Designing Organizational Structures for Sustainability

The alignment of organizational design and sustainability begins with the development of a sustainability strategy and accompanying goals and priorities.  In order for the sustainability strategy to be effective and successful, it must align with the structure, competencies and culture of the company.  When designing the organizational structure for sustainability, several important principles need to be considered:

• While placement within the organizational structure is an issue, and may vary depending on the circumstances, there should generally be some form of formal sustainability function overseen by a single designated senior executive. While sustainability may be new to the company, leadership should be vested in someone who has the requisite credentials and experience working in the area.  Science and engineering backgrounds are helpful and common and it is also a significant advantage if the sustainability executive has worked inside the organization since relationships and networking will be important in establishing the initiative and understanding how to integrate sustainability into existing operational habits.
• The sustainability initiative, and the accompanying changes to the organizational structure, must have executive sponsorship and the CEO must be a visible proponent of the sustainability vision for the company. Executive sponsorship accelerates engagement by employees and business units, but even better results can be expected if the CEO is proactive and assume personal leadership of a highly visible sustainability program.
• Structure is driven by the specific sustainability-related commitments that are made by the board of directors and members of the senior executive team following consultation with internal and external stakeholders. Examples of sustainability-related commitment topics include climate change, waste reduction and management, resource consumption, education, human rights, community engagement and procurement (i.e., supply chain management).  Commitments should be pursued through a combination of corporate policies, sustainability policies and employee initiatives.
• The board of directors should also signal its support of the sustainability initiative by creating a separate committee dedicated to sustainability and corporate social responsibility or designating one director to provide oversight to sustainability-related initiatives. As is the case with the CEO, board members should do more than just oversee the ideas of others and should actively initiate or drive a sustainability-related initiative.
• As companies grow and the scope of the sustainability initiative expands, consideration should be given to creating other forms of organizational engagement such as executive sustainability advisory councils (i.e., members of the senior leadership team, including an executive sponsor, who reported to the CEO), mid-level employee sustainability councils, “green teams” and external advisory councils with representative from key external stakeholders.
• The sustainability executive should be supported by a cross-functional advisory team with members drawn from corporate communications, operations, legal, sales and marketing, human resources and EHS. Creation of such a team provides the executive with access to divergent views from throughout the company and also facilitates sharing of best practices and regular communications across internal organizational boundaries to make sure that everyone is aware of what is being done on sustainability and that programs are properly coordinated and aligned with the company’s strategic vision and stated goals for sustainability.
• The sustainability executive should also be supported by resources exclusively available to the sustainability function. Generally this includes managers for metrics and reporting, social programs and communications/public affairs/marketing.  Internal support for day-to-day operation and reporting allows the sustainability executive to remain focused on strategic considerations and necessary outward communications with board members, the CEO and other executives, external stakeholders and the other forms of organizational engagement mentioned above.
• Staffing levels for sustainability-related activities are driven by a number of factors including the size and stage of development of the company, the importance of sustainability to the mission and overall strategic goals of the company, risk and industry. These factors also influence the focus of sustainability activities, which generally include a mix of environmental issues, philanthropy and community relations, governance/risk/compliance, human rights and employee relations.
• The core responsibilities for implementing the sustainability programs should be vested in departments have close ties to stakeholders and the requisite decision-making powers with respect to issues related to the programs. Common choices include the corporate, legal or public affairs departments.
• The leader of the sustainability initiative should have a direct reporting relationship with both the CEO and the board of directors in order to send a signal to employees and other stakeholders about the important of the initiative and provide the initiative with access to the support and resources available from high-level executives and managers in other departments.
• An organizational structure should be selected that achieves the appropriate level of interaction with employees and creates value to the business. The optimal structure may change over time as the sustainability initiative gains traction and becomes more embedded in day-to-day operations and decisions.
• Clear procedures regarding decision rights should be established, recognizing the integration of sustainability programs and goals often challenge existing decision rights. It is important to identify the types of decisions that will need to be made, the parties that will be involved in making those decisions and the managers who will be entrusted with implementing the decisions.
• Sustainability performance must be integrated into day-to-day management activities and compensation programs and responsibilities, performance reviews and compensation models for all employees must be aligned with the company’s sustainability objectives in order to encourage and reward contributions to innovation and creative problem solving.
• In order to achieve the requisite integration and employee buy-in, programs must be created to develop a basis awareness of the company’s sustainability strategy, goals and priorities, educate employees about opportunities and support employee efforts.
• The internal structure should be aligned with the external structure that the company relies upon to engage with stakeholders since one of the most important aspects of a sustainability program is external accountability. External stakeholders need to know that their concerns and questions will be addressed and that begins with knowing how best to access the company.
• The sustainability strategy must include both transparent goals with metrics that can be evaluated by both internal and external stakeholders and provision for reporting on the results of the sustainability programs.

Sources: H. Farr, Organizational Structure for Sustainability (July 14, 2011); Corporate Responsibility Officers Association, Structuring and Staffing Corporate Responsibility: A Guidebook (2010); A. Longsworth, H. Doran and J. Webber, “The Sustainability Executive: Profile and Progress” (PWC, September 2012); and National Association for Environmental Management, EHS & Sustainability Staffing and Structure: Benchmark Report (November 2012).
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Alan Gutterman is the Founding Director of the Sustainable Entrepreneurship Project and more materials on organizational design are available from the Project by clicking here.