret Mogford
(Head of Environment)
- Derek (E&P North Sea)
- Andrew (Head of Contracts and Procurement)
B. ConocoPhili
ps
- Oil and gas
extraction and
production,
refining and
marketing
US 1 - Jean Davis
(Manager, Sustainable Development)
C. Exxon Mobil
Corporation
- Oil and gas
extraction and
production,
refining and
marketing
US 2 2 - Ray A. Mentzer
(SHE Manager – Safety, Health and Environment)
- Michael J. Lane
(Downstream & Chemicals SH&E Managers – Europe, Africa &
Middle East)
- Peter F Francis
(Public Affairs Manager, Europe and Africa)
- Richard Laing
(Planning Advisor – Safety, Health and Environment)
D. Fortum
Corporation
- Oil and gas
extraction and
production,
refining and
marketing
- Power
generation
Finland 1 1 - Arja Koski
(Corporate Senior Vice President – Environment, Health and
Safety)
- Juha Laaksonen
(Chief Financial Officer)
228
E. Gaz de
France
- Gas extraction
and distribution
France 1 1 - Marc Bussieras
(Délégué Relations Collectivités Locales Et Environment)
- Michel Duhen
(Délégué A L’Environment)
F. Norsk Hydro
ASA
- Diversified:
light metals, oil
and energy,
fertilizer and
chemicals
- Oil and energy:
E&P, refining
(30% of sales)
Norway 1 1 - Alexandra Bech
(Executive Vice President, Chief Sustainability Officer)
- Sven Ombudstvedt
(Senior Vice President, Head of Corporate Strategy)
G. Total - Oil and gas
extraction and
production,
refining and
marketing
France 4 5 - Georges Dupont-Roc
(Sustainable Development & Environment - Vice President
Sustainable Development)
- Jean-Philippe Raynaud
(Strategy & Risk Assessment Division – Sustainable Developmen
t
Program Manager, Corporate)
- Laurette Gattoni
(Refining & Marketing – Sustainable Development Project
Manager)
- Jean-René Marabelle
(Sustainable Development & Environment – Intergovernmental
Organizations)
- Philippe Schultz
(Refining and Marketing - Fuel Cell Task Force)
- Hélène le Poezat
(Gas & Power – Managers Strategy)
- Claude Jabon
(Strategy & Risk Assessment Division – Senior Vice President
Scientific Development)
- Dominique Chauvin
(Sustainable Development & Environment, Johannesburg
Coordinator)
- Philippe Costerg
(Renewables Division, Solar Energy Project Manager)
H. Royal
Dutch/Shell
Group
- Oil and gas
extraction and
production,
refining and
marketing
UK 2 - Marc Weintraub
(Group Environmental Advisor)
- Marc Wade
(Sustainable Development Group)
229
UT sector
Company Activity/Details Location of
headquarters
# of
sustainability
officers
interviewed
# of general
managers
interviewed
Interviewees
A. EON - Electric and
gas utility
- Power
generation
(45% nuclear,
34% hard coal)
Germany 2 1 - Gert Von der Groeben
(Executive Vice President -Economic and Public Affairs)
- Guido Pasternack
(Bereich Wirtschaftspolitik, Abteilung Energie und Umwelt)
- Kiran Bohjani
(Executive Vice President -Investor Relations)
B. RAG - Hard coal
mining
Germany 1 1 - Michael Siemers
(Referent Wirtschafts- und Energiepolitik)
- Stephan Nahrath
(Stellv. Zentralbereichsleiter Konzern-Controlling)
C. RWE - Multi-utility:
energy
(electricity,
gas), water,
waste
- Electricity
generation
(46.6% lignite)
Germany 1 1 - Marita Hilgenstock
(Corporate Development)
- Hans-Peter Meurer
(Political Affairs)
D. Scottish
Power
- Electric and
gas utility
UK 1 - Fred Dinning
(Corporate Environmental Director)
E. Suez - Multi-utility:
water, energy,
waste
- Energy
(Tractebel):
electric and
gas utility
France
2
1
- Jean-Claude Steffens
(Director – Department International Public Affairs)
- Werner Braemscheute
(Corporate Executive Development Managers)
- Sophie Mertens
(Sustainable Development Coordinator, Department of
International Public Affairs)
230
External stakeholders
External stakeholders # of interviewees Interviewees
A. International
Energy
Agency
Renewable Energy,
Energy and
Environment
2 - Jonathan Pershing
(Head of Division –Energy and Environment)
- Rick Sellers
(Head, Renewable Energy Unit – Energy Technology Collaboration Division)
B. Greenpeace Energy 2 - Gabriela von Goerne
(Energiebereich)
- Sven Teske
(Energy Unit)
C. European
Commission
Directorate-General
for Energy and
Transport
1 - Pirjo-Liisa Koskimäki
(Head of Unit – Sustainable Development, Directorate-General for Energy and Transport
D. UNEP Energy 1 - Eric Usher
(Project Officer, UNEP Division of Technology, Industry and Economics, Energy &
OzonAction Unit)
E. World
Business
Council for
Sustainable
Development
(WBCSD)
Climate and Energy 1 - Susanne Haefeli
(Program Assistant)
F. World
Economic
Forum
Community
Management,
Energy
1 - Christoph Frei
(Senior Community Manager, Energy)
G. Friends of
the Earth
Climate and
Transport
1 - Roger Higman
(Senior Campaigner, Climate and Transport)
231
Appendix B – Key financials of sector samples
Company Total assets (Millions
US$) in 2002
Sales (Millions
US$) in 2002
Net cash flow from operating
activities (Millions US$) in 2002
Oil & gas
BG Group 10,881.31 4,201.84 1,312.07
ConocoPhillips 76,795.00 50,512.00 4,969.00
Exxon Mobil 152,644.00 178,909.00 21,268.00
Gaz de France 29,943.76 15,263.60 3,023.13
Norsk Hydro* 29,648.06 20,725.46 3,486.88
Royal Dutch 92,968.39 107,658.38 9,835.98
Shell 61,076.55 71,772.19 6,545.98
Total 87,836.12 97,460.17 10,460.76
Electric utilities
E.ON 115,450.74 37,908.20 3,872.04
Fortum 18,847.07 11,697.96 1,417.65
RAG** 19,967.75 13,667.56 NA
RWE 97,252.17 45,632.34 6,225.69
Scottish Power 23,131.74 7,864.47 1,130.66
Suez* 88,392.11 43,806.51 4,587.40
* Figures include non-energy business units
** RWE and E.ON are both parent companies
232
Appendix C – Hypotheses and objectives of IMD research project
(Excerpt from original research proposal)
1. Hypotheses
1.1 In most global companies, there is potential for the establishment of a readily
identifiable robust business case for sustainability under current socio-economic
conditions, which can be identified. Capital markets will react favorable to lower risks
and higher growth opportunities in the long run.
1.2 The robust business case for sustainability is primarily sector specific and secondarily
depends on the (national) business environment (regulation, social and political
conditions, culture).
1.3 Corporate acceptance and implementation of a robust business case for sustainability
is impeded by the following:
• The mind set of managers
• Knowledge gaps
• Regulatory barriers
• The coordination of conflicting interests in the supply chain
(customers and suppliers)
• Absence of appropriate tools and processes
• Internal organizational behavior
• Investor behavior
1.4 Acceptance and implementation of the robust business case for sustainability is
promoted by:
• Public or market pressure
• Detectable new business opportunities
• Process and product innovations
• Progressive interactions with stakeholders
• Top management leadership and commitment (power
promoter)
• Autonomy and internal scope of implementing officer
• Open organizational culture
• Corporate identity
• Demands of individual shareholders and institutional investors
2. Objectives
A joint research project by CSM/IMD and WWF, the conservation organization, is proposed.
The project will:
- examine the mismatch of perceptions, attitudes and corresponding behavior patterns
between sustainability officers and other “policy makers” in the company;
233
- detect external barriers for sustainability and detect external promoters (or supporting
frameworks) of unsustainable behavior
- detect possible country and industry-specific differences in values, restrictions, etc.,
and on the basis of this;
- examine the pressures undergone by companies to respond to internal demands, such
as change management and external demands, such as the bottom line expectations of
shareholders;
- examine whether companies use early warning systems or other diagnostic tools for
meeting societal and environmental expectations;
- develop a strategic tool set allowing companies to strategically build their individual
sustainable business case.
Since studies have often been criticized for potential research bias, a CSM/IMD partnership
with a strong NGO such as WWF presents an opportunity to deliver objective results that, as
a result of the collaboration, would gain in terms of credibility and lead to some valuable and
relevant output to be used by managers. The CSM membership will play a strong support
role in terms of review and approval of project outputs.
234
Appendix D – Operationalization of key concepts
Key concepts
in conceptual
framework
Subconcepts
and terms
used in study
Questionnaire version (GM/SO) and
operationalization
Type of
question/
scale
Interpretations and hypotheses
Issue
significance
GM, SO: Respondents’ perception of the significance of
social and environmental issues, e.g. human rights, climate
change (“Not at all” to “Very much”)
Likert-type
scale
- Higher rating = greater issue significance
- The greater the issue significance, the greater the
strategic disposition
Issue
awareness
GM: Respondents’ ability to name and describe the most
important environmental or social issues
Open-
ended -
coded
- Greater relative frequency = greater issue significance
Issues – public
responsibility
Issue
awareness
SO: Respondents’ ability to name and rank the three most
important sustainability issues
Open-
ended -
coded
- Greater relative frequency = greater issue significance
Importance of
legitimacy
GM: Respondents’ perception of the importance of brand
value and reputation (from “Not at all” to “Very much”).
Likert-type
scale
- Higher rating = greater importance of legitimacy
- The greater the importance of legitimacy, the greater the
strategic disposition
Damage to
legitimacy
GM: Respondents’ perception of the level of damage
companies’ brand value and reputation incurred due to
incidents (e.g. conflicts with authorities, consumer boycotts)
over the past three years (“No impact at all” to “Severe”).
Ordinal - Higher rating = greater damage to legitimacy
- The greater the damage to legitimacy, the greater the
strategic disposition
Future SD role
of capital
markets
GM, SO: Respondents’ expectation about the future reaction
of capital markets to improved social and environmental
performance (“Much more negatively” to “Much more
positively”).
Likert-type
scale
- Higher rating = greater future demand for CSM
- The greater the demand, the greater the strategic
disposition
Incidents
damaging
legitimacy
GM: Respondents’ perceptions of the incidents that caused
damage to brand value and reputation over the last three
years, whether they were triggered by a media campaign,
NGO campaign, conflicts with authorities, consumer
boycotts, shareholder opposition or others
Multiple
choice
- Greater relative frequency = greater significance of
respective stakeholder
- Incidents with respective stakeholders drive strategic
disposition
External
promoting
factors
SO: Respondents’ perceptions of the importance of external
promoting factors of CSM such as public pressure, increased
competition on issues, new business opportunities
Multiple
choice
- Greater relative frequency = greater significance of
respective external promoting factor
External
stakeholders,
industry and
partnerships -
legitimacy
Current SD
role of other
external
stakeholders
GM, SO: Respondents’ perception of the current (proactive or
reactive) role of consumers, governments, public pressure
groups at contributing to sustainable development (“Least
proactive” to “Most proactive”)
Likert-type
scale
- Higher rating = greater demand for CSM from respective
stakeholder
- The greater the demand, the greater the strategic
disposition
235
GM: Respondents’ personal level of agreement with the
following four different statements
BBB attitude 2. “The business of business is business. So companies
should comply with the law, but going beyond the law
would only sacrifice profits.”
Likert-type
scale
- Higher rating = stronger attitude
- The stronger the attitude, the lower the strategic
disposition
WW attitude 3. “Profit always comes first for companies. There are win-
win situations in which companies can achieve financial,
environmental and social goals at the same time. In these
situations, it makes sense for companies to go beyond
what the law requires.”
Likert-type
scale
- Higher rating = stronger attitude
- The stronger the attitude, the greater the strategic
disposition
CA attitude 4. Companies should consider social and environmental
issues/expectations, and try to actively integrate them into
their strategies because, by doing so, they gain long-term
competitive advantage.
Likert-type
scale
- Higher rating = stronger attitude
- The stronger the attitude, the greater the strategic
disposition
UCA attitude 5. “As part of their role in the “global society,” companies
should engage in social and environmental initiatives,
even if long-term competitive advantage cannot be
proven.”
Likert-type
scale
- Higher rating = stronger attitude
- The stronger the attitude, the greater the strategic
disposition
Managers –
managerial
discretion
Internal
manager-
related barriers
GM, SO: Respondents’ perceptions of the relative importance
of internal manager-related barriers to CSM (managers’
mindsets and managers’ lack of knowledge and expertise) are
a proxy measure for strength of discretionary potential of
managers.
Multiple
choice
- Greater relative frequency = greater significance of
respective internal manager-related barrier
- Internal manager-related barriers affect strategic
disposition
Internal
company-
specific
barriers
GM: Respondents’ perceptions of the relative importance the
main internal company- rather than manager-related barriers
to CSM (compared to other barriers): Absence of appropriate
tools and processes and corporate culture
Multiple
choice
- Greater relative frequency = greater significance of
respective barrier
- Internal company-specific barriers affect strategic
disposition
Company-
specific factors
– corporate
discretion
Internal
company-
specific
promoting
factors
SO: Respondents’ perceptions of the relative importance the
main internal company- rather than manager-related
promoting factors of CSM (compared to other promoting
factors): corporate values, open organizational culture,
autonomy and internal scope of sustainability officer, top
management commitment and leadership
Multiple
choice
- Greater relative frequency = greater significance of
respective promoting factor
SD familiarity GM, SO: Respondents’ perceptions of their companies’
familiarity with the concept of sustainable development (“Not
at all” to “Very much”)
Likert-type
scale
- Higher rating = greater SD familiarity Strategic
disposition
SD importance GM, SO: Respondents’ perceptions of the future importance
of sustainable development to their company (“Decreasing” to
Likert-type
scale
- Higher rating = greater SD importance
236
“Increasing”)
CSM intent GM, SO: Respondents’ perceptions of their companies‘
intention to integrate environmental and social issues into
business strategies and operations (“Not at all” to “Very
much”)
Likert-type
scale
- Higher rating = greater SD familiarity
Business case
for
sustainability
Value drivers SO: Respondents’ perception of the best possible arguments
when promoting the concepts of sustainable development in
their company
Multiple
choice
- Greater relative frequency = greater significance of the
respective value driver
Tools Î GM, SO: Respondents’ awareness of the availability and use
of tools such as corporate values, coordination committees,
strategic planning tools in their company
Multiple
choice
- Greater relative frequency = greater significance of
respective tool
- The use of management tools drives the outcome of CSM
Cross-
disciplinary
collaboration
GM: Respondents’ perceptions of the level of collaboration
between sustainability officers and general managers (“No,
we do not work together” to “Yes, on a day-to-day basis”)
Ordinal - More extensive collaboration = more elaborated
structure
- The greater the cross-disciplinary collaboration, the
more positive the outcome of CSM
Structure
Cross-
disciplinary
potential
GM: Respondents’ perceptions of the extent, to which more
extensive collaboration would contribute to more sustainable
business practices, in the following referred to as SO-GM
potential (“No at all” to “Very much”)
Likert-type
scale
- Greater potential = more elaborated structure and
greater awareness of respondents
- The greater the cross-disciplinary potential, the more
positive the outcome of CSM
Initiatives Î GM: Respondents’ awareness of existing corporate social and
environmental initiatives
Multiple
choice
- Greater relative frequency = greater significance of
respective initiative
- Initiatives determine the outcome of CSM
CSM progress
compared to
peers
SO: Respondents’ perceptions of the progress their company
has made in adopting more sustainable business practices - in
comparison to other companies in the same industry
Likert-type
scale
- Higher rating = greater CSM progress, e.g.
“outperformer” = greater than average CSM success
CSM progress
compared to
other sectors
SO: Respondents’ perceptions of the progress their sector has
made in adopting more sustainable business practices - in
comparison to other sectors
Likert-type
scale
- Higher rating = greater CSM progress, e.g.
“outperformer” = greater than average CSM success
Outcome
CSM success GM: Respondent’s perceptions of how successful corporate
environmental and social initiatives undertaken were (“Not at
all” to “Very much”).
Likert-type
scale
- Higher rating = greater CSM success
237
Appendix E – Pairwise correlation analysis
Pairwise correlation – Total sample
SDfam SDimp CSMint Social Environ. BBB WW CA UCA Capital Imp.leg Dam.leg. CSMsuc Collab. Potential Cons Govt PPPs Ind NGOs
SD familiarity
SD importance
CSM intent
Social issues
Environmental issues
BBB attitude
WW attitude
CA attitude
UCA attitude
SD role Cap.markets
Importance legitimacy
Damage to legitimacy
CSM success
Cross-disc.
collaboration
Cross-disc. potential
SD role Consumers
SD role Governments
SD role PPPs
SD role Industry
SD role NGOs
1.0000
0.0693 1.0000
0.3666
0.6063 0.2524 1.0000
0.0000 0.0009
0.2861 0.1721 0.2957 1.0000
0.0001 0.0244 0.0001
0.2409 0.0575 0.1214 0.3307 1.0000
0.0015 0.4548 0.1136 0.0000
-0.1598 -0.0688 -0.0553 -0.1096 -0.2161 1.0000
0.0368 0.3729 0.4734 0.1535 0.0045
0.1147 0.0372 0.0833 0.0461 0.0626 -0.0246 1.0000
0.1328 0.6279 0.2771 0.5467 0.4131 0.7491
0.3134 0.1723 0.3830 0.2489 0.2293 -0.3049 0.1522
0.0000 0.0238 0.0000 0.0010 0.0024 0.0000 0.0450
0.0179 0.1629 0.1868 0.1795 0.1961 -0.1823 0.0482
0.8154 0.0328 0.0142 0.0181 0.0097 0.0167 0.5277
0.1195 0.2331 0.2596 0.2682 0.0706 -0.1541 0.0190
0.1196 0.0022 0.0006 0.0004 0.3590 0.0448 0.8051
0.3960 0.1724 0.3830 0.2024 0.0194 -0.0471 0.2140
0.0000 0.0242 0.0000 0.0078 0.8003 0.5406 0.0047
0.0871 0.2245 0.1511 0.2657 0.0992 0.0180 0.1061
0.3610 0.0179 0.1135 0.0048 0.2979 0.8522 0.2657
0.4134 0.2421 0.4787 0.1437 0.0773 0.0358 0.0494
0.0000 0.0015 0.0000 0.0615 0.3163 0.6438 0.5212
0.2618 0.2179 0.1786 0.2552 0.3580 -0.1664 0.1908
0.0007 0.0049 0.0217 0.0009 0.0000 0.0327 0.0135
0.0564 0.1136 0.0321 0.2192 0.1590 -0.0917 0.0184
0.4769 0.1526 0.6881 0.0054 0.0447 0.2505 0.8171
-0.0579 0.0462 0.0054 0.0156 -0.1188 0.1270 -0.0834
0.4646 0.5609 0.9462 0.8433 0.1323 0.1084 0.2898
-0.1310 0.1932 0.0035 -0.0316 -0.0446 0.0889 -0.0722
0.0936 0.0132 0.9642 0.6869 0.5697 0.2578 0.3552
0.1662 0.2933 0.2539 0.1360 0.0718 -0.0768 0.0497
0.0381 0.0002 0.0014 0.0906 0.3728 0.3409 0.5362
0.1945 0.1815 0.2602 0.1122 -0.0110 0.0212 -0.0306
0.0120 0.0197 0.0007 0.1499 0.8883 0.7868 0.6945
0.1567 0.0610 0.2097 0.0895 0.0224 -0.0243 0.0757
0.0471 0.4432 0.0078 0.2587 0.7777 0.7594 0.3381
1.0000
0.4391 1.0000
0.0000
0.5132 0.3007 1.0000
0.0000 0.0001
0.2714 0.0699 0.2181
0.0003 0.3610 0.0042
0.1889 0.1468 0.2761
0.0461 0.1224 0.0032
0.2212 0.1216 0.1027
0.0036 0.1131 0.1840
0.2326 0.1546 0.1799
0.0025 0.0461 0.0207
0.3089 0.2196 0.2452
0.0001 0.0051 0.0018
-
0.0138 -0.0079 0.0877
0.8615 0.9207 0.2687
-
0.0696 -0.0189 -0.0950
0.3731 0.8092 0.2265
0.2889 0.2129 0.2137
0.0002 0.0074 0.0072
0.1267 0.0517 0.0767
0.1028 0.5070 0.3275
0.1449 0.0817 0.1076
0.0658 0.3014 0.1756
1.0000
0.0587 1.0000
0.5370
0.4171 0.0558 1.0000
0.0000 0.5624
0.0944 0.0296 0.1599 1.0000
0.2249 0.7574 0.0402
0.0560 0.2069 0.0240 0.2804 1.0000
0.4806 0.0293 0.7640 0.0003
0.0175 0.2311 0.0468 -0.1663 -0.1078 1.0000
0.8244 0.0166 0.5538 0.0362 0.1848
0.0056 -0.1097 0.0243 -0.0018 -0.1500 0.1020 1.0000
0.9425 0.2608 0.7566 0.9819 0.0633 0.1979
0.1123 0.1143 0.2203 0.1409 0.1298 0.0799 0.1048
0.1613 0.2480 0.0057 0.0824 0.1158 0.3214 0.1928
0.1662 0.1550 0.3967 0.1832 0.0530 0.1072 0.0089
0.0319 0.1093 0.0000 0.0196 0.5122 0.1730 0.9090
0.1662 -0.0228 0.0337 0.0566 -0.0553 0.1597 0.0903
0.0346 0.8176 0.6713 0.4817 0.5001 0.0436 0.2533
1
1.0000
0.3359 1.0000
0.0000
0.1423 0.0458 1.0000
0.0774 0.5613
238
Pairwise correlation – UT sample
SDfam SDimp CSMint Social Environ. BBB WW CA UCA Capital Imp.leg Dam.leg. CSMsuc Collab. Potential Cons Govt PPPs Ind NGOs
SD familiarity
SD importance
CSM intent
Social issues
Environmental issues
BBB attitude
WW attitude
CA attitude
UCA attitude
SD role Cap.markets
Importance legitimacy
Damage to legitimacy
CSM success
Cross-disc.
collaboration
Cross-disc. potential
SD role Consumers
SD role Governments
SD role PPPs
SD role Industry
SD role NGOs
1.0000
0.0263 1.0000
0.8489
0.6510 0.1691 1.0000
0.0000 0.2215
0.3126 0.2705 0.2109 1.0000
0.0201 0.0458 0.1258
0.2586 0.1619 0.2469 0.2958 1.0000
0.0566 0.2375 0.0719 0.0283
-0.1064 -0.0261 -0.0374 -0.1733 -0.2602 1.0000
0.4440 0.8512 0.7906 0.2103 0.0574
0.1642 0.1952 0.0720 0.0498 0.0347 0.0324 1.0000
0.2309 0.1533 0.6050 0.7182 0.8017 0.8161
0.0985 0.2939 0.1699 0.1536 0.2651 -0.2677 0.1552
0.4744 0.0294 0.2194 0.2628 0.0505 0.0503 0.2579
-0.1418 0.1260 -0.0294 0.2023 0.2091 -0.1256 -0.0307
0.3016 0.3594 0.8330 0.1385 0.1255 0.3656 0.8239
0.1037 0.3219 0.0466 0.2541 0.0513 -0.0597 0.0699
0.4512 0.0166 0.7379 0.0612 0.7101 0.6680 0.6122
0.4560 0.2388 0.3360 0.3211 0.0180 -0.1216 0.2201
0.0005 0.0791 0.0130 0.0168 0.8962 0.3809 0.1064
0.1240 0.2128 -0.0165 0.5550 0.0835 0.0810 0.1974
0.5063 0.2504 0.9312 0.0012 0.6551 0.6703 0.2871
0.4506 0.1825 0.3769 0.1314 0.1086 0.0579 0.1725
0.0006 0.1824 0.0050 0.3388 0.4302 0.6777 0.2079
0.2679 0.3170 0.0266 0.4016 0.3131 -0.2182 0.2850
0.0656 0.0282 0.8589 0.0047 0.0302 0.1407 0.0496
0.1412 0.2003 -0.0985 0.2499 0.2740 -0.0474 0.1124
0.3550 0.1871 0.5245 0.0978 0.0686 0.7598 0.4621
0.0489 -0.0244 0.1113 -0.0946 -0.2851 0.0715 -0.2274
0.7389 0.8678 0.4516 0.5181 0.0471 0.6291 0.1161
-0.1431 0.0315 -0.0013 -0.0528 -0.2321 0.0791 -0.1720
0.3165 0.8266 0.9928 0.7131 0.1012 0.5852 0.2275
0.1158 0.5132 0.2784 0.2587 0.0780 -0.0953 0.0905
0.4382 0.0002 0.0610 0.0791 0.6022 0.5242 0.5452
0.1903 0.3809 0.0898 0.2086 0.0794 0.0246 -0.0372
0.1811 0.0058 0.5350 0.1418 0.5799 0.8651 0.7957
0.2249 0.1484 0.4418 0.1785 0.0654 0.0887 -0.1134
0.1244 0.3142 0.0019 0.2249 0.6588 0.5489 0.4428
1.0000
0.4585 1.0000
0.0004
0.3243 0.0872 1.0000
0.0157 0.5269
0.2068 -0.0347 0.1595
0.1299 0.8016 0.2447
0.3060 0.1376 0.2518
0.0941 0.4605 0.1719
0.1232 0.1276 0.0743
0.3701 0.3531 0.5897
0.3526 0.3410 0.2584
0.0140 0.0177 0.0762
0.1727 0.3318 0.1924
0.2566 0.0260 0.2055
0.1369 -0.1091 -0.1155
0.3482 0.4555 0.4292
0.0208 0.0426 -0.1097
0.8847 0.7667 0.4436
0.2960 0.2631 0.2735
0.0433 0.0740 0.0628
0.0171 0.0863 0.1286
0.9053 0.5472 0.3686
0.1498 0.1237 0.1290
0.3096 0.4023 0.3821
1.0000
0.1056 1.0000
0.5720
0.3253 0.0475 1.0000
0.0154 0.7996
0.1061 0.4099 0.0179 1.0000
0.4728 0.0272 0.9036
0.0052 0.3112 0.0544 0.6611 1.0000
0.9729 0.0941 0.7227 0.0000
0.1962 0.1753 0.0153 -0.3916 -0.3847 1.0000
0.1765 0.3542 0.9171 0.0086 0.0130
0.1683 -0.2904 -0.0790 -0.4448 -0.3569 0.1717 1.0000
0.2377 0.1265 0.5817 0.0022 0.0220 0.2433
0.1307 0.3327 0.2178 0.1655 0.1424 0.2678 -0.0367
0.3810 0.0837 0.1414 0.2948 0.3936 0.0719 0.8067
0.0170 0.2984 0.2343 0.3502 0.2912 0.0688 -0.2208
0.9058 0.1159 0.0980 0.0183 0.0647 0.6422 0.1195
0.2385 0.0537 0.2217 -0.0357 -0.1236 0.2369 0.2885
0.1026 0.7860 0.1299 0.8225 0.4535 0.1089 0.0467
1.0000
0.5975 1.0000
0.0000
0.2372 -0.0461 1.0000
0.1124 0.7555
239
Pairwise correlation – OG sample
SDfam SDimp CSMint Social Environ. BBB WW CA UCA Capital Imp.leg Dam.leg. CSMsuc Collab. Potential Cons Govt PPPs Ind NGOs
SD familiarity
SD importance
CSM intent
Social issues
Environmental issues
BBB attitude
WW attitude
CA attitude
UCA attitude
SD role Cap.markets
Importance legitimacy
Damage to legitimacy
CSM success
Cross-disc.
collaboration
Cross-disc. potential
SD role Consumers
SD role Governments
SD role PPPs
SD role Industry
SD role NGOs
1.0000
0.1295 1.0000
0.1641
0.5541 0.3127 1.0000
0.0000 0.0006
0.2271 0.1488 0.3164 1.0000
0.0138 0.1109 0.0005
0.1969 0.0272 0.0382 0.3351 1.0000
0.0334 0.7717 0.6829 0.0002
-0.1476 -0.0994 -0.0396 -0.0538 -0.1796 1.0000
0.1123 0.2884 0.6720 0.5647 0.0527
0.0504 -0.0093 0.0691 0.0249 0.0611 -0.0362 1.0000
0.5879 0.9211 0.4571 0.7888 0.5113 0.6972
0.3272 0.1683 0.4310 0.2564 0.1814 -0.2968 0.1200
0.0003 0.0697 0.0000 0.0051 0.0493 0.0011 0.1938
0.0413 0.1965 0.2618 0.1443 0.1716 -0.1926 0.0645
0.6568 0.0337 0.0042 0.1190 0.0631 0.0367 0.4861
0.0336 0.2265 0.3298 0.2440 0.0451 -0.1771 -0.0346
0.7205 0.0149 0.0003 0.0083 0.6307 0.0573 0.7113
0.2741 0.1789 0.3695 0.0769 -0.0234 0.0410 0.1886
0.0028 0.0546 0.0000 0.4100 0.8026 0.6606 0.0408
0.0815 0.2294 0.2168 0.1445 0.1069 -0.0072 0.0777
0.4697 0.0406 0.0519 0.2011 0.3423 0.9493 0.4907
0.3671 0.2851 0.5038 0.1264 0.0425 0.0503 -0.0192
0.0001 0.0021 0.0000 0.1784 0.6520 0.5936 0.8379
0.2039 0.1949 0.2064 0.1591 0.3573 -0.1295 0.1290
0.0268 0.0352 0.0249 0.0853 0.0001 0.1623 0.1621
-0.0744 0.1076 0.0209 0.1820 0.0866 -0.0874 -0.0600
0.4273 0.2523 0.8243 0.0516 0.3574 0.3532 0.5221
-0.0307 0.0677 -0.0021 0.1236 0.0187 0.1279 0.0163
0.7466 0.4780 0.9820 0.1902 0.8442 0.1772 0.8637
-0.0041 0.2333 0.0842 0.0429 0.1051 0.0442 -0.0046
0.9658 0.0129 0.3728 0.6503 0.2657 0.6405 0.9607
0.1366 0.2208 0.2160 0.0371 0.0361 -0.0465 0.0123
0.1568 0.0216 0.0241 0.7015 0.7091 0.6312 0.8986
0.1843 0.1161 0.3329 0.0545 -0.0666 0.0298 -0.0344
0.0487 0.2186 0.0003 0.5633 0.4796 0.7518 0.7137
0.1309 0.0282 0.1138 0.0495 0.0042 -0.0760 0.1477
0.1669 0.7678 0.2299 0.6030 0.9649 0.4239 0.1168
1.0000
0.4057 1.0000
0.0000
0.5669 0.3863 1.0000
0.0000 0.0000
0.2260 0.0839 0.1863
0.0138 0.3667 0.0452
0.1657 0.1525 0.3065
0.1393 0.1740 0.0054
0.2171 0.0951 0.0780
0.0192 0.3101 0.4096
0.1389 0.0469 0.0945
0.1318 0.6128 0.3109
0.2834 0.1588 0.2112
0.0020 0.0887 0.0235
0.0136 0.0905 0.2790
0.8854 0.3383 0.0029
0.0222 0.0193 -0.0048
0.8136 0.8381 0.9596
0.2420 0.1692 0.1428
0.0109 0.0772 0.1367
0.1588 0.0256 0.0362
0.0886 0.7848 0.7021
0.1572 0.0667 0.1058
0.0949 0.4808 0.2667
1.0000
0.0476 1.0000
0.6709
0.4509 0.0627 1.0000
0.0000 0.5830
0.0391 -0.1176 0.1901 1.0000
0.6726 0.2929 0.0401
0.0137 0.1824 -0.0335 0.1088 1.0000
0.8836 0.1031 0.7231 0.2430
-0.0193 0.2582 0.1021 -0.0029 0.0578 1.0000
0.8383 0.0234 0.2818 0.9755 0.5450
0.0196 -0.0637 0.1163 0.2452 -0.0022 -0.0133 1.0000
0.8355 0.5796 0.2178 0.0080 0.9819 0.8891
0.0563 0.0196 0.2096 0.0945 0.0857 0.0282 0.2457
0.5592 0.8663 0.0287 0.3236 0.3735 0.7699 0.0100
0.2397 0.1115 0.4547 0.1048 -0.0440 0.1442 0.1311
0.0095 0.3281 0.0000 0.2606 0.6421 0.1241 0.1625
0.1393 -0.0490 -0.0290 0.0899 -0.0313 0.1257 0.0047
0.1395 0.6722 0.7605 0.3392 0.7432 0.1847 0.9602
1.0000
0.2095 1.0000
0.0273
0.0958 0.0834 1.0000
0.3218 0.3754
240
Appendix F – Regression models
In most cases, the author has only included either the expanded or the reduced model
in the text. The following models are those omitted from the text.
T OG UT
Number of obs
F
Prob > F
R-squared
Adj R-squared
Root MSE
89
4.30
0.0000
0.4046
0.3105
.66794
63
3.45
0.0012
0.4266
0.3029
.67328
26
1.75
0.1576
0.5390
0.2317
.71456
Independent variables Coefficients
Importance of issues:
Social issues
Environmental issues
Issue descriptions:
Emissions
Other environmental issues
Social issues
Other issues
Demographic variables:
UT sector
Nordic
North America
Latin Europe
Developing economies
Other regions
Constant
.2743835
.1942652
.3423784
.5006003
.2947298
-.5022126
-.2987733
.3206802
-.8503959
-.2162916
-.3660865
-.174633
1.956014
.2420246
.3594095
.2735957
.516038
.1549398
-.7896195
.1727388
-.8708278
-.3165841
-.2188992
-.0293234
1.410591
.4354169
.108471
.8133893
.3853546
.5771047
-.3351642
.8137145
-1.334768
-.4057731
(dropped)
-.8915736
1.217057
Regression Table A 1: CSM intent - public responsibility (Expanded cluster models)
T OG UT
Number of obs
F
Prob > F
R-squared
Adj R-squared
Root MSE
167
14.68
0.0000
0.2127
0.1982
.74818
113
15.54
0.0000
0.2203
0.2061
.72554
54
7.26
0.0017
0.2217
0.1912
.75574
Coefficients
Importance
legitimacy
UT sector
North America
Constant
.3057015
-.3252365
-.4183765
2.685355
Importance
legitimacy
North America
Constant
.3396076
-.4248034
2.538074
Importance
legitimacy
Nordic
Constant
.2776573
.7382502
2.323933
Regression Table A 2: CSM intent – importance of and damage to legitimacy (Reduced
submodels)
T OG UT
Number of obs
F
Prob > F
R-squared
Adj R-squared
Root MSE
155
9.64
0.0000
0.1607
0.1441
.77046
Not valid 47
8.72
0.0006
0.2838
0.2513
.73643
Coefficients
NGOs
UT sector
North America
Constant
.2460667
-.4951742
-.5813939
3.295591
NGOs
Female
Constant
.3648695
.6549641
2.222045
Regression Table A 3: CSM intent – SD roles of external stakeholders (Reduced submodels)
T OG UT
Number of obs
F
Prob > F
R-squared
Adj R-squared
Root MSE
101
7.43
0.0000
0.2364
0.2046
.75571
75
9.06
0.0000
0.2769
0.2463
.73239
Not valid
Coefficients
Conflicts authorities
UT sector
North America
Develop. Economies
Constant
-.4147974
-.3717977
-.7516513
-.6691486
4.339258
Conflicts authorities
North America
Develop. Economies
Constant
-.4460305
-.7632538
-.6844179
4.351679
Regression Table A 4: CSM intent – incidents that damaged legitimacy (Reduced submodels)
241
T model OG model UT model
Number of obs
F
Prob > F
R-squared
Adj R-squared
Root MSE
76
1.68
0.1105
0.1868
0.0759
.80449
53
1.88
0.0884
0.2543
0.1187
.80727
23
1.28
0.3237
0.3740
0.0819
.7572
Independent variables Coefficients
Regulations
Investors
Customers
UT sector
Nordic
North America
Latin Europe
Developing economies
Other regions
Constant
.022634
-.4290876
.4469775
-.4917317
.2451415
-.4573492
.0840425
-.1368735
-.0665877
3.806457
-.1586722
-.3637946
.5783517
-.6878643
-1.167655
-.7675564
-.711177
-.6957057
4.431734
.2185629
-.4041916
.497006
.8562874
.9326347
.4356287
-.0673653
(dropped)
3.067365
Regression Table A 5: CSM intent – external barriers (Expanded models)
T model OG model UT model
Number of obs
F
Prob > F
R-squared
Adj R-squared
Root MSE
75
0.83
0.5939
0.1027
0.0215
.76457
52
1.31
0.2633
0.1962
0.0467
.7741
23
1.85
0.1496
0.4637
0.2135
.59793
Independent variables Coefficients
Regulations
Investors
Customers
UT sector
Nordic
North America
Latin Europe
Developing economies
Other regions
Constant
.3180829
-.2056704
.0803348
-.2226435
-.0322007
-.2019767
.1521281
-.0826459
.5257799
3.176033
.3162592
-.4644715
.0187094
-.3573823
-.5347458
.0630246
-.4150853
.2211288
3.561247
.9311377
.757485
.5648703
-.2195609
1.626248
.0613772
.6262475
(dropped)
2.373752
Regression Table A 6: CSM success – external barriers (Expanded models)
T OG UT
Number of obs
F
Prob > F
R-squared
Adj R-squared
Root MSE
167
16.38
0.0000
0.2316
0.2175
.73914
101
14.76
0.0000
0.3808
0.3550
.64754
Not valid
Coefficients
CA attitude
UT sector
North America
Constant
.3715439
-.3290938
-.544326
2.472119
CA attitude
North America
Female
Board member
Constant
.4278361
-.5435188
-.3105834
-1.101162
2.317653
Not
valid
Regression Table A 7: CSM intent - personal attitudes (Reduced models)
T OG UT
Number of obs
F
Prob > F
R-squared
Adj R-squared
Root MSE
151
8.54
0.0003
0.1035
0.0914
.68538
102
8.99
0.0003
0.1537
0.1366
.68782
Not valid
Coefficients
CA attitude
North American national
Constant
.2421037
-.2960012
2.532599
CA attitude
North American national
Constant
.228936
-.4397059
2.70406
Not valid
Regression Table A 8: CSM success – Personal attitudes (Reduced models)
T model OG model UT model
Number of obs
F
Prob > F
R-squared
Adj R-squared
Root MSE
76
1.68
0.1105
0.1868
0.0759
.80449
53
1.88
0.0884
0.2543
0.1187
.80727
23
1.28
0.3237
0.3740
0.0819
.7572
Independent variables Coefficients
Regulations
Investors
Customers
UT sector
Nordic
North America
Latin Europe
Developing economies
Other regions
Constant
.022634
-.4290876
.4469775
-.4917317
.2451415
-.4573492
.0840425
-.1368735
-.0665877
3.806457
-.1586722
-.3637946
.5783517
-.6878643
-1.167655
-.7675564
-.711177
-.6957057
4.431734
.2185629
-.4041916
.497006
.8562874
.9326347
.4356287
-.0673653
(dropped)
3.067365
Regression Table A 9: CSM intent – external barriers (Expanded models)
242
T model OG model UT model
Number of obs
F
Prob > F
R-squared
Adj R-squared
Root MSE
75
0.83
0.5939
0.1027
0.0215
.76457
52
1.31
0.2633
0.1962
0.0467
.7741
23
1.85
0.1496
0.4637
0.2135
.59793
Independent variables Coefficients
Regulations
Investors
Customers
UT sector
Nordic
North America
Latin Europe
Developing economies
Other regions
Constant
.3180829
-.2056704
.0803348
-.2226435
-.0322007
-.2019767
.1521281
-.0826459
.5257799
3.176033
.3162592
-.4644715
.0187094
-.3573823
-.5347458
.0630246
-.4150853
.2211288
3.561247
.9311377
.757485
.5648703
-.2195609
1.626248
.0613772
.6262475
(dropped)
2.373752
Regression Table A 10: CSM success – external barriers (Expanded models)
T OG UT
Number of obs
F
Prob > F
R-squared
Adj R-squared
Root MSE
76
2.14
0.0337
0.2473
0.1315
.77989
53
2.06
0.0547
0.3017
0.1556
.79022
23
0.98
0.4872
0.3599
0.0059
.7926
Independent variables Coefficients
Mindset
Knowledge
Tools
Corporate culture
UT sector
Nordic
North America
Latin Europe
Developing economies
Other regions
Constant
.1834763
-.3856986
.0336815
-.51891
-.4377725
.3338803
-.3247583
.1638789
-.1110231
.0394202
4.075292
.2154108
-.4232323
-.0322264
-.440347
-.4479784
-.9028092
-.4407292
-.6202876
-.4557966
4.587511
.1415929
-.1961652
-.1165192
-.4306785
1.014749
.5560472
.5560472
-.0132743
(dropped)
3.443953
Regression Table A 11: CSM intent - Internal barriers (Expanded models)
T OG UT
Number of obs
F
Prob > F
R-squared
Adj R-squared
Root MSE
76
11.14
0.0013
0.1308
0.1190
.78548
50
6.91
0.0023
0.2271
0.1942
.75735
23
4.98
0.0176
0.3324
0.2656
.57777
Coefficients
Corporate culture
Constant
-.6015246
3.871795
Corporate culture
Board member
Constant
-.641666
-2.04166
4.041667
Corporate culture
Mindset
Constant
-.519607
-.588235
3.382353
Regression Table A 12: CSM intent - Internal barriers (Reduced models)
T OG UT
Number of obs
F
Prob > F
R-squared
Adj R-squared
Root MSE
75
1.30
0.2472
0.1694
0.0396
.74136
52
1.09
0.3874
0.1900
0.0164
.78631
23
1.22
0.3537
0.4116
0.0753
.64831
Independent variables Coefficients
Mindset
Knowledge
Tools
Corporate culture
UT sector
Nordic
North America
Latin Europe
Developing economies
Other regions
Constant
-.1340692
-.0411513
-.0360151
-.4780865
-.3336729
-.1679742
-.2088076
-.1779417
-.1551937
.3120247
3.630882
.0476532
.0394141
-.0458647
-.4809406
-.6241748
-.6920358
-.44874
-.6127487
-.1021595
3.942387
-.5973451
.0619469
.2780236
-.5789086
-.2809735
.6489676
-.3510324
.2278761
(dropped)
3.351032
Regression Table A 13: CSM success – Internal barriers (Expanded models)
T OG UT
Number of obs
F
Prob > F
R-squared
Adj R-squared
Root MSE
75
9.47
0.0029
0.1148
0.1027
.71658
52
6.56
0.0135
0.1159
0.0982
.75289
23
4.98
0.0176
0.3324
0.2656
.57777
Coefficients
Corporate
culture
Constant
-.5092461
3.351351
Corporate
culture
Constant
-.5382309
3.434783
Corporate culture
Managers’ mindset
Constant
-.519607
-.588235
3.382353
Regression Table A 14: CSM success - Internal barriers (Reduced models)
243
T model OG model UT model
Number of obs
F
Prob > F
R-squared
Adj R-squared
Root MSE
75
1.30
0.2329
0.2331
0.0542
.73569
52
1.40
0.2041
0.3239
0.0926
.75522
23
1.99
0.1414
0.7053
0.3516
.54291
Independent variables Coefficients
Mindset
Knowledge
Regulations
Tools
Corporate culture
Investors
Customers
Other barriers
UT sector
Nordic
North America
Latin Europe
Developing economies
Other regions
Constant
-.0766302
-.0106792
.3494807
-.0795091
-.5119903
-.2361729
-.013196
.265377
-.3612436
-.1147584
-.1978884
-.0677895
-.2306275
.2989777
3.601036
.1788755
.1226461
.4303468
-.0801113
-.5882333
-.4775634
-.1007492
.3977338
-.381054
-.4543134
.193295
-.553067
.0621333
3.755241
-.6091319
.3391206
.9641488
.2980834
-.402593
.600451
.7485908
.7128523
-.5651635
.7299887
-1.018602
.845434
(dropped)
2.557159
Regression Table A 15: CSM success - barriers (Expanded submodels)
T OG UT
Number of obs
F
Prob > F
R-squared
Adj R-squared
Root MSE
158
3.05
0.0002
0.2572
0.1729
.69081
108
2.93
0.0008
0.3235
0.2132
.70187
50
1.02
0.4551
0.2902
0.0063
.66916
Independent variables Coefficients
Measurement tools
Measuring resource allocation
Strategy tools
Corporate values, policies etc.
Incentive tools
Management development
Coordination committees
Business teams
Other tools
No tools
UT sector
Nordic
North America
Latin Europe
Developing economies
Other regions
Constant
-.1836714
.0728151
.244487
.1421064
.3524279
.1540999
.0966535
.2014607
.1530652
-.7148249
-.1340911
-.1027964
-.2632053
-.1093713
-.488928
-.0359933
3.225287
-.1654276
.2073922
.186642
.0466116
.
3099458
.3285385
.1677234
.1040036
-.1820014
-.9370597
-.2746653
-.3787544
-.185012
-.6007137
-.0319361
3.315814
-.0735758
-.1485129
.2767213
.0810583
.2378114
-.3596692
-.2345262
.62677
.2601984
-.6955312
-.0166835
.2817376
.2740777
(dropped)
-.0870755
3.195531
Regression Table A 16: CSM success - CSM tools (Expanded models)
T OG UT
Number of obs
F
Prob > F
R-squared
Adj R-squared
Root MSE
153
6.07
0.0006
0.1089
0.0910
.79443
113
7.63
0.0001
0.1736
0.1508
.75039
Not valid
Coefficients
Cross-func. collaboration
North America
Board member
Constant
.2400167
.3835473
-1.223879
3.410513
Cross-func. collaboration
North America
Develop. Economies
Constant
.2221265
-.6365673
-.4636461
3.711701
Regression Table A 17: CSM success – Corporate structure (Reduced submodels)
T OG UT
Number of obs
F
Prob > F
R-squared
Adj R-squared
Root MSE
167
2.99
0.0006
0.2026
0.1348
.71088
112
3.18
0.0010
0.2591
0.1776
.70979
55
1.40
0.2031
0.2860
0.0821
.6818
Independent variables Coefficients
Env. performance
Business ethics
Social - supply chain
Env. – supply chain
Community involvement
Other initiatives
No initiatives
UT sector
Nordic
North America
Latin Europe
Developing economies
Other regions
Constant
.5959727
.1755042
.0336241
.2588343
.0840969
.8258627
.5506696
-.2044439
-.0553935
-.2945164
-.0793318
-.0889663
-.1471273
2.653774
.8556031
.2727292
.361927
.0861273
-.1934527
.7005664
(dropped)
-.2032899
-.4511378
-.2503948
-.2370496
-.2451746
2.609425
.5224154
.2213208
-.5557422
.5131595
.3565067
.0328329
.7606556
.1571956
.6275798
.2005494
.4041489
-.2970045
2.239344
Regression Table A 18: CSM success - CSM initiatives (Expanded models)
244
Appendix G – Regression diagnostics
Models Ramsey RESET
test (Prob > F)
Breusch-Pagan /
Cook Weisberg
test
(Prob > chi2)
Mean VIF Mean residuals Skewness/Kurtosis
tests for normality
(Prob > chi2)
CSM intent
T 0.2952 0.8937 1.13 -4.90e-10 0.9923
OG 0.6632 0.4518 1.19 .0291694 0.2971
UT 0.7715 0.5794 1.11 .1044572 0.8029
CSM success
T 0.4577 0.5818 1.02 -4.46e-10 0.9716
OG 0.1900 0.4784 1.08 -.0011659 0.5130
UT 0.8417 0.1568 1.01 .0241774 0.3403
All mean VIFs are greater than 1, which indicates the presence of multicollinearity (Hamilton, 2003, p. 167). This is not
surprising in the present study, since variables are likely to be related, e.g. social issues and brand and reputation.
245
Appendix H – Interview guidelines
Interview Guidelines
I. Introduction
A. Introduction to the project
This project concerns the business case for sustainability (BCS), which we define
as a strategy enabling a company to create economic value by means of
improving environmental performance (e.g. increase eco-efficiency, reducing
pollution) and social performance (e.g. engage in community development)
beyond compliance.
A robust BCS is:
- clearly reflected by companies’ strategies and operational activities
- open to assessment, reporting and monitoring
The main objective of the project is to develop a diagnostic tool for identifying
company-specific potentials and barriers for corporate sustainability. Since the
tool has to be based on empirical evidence, it is necessary to interview executives in
different functions from different industries in different countries. We are particularly
interested in industry- and country-specific factors such as regulation and the mindset
of managers that impact on the corporate acceptance and implementation of the BCS.
B. Confidentiality and anonymity
Strict confidentiality will be accorded to all information received during the
interviews.
C. Interview road map
The interview guidelines have been thoroughly pre-tested in several reference
companies. They are separated into 5 sections:
- Section A - Building the BCS (Why bother with the BCS?): External
pressures and value drivers
- Section B - Implementing the BCS (How to align the organization?)
- Section C: BCS-related tools (ONLY TO BE USED FOR INTERVIEWS
WITH SUSTAINABILITY OFFICERS)
- Section D: Function-specific modules
- Section E: Wrap up (obligatory)
246
II. Interview
Opener: Briefly outline – let’s say in 5 minutes max. - the development of the BCS and
major milestone focusing, in particular, on your personal experience and, possibly,
information I may not have come across in my preliminary research.
A. Building the business case: Detecting external pressures and value drivers for
building the BCS
Î Identify external pressures and value drivers to collect evidence for the BCS ("why
bother")
A1. What are main actual and emerging sustainability issues in your company and
how would you rank them according to their significance when building a BCS?
Do only use the following prompts if questions A2.1-4 are skipped: customers,
NGOs, competitors, regulators
3
A2. Elaborate on the significance of stakeholders in transmitting the sustainability
issues mentioned above?
• NGOs, customer reaction(public pressure)
• Regulators
• Competitors
4
A2.1 Please elaborate on the significance of regulatory pressure when building the
BCS.
A2.2 Please elaborate on the significance of public pressure from customers,
NGOs etc. when building the SBC.
A2.3 What role does the media play?
A2.4 Please elaborate on the significance of pressure from competitors when
building the BCS?
A3. Name the value drivers for the BCS in your company and rank them
according to their importance. Elaborate on the rationale behind and evidence for
your choice.
• Cost savings
• process innovations
• product innovations
• brand value and reputation enhancement
• attraction of human and intellectual capital
• enhancement of risk profile
• others
10
A3.1 What difficulties do you see in detecting value drivers that support the BCS?
A3.2 Are value drivers likely to change in the future? Elaborate on how and why
they may change.
A4. What are your company’s strengths and weaknesses in terms of the
sustainability issues and value drivers identified (Îaudit tool for assessing
strategic fit)?
9
247
A5. What is your company’s strategy for dealing with the sustainability issues and
value drivers identified (Î strategy-building tool)?
8
A6. Briefly generalize sustainability issues, value drivers and strategies to provide
an industry overview.
5
A7. Who in your company (e.g. the sustainability officer, a committee, working
group etc.) built the BCS (issuesÎvalue driversÎstrategy)? Briefly describe the
process and evaluate its effectiveness.
5
B. Implementing the BCS: Aligning the organization
Î Identify organizational approaches used to overcome internal barriers to implementing the
BCS
B8. What internal factors are significant in terms of aligning organizational
behavior to implementing the BCS?
Do use the following prompts if relying exclusively on question B8: knowledge,
organizational culture and structure etc.
8
B8.1 What are the main organizational factors promoting the implementation of
the BCS internally?
B8.2 What are the main organizational factors impeding the implementation of the
BCS internally?
B8.3 Why does your particular organizational culture promote or hinder the
implementation of the BCS?
B8.4 Did you or do you see a need for improving knowledge and skills in your
company to drive the BCS successfully through your organization?
B9. Who do you see as the main leader in promoting the BCS internally? 1
B9.1 In what way did your company’s delegation of responsibility impact the
implementation of the BCS? Please describe positive and negative experiences.
B9.2 In what way does the BCS influence managerial and technical processes
(investment, accounting, research & development etc.)?
B9.3 What managerial and technical processes play the most important role?
Please elaborate on any potential for improvements.
B9.4 How did your top management and line-managers support the
implementation process and what was their general attitude?
B.9.5 In what way did the level of awareness of the BCS change over time?
B10. How much does the way the BCS is implemented in your company and your
function depend on industry trends?
3
C. BCS-related Tools
Î Examine tools and processes used for detecting (EAS), driving (EMS, reward system) and
evaluating (accounting) the BCS –essentially market research for our final product.
ONLY TO BE USED FOR SUSTAINABILITY OFFERS. FOR FUNCTIONAL
MANAGERS, DIRECTLY PROCEED TO SECTION D.
C11. Describe the specific managerial tools and systems that are used in detecting
the actual and emerging sustainability issues?
C11.1 What tools were effective and why?
5
248
C11.2 What tools were unworkable and why?
C12. Describe the specific managerial tools and systems that are used in
identifying the value drivers for the BCS?
C12.1 What tools were effective and why?
C12.2 What tools were unworkable and why?
5
C13. Describe the specific managerial tools and systems that are used in ensuring
strategic fit with sustainability issues and value drivers (audit tool)?
C13.1 What tools were effective and why?
C13.2 What tools were unworkable and why?
5
C14. Describe the tools used in your company to formulate a beyond-compliance
strategy based on business logic?
C14.1 What tools were effective and why?
C14.2 What tools were unworkable and why?
5
C15. Describe the tools used in your company to (qualitatively or quantitatively)
evaluate the economic benefit from driving the BCS through the organization?
C15.1 What tools were effective and why?
C15.2 What tools were unworkable and why?
5
C16. Describe the tools used in your company to drive the BCS through the
organization?
C16.1 What tools were effective and why?
C16. 2 What tools were unworkable and why?
5
USE ONLY IF YOU COULD NOT USE PROMPTS IN C10,11,12
C17. What tools were effective and why?
C18. What tools were unworkable and why?
5
D. Function-specific modules
D19. Communication
D19.1 In what way do conflicting or shared interests with other external stakeholders such as
• Suppliers
• Customers (consumers vs. businesses)
• NGOs (WWF vs. Greenpeace)
• Regulators and enforcement agencies
• Others
influence the implementation of the BCS?
D19.2 Which managerial tools do you use to detect and resolve a potential conflict between
your company and external stakeholders?
D19.3 How do industry-specific initiatives/industry associations impact the building of your
BCS?
D19.4 How do industry-specific initiatives/industry associations impact the implementation of
your BCS?
249
D19.5 How do industry- and externally-driven initiatives (e.g. voluntary agreements,
regulations on product take-back)?
D19.6 Describe the specific managerial tools and systems that are used in building the
BCS, i.e. detecting the value drivers?
D19.7 What tools were effective and why?
D19.8 What tools were unworkable and why?
D19.9 Describe the tools used in your company to communicate the BCS internally?
D19.10 What tools were effective and why?
D19.11 What tools were unworkable and why?
D19.12 Describe the tools used in your company to communicate the BCS externally?
D19.13 What tools were effective and why?
D19.14 What tools were unworkable and why?
USE ONLY IF YOU COULD NOT USE PROMPTS BETWEEN D14.6 AND 14.12:
D19.15 What tools were effective and why?
D19.16 What tools were unworkable and why?
D20. Corporate Strategy and Development
D20.1 How is your company positioned in the building of its BCS relative to its competitors?
Elaborate on your company’s strengths and weaknesses.
D20.2 How is your company positioned in the implementation of its BCS relative to its
competitors? Elaborate on your company’s strengths and weaknesses.
D20.3 In what ways does your corporate identity influence the building of the BCS?
D20.4 In what ways does your corporate identity influence the implementation of the BCS?
D20.5 In what way could a change in corporate identity values have a positive influence on the
building of the BCS?
D20.6 In what way could a change in corporate identity values have a positive influence on the
implementation of the BCS?
D20.7 What product and service innovations have resulted from implementing the BCS?
D20.8 Is there any evidence to prove that these innovations promoted the implementation of
the BCS?
D20.9 How explicitly do your company’s strategy and business models account for the
building of the BCS, i.e. for generating economic value by means of improving environmental
and social performance?
D20.10 Describe the specific managerial tools and systems that are used in building the BCS,
i.e. detecting the value drivers?
D20.11 What tools were effective and why?
D20.12 What tools were unworkable and why?
D20.13 How explicitly do your company’s strategy and business models account for the
implementation of the BCS, i.e. for generating economic value by means of improving
environmental and social performance?
250
D20.14 Describe the tools used in your company to drive the BCS through the organization?
D20.15 What tools were effective and why?
D20.16 What tools were unworkable and why?
D20.17 Describe the tools used in your company to (qualitatively or quantitatively) evaluate
the economic benefit from driving the BCS through the organization?
D20.18 What tools were effective and why?
D20.19 What tools were unworkable and why?
USE ONLY IF YOU COULD NOT USE PROMPTS between D15.101 and D15.19:
D20.20 What tools were effective and why?
D20.21 What tools were unworkable and why?
D21 Investor Relations and Finance
D21.1 How do capital markets and shareholders influence your company's approach to
building the BCS?
D21.2 How do capital markets and shareholders influence your company's approach to
implementing the BCS?
D21.3 Which capital market participants, in particular are interested in the building and the
implementation of the BCS?
D21.4 If there are any, what are the demands from those capital market participants you
mentioned above?
D21.5 How aware of these demands from those capital market participants are the different
decision-makers in your company (e.g. CFO, CEO, implementing officers, etc.)?
D21.6 In what way does the level of awareness of those decision-makers impact their actual
decision-making in their respective function?
D21.7 Describe the specific managerial tools and systems that are used in building the BCS,
i.e. detecting the value drivers?
D21.8 What tools were effective and why?
D21.9 What tools were unworkable and why?
D21.10 Describe the tools used in your company to drive the BCS through the organization?
D21.11 What tools were effective and why?
D21.12 What tools were unworkable and why?
D21.13 Describe the tools used in your company to (qualitatively or quantitatively) evaluate
the economic benefit from driving the BCS through the organization?
D21.14 What tools were effective and why?
D21.15 What tools were unworkable and why?
USE ONLY IF YOU COULD NOT USE PROMPTS between D16.7 and D16.15:
D21.16 What tools were effective and why?
D21.17 What tools were unworkable and why?
D22. Human Resources (HR)
D22.1 In what way do you think buy-in by managers is important for the implementation of
251
the BCS? Please elaborate on significance of
• Key functions
• Top management
• Middle management
• Blue-collar workers
D22.2 what way does internal organizational culture (top down, command and control vs.
open, consensus-oriented approaches) influence the building of the BCS?
D22.3 In what way does internal organizational culture (top down, command and control vs.
open, consensus-oriented approaches) influence the implementation of the BCS?
D22.4 What kind of organizational culture is best suited to the implementation of a BCS?
Elaborate.
D22.5 In what way does the mindset of managers influence the building the BCS?
D22.6 In what way does the mindset of managers influence the implementation of the BCS?
D22.7 What are the differences in the mindset at different levels of management and in
different functions?
D22.8 Describe the specific managerial tools and systems that are used in building the BCS,
i.e. detecting the value drivers?
D22.9 What tools were effective and why?
D22.10 What tools were unworkable and why?
D22.11 Describe the tools used in your company to reduce resistance to the BCS through the
organization?
D22.12 What tools were effective and why?
D22.13 What tools were unworkable and why?
D22.14 Which functions are most in need to be convinced and why?
D22.15 Describe the tools used in your company to (qualitatively or quantitatively) evaluate
the economic benefit from driving the BCS through the organization?
D22.16 What tools were effective and why?
D22.17 What tools were unworkable and why?
USE ONLY IF YOU COULD NOT USE PROMPTS between D17.8 and D17.17?
D22.18 What tools were effective and why?
D22.19 What tools were unworkable and why?
D22.20 What training tools are currently in place to bring staff on board with the BCS?
D22.21 Where do you see need to expand on BCS training tools in the future and why?
E. Wrap up
E23. If you build your business case as a global company, are there significant
national differences in the BCS and if so, what are they?
5
E24. If you implement your business case as a global company, are there significant
national differences in the BCS and if so, what are they?
5
E24.1 What is more important for the development of the BCS, the industry- or the
252
country-specific business environment? Please explain why.
E24.2 Where do you see potential for improvement in building the BCS in your
company and your business function?
E24.3 How should the potential for improvement in building the BCS be exploited?
E24.4 Is there a potential for establishing a convincing BCS in every company of your
industry, under any given economic conditions, which can be identified and
evaluated?
E24.5 How do you think corporate financial performance influence sustainable
development activities in your company in general?
Examples of sustainability criteria dominated by economic criteria.
Examples of economic criteria dominated by sustainability criteria.
E25. If you had to name only one issue, which one would you consider most
important to drive the BCS through your industry and why?
2
253
Appendix I – Questionnaires
Questionnaire – GM Version
254
255
256
257
258
Questionnaire – SO Version
259
260
261
262
263
Appendix J – Author’s contribution to cross-industry research project
This is to clarify
The author’s contribution to the cross-industry research project that generated
the data this dissertation is based on (refer to the table below for detailed list
of the steps undertaken)
The author’s contribution to this dissertation
The author
1. carried out the research review, which determined the focus and the research
design of the cross-industry project - meanwhile published in the European
Management Journal (Salzmann, Ionescu-Somers, & Steger, 2005a).
2. substantially contributed to the formulation of the research hypotheses and
objectives as well as the design of the means of data collection (and their
pre-test)
3. solely collected all data on the two industries (oil and gas, electric utilities),
i.e. he conducted all interviews and distributed all questionnaires
4. solely finalized the two corresponding research reports and managed the
feedback process
Period Step Contribution
- Research review Author
- Formulation of research hypotheses and
objectives
Author and
research team
April 2002
- Design of means of data collection
(interview guidelines and questionnaires)
Author and
research team
June 2002 - Pretests of means of research instruments Author and
research team
- Establishing contacts with companies
- Distributing questionnaires
July 2002 – April
2003
- Conducting of face-to-face interviews
including follow up
May– August 2003 - Finalization of sector-specific research
reports and feedback process
Every member of
research team
was assigned one
industry. The
author focused
on his two
industries: oil &
gas and electric
utilities.
July 2003 – January
2005
- Analysis of qualitative and quantitative data
- Concluding dissertation
Author
Upon project completion, the author solely and autonomously carried out the
following step to conclude his dissertation:
• Selecting appropriate means of data analysis
• Carrying out data analysis
• Interpretation and documentation.
264
265
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