Creating a CSR-Supportive Organizational Culture

Eccles et al. observed that even though there was empirical support for the view that adoption of sustainability-related strategies was necessary in order for companies to be competitive and that “high sustainability” companies significantly outperformed counterparts that had not adopted environmental and social policies, relatively few companies exhibited a broad-based commitment to sustainability on the basis of their original corporate DNA.[1]  Because of this Eccles et al. argued that most companies needed to make a conscious and continuing effort to formulate and execute a sustainable strategy and embed sustainability into their strategy and operations.  In order to counsel companies on how to accomplish this transformation, Eccles et al. studied the organizational models of companies they referred to as “sustainable” by comparing them with companies they called “traditional” and focused on two key questions: (1) how did sustainable companies create the conditions that embedded sustainability in the company’s strategy and operations and (2) what were the specific elements of sustainable companies’ cultures that differentiated them from those of traditional companies?  Based on this work, they concluded that companies needed to be prepared to embark on large-scale change in two stages: the first stage involves reframing the company’s identity through leadership commitment and external engagement, and the second stage involves codifying the new identity through employee engagement and mechanisms.  Eccles et al. pointed out that the transformation would be extremely challenging and companies with an established organizational culture that included strong capabilities for change, a commitment to innovation and high levels of trust would have a significant advantage.[2]

Stage One: Reframing the Company’s Identity

According to Eccles et al. the first stage in becoming a sustainability company involves reframing the company’s identify, a process that requires both leadership commitment and external engagement.  Transformation of the company’s organizational culture requires the strong and focused guidance of the leadership team and the organizational leaders are the people who are best situated to drive the necessary engagement relating to sustainability between the company and the diverse range of external stakeholders including investors, community members, regulators, activists and members and representatives of civil society.  The goal at this stage is to strengthen the commitment to sustainability at the top of the organization and redefine the company’s identity to the world as being an organization that has embraced the principles of sustainability and embedded them in its organizational culture, strategy, operational processes and relations with stakeholders.  As the organizational leaders begin to reach out to external stakeholders they gather the information necessary to formulate and execute the company’s sustainability strategy.  As the engagement process expands to include employees their interaction with external stakeholders creates opportunities for learning that can be used to make the company more innovative and committed to creating value for itself and society in general.

Leadership Commitment

Eccles et al. joined many others in noting that in order to create and maintain a sustainability company there must be a personal resolution and commitment from the CEO that is supported by an enterprise-wide sustainability vision and a willingness of the CEO to exercise his or her authority to see that the vision is realized.  Eccles et al. identified the following differences between leaders of sustainable and traditional companies, each of which can be used by aspiring sustainability leaders as guides for transforming the leadership styles[3]:

• The top-level leaders of sustainable companies were perceived as taking a long-term view when making decisions and more willing than leaders of traditional companies to take measured risks in pursuit of sustainability.
• Sustainable companies were more likely to be knowledgeable of the issues pertaining to sustainability and have a clearer business case for pursuing sustainable goals, thus making it easier to incorporate sustainability into core business activities and basic decisions about operating budgets and capital investments.
• Leaders of sustainable companies demonstrated personal commitment to sustainability that inspired others throughout the organization, especially employees who were far more likely to view sustainable strategies as being essential to the company’s success when they worked at sustainable companies as opposed to traditional firms.

As for the CEO’s sustainability vision mentioned above, Eccles et al. actually found that the leaders of traditional companies were more likely to be seen as having clear visions for sustainability than the leaders of sustainable companies; however, the researchers suggested that the reason for this might be that CEOs of sustainable companies generally focus on transformational changes based on aspirational goals with unknowable starting and ending points, thus making them more difficult for others to completely understand, while the sustainability goals of CEOs of traditional companies, to the extent there are any, are based on smaller-scale transitional changes that are more within their comfort zone and easier to describe and lay out with specific beginning and ending states (e.g., moving from an energy system based on fossil fuel to a system based on a renewable source of energy or implementing a redesigned process that will reduce waste).[4]  Eccles et al. pointed out that the CEOs of sustainable companies did realize that transitional changes would be needed and the learning from all of this is that the CEO must have both a transformational vision and a portfolio of clear and attainable transitional changes upon which a foundation of success and progress can be built.

External Engagement

Eccles et al. argued that sustainable companies “learn from the outside” through engagement with a variety of external stakeholders, a process that allows the company to learn about the concerns and expectations of those stakeholders regarding the company and opens the eyes of company leaders to potential opportunities to create value for shareholders and stakeholders.[5]  Their research found that sustainable companies were much more likely to encourage their employees to assimilate knowledge from sources external to their company than were traditional companies, a process that companies found useful for building the culture of innovation and learning necessary for sustainability.  Sustainable companies were also much more likely to collaborate with other companies, including competitors, and organizations to advance their goals.  Collaboration was particularly keen up and down the supply chain and the researchers noted that one of the strongest differences between the sustainable and traditional companies was that sustainable companies encouraged their supply chains to adopt sustainable strategies and were likely to work closely with suppliers to support those efforts.  Eccles et al. pointed out that sustainable companies did a much better job than their traditional counterparts with respect to transparency, clear and consistent messaging to stakeholders and honest and widely disseminated reporting on their sustainability targets and the progress that was being made toward achieving them (including some of the problems that the company had encountered that had caused it to fail to meet its sustainability commitments).  Among other things, the reporting provided by the sustainable companies was a good way for their stakeholders to see how their interests and views were being integrated into the strategy and management of the company.[6]

Stage Two: Codifying the New Identity

Eccles et al. explained that the second stage of the process of creating a sustainable company involves building internal support for the new identity developed during the first stage through employee engagement and creating and codifying mechanisms for execution.  Taken together, these elements serve to create and maintain the requisite organizational culture that is supportive of sustainability.  The priorities of the first stage—leadership commitment and external engagement—continue during the second stage as parallel drivers of the company’s new identity.[7]

Employee Engagement

Eccles et al. defined employee engagement as the actions that the company takes in order to secure the interest and attention of its employees in the company’s sustainability efforts and the roles that employees are asked to play.  In most cases the transition to become a sustainable company will require that employees change their behaviors and behavioral change will not occur unless the employees believe that it will be worth it.  Employees will also need to understand and accept the reasons for the company’s decision to make changes and have a clear picture of the specific individual role that they are expected to play and how their performance will be measured.  The process of employee engagement will not be easy; however, Eccles et al. pointed out that engaged employees are emotionally connected to their work and to their workplace and thus tend to be more productive and more willing to engage in discretionary efforts to achieve company goals.[8] 

Eccles et al. found that sustainable companies were much more likely than traditional ones to have a clear strategy for engaging employees supported by a clear business case for sustainability and that these strategies were implemented by communicating the impact that the employees’ contributions will have on the company, articulating the connection between each employee’s work and the sustainability goals and enabling cross-functional communication and idea exchange.[9]  For example, everyone in the organization from senior leadership to line management should have sustainability-related goals incorporated into their individual goals in order for them to feel personally invested in the company’s progress toward sustainability.  In addition, a concerted effort should be made to facilitate sharing of experiences and best practices with respect to sustainability-related activities throughout the organization to accelerate learning and assure employees that they are not “going it alone” and that others are taking on similar sustainability challenges and creating sharable solutions.

Mechanisms for Execution

Eccles et al. found significant differences between sustainable and traditional companies with respect to the presence of organization-wide mechanisms supporting sustainability-related changes and the way in which those mechanisms were used.  For example, sustainable companies were far more likely to have enterprise-wide management systems (i.e., structured frameworks of practices and procedures) for executing sustainable strategies.  Notable features of these management systems included processes that connected sustainability to corporate strategy, with direct ties to performance evaluation and compensation; incorporation of sustainability metrics into the capital budgeting process; development of valuation processes that take externalities into account; setting clear targets for sustainability objectives; and establishing targeted programs linking the objectives to business results.  Eccles et al. noted that all companies were struggling to find appropriate metrics and tools for measuring sustainability and that collecting consistent, complete and precise data from across the value chain was challenging; however, they felt that one of the hallmarks of sustainable companies was their willingness to take on these measurement challenges proactively and aggressively.

Building and Maintaining a Supportive Corporate Culture

Eccles et al. argued that actions taken during the two stages described above to reframe and codify the company’s identity would reinforce, or even establish, a supportive corporate culture based on change capabilities, trust and innovation.  They explained that leadership commitment and external engagement would provide the foundation for transformational change, employee engagement would foster trust and innovation and mechanisms for execution would ensure that change happens as innovations diffuse throughout the organization.  At the same time, as the corporate culture becomes more supportive of sustainability it will increase the effectiveness of leadership commitment, external and employee engagement and the mechanisms for execution.[10]

Eccles et al. found strong differences between sustainable and traditional companies with regard to the level of change readiness in the corporate culture, noting that almost all of the sustainable companies had a strong track record of implementing large-scale changes successfully.  This is important because transformational change can take years, if not decades, to accomplish and the company must be comfortable with setting its direction, calibrating the risk and then pushing forward even without a precise plan.  As it turns out the long path to sustainability actually involves a continuous series of incremental changes which also must be navigated carefully and effectively and sustainable companies were also stronger than traditional companies when it came to implementing incremental changes, which meant that they were able to build a chain of successes and internal confidence.[11]  Without strong cultural capabilities for embracing and executing both transformational and incremental changes a company’s push for sustainability may stall out and ultimately collapse as employees become disenchanted and external stakeholders lose patience with the perceived poor leadership of the organization.

Innovation was found to be another core cultural capability for becoming a sustainable company and the sustainable companies surveyed by Eccles et al. were able to identify and focus on the innovations in processes, products and business models that were necessary to improve financial performance along relevant environmental, social and governance dimensions.  Companies with existing capabilities for innovation are obviously in a strong position; however, all companies can benefit from the new ideas that are generated during robust engagement with employees and external stakeholders.  Eccles et al. noted that sustainable companies did a good job of promoting and facilitating learning, broad thinking and creativity, all of which are drivers of innovation.  For example, sustainable companies provide for lateral communications so that employees can learn easily and efficiently from others in the organization and have access to different frames of reference and points of view as ideas are shared.[12]

The third key element of the organizational culture for a sustainable company is trust on the part of every employee, which means that employees believe that organizational leaders and everyone else in the organization can be taken at their word and will do their best to deliver on commitments and processes.  Without trust employees will be reluctant, if not completely unwilling, to take the risks associated with the level of innovation required in order to achieve the transformational changes associated with sustainability.  Eccles et al. argued that companies can foster the requisite level of trust for sustainability initiatives by demonstrating that they value the contributions of employees, consciously aligning their actions with their values, honoring their commitments and basing decisions on what is good for shareholders and for the broader concerns of the organization and society.  According to Eccles et al. leaders of sustainable companies understood the value that results when people within the company know that they can count on the integrity, competency, intentions and reliability of their leaders and coworkers.  Trust builds the foundation for collaboration and teamwork since employees know that their efforts will be recognized and rewarded and working together for the “greater good” strengthens employee engagement and improves overall business performance.[13]

For more information on the topic of this article, see the author’s book Responsible Business: A Guide to Corporate Social Responsibility for Sustainable Entrepreneurs, which is available here , and materials distributed through the Sustainable Entrepreneurship Project.   Readers may also enjoy the author’s book Board Oversight of Sustainability, which is available for purchase at various online booksellers. 

[1] R. Eccles, K. Perkins and G. Serafeim, “How to Become a Sustainable Company”, MIT Sloan Management Review 53(4) (Summer 2012), 43, 44.

[2] Id. at 44.  See “About the Research” on page 45 in the article for an extended discussion of the methodology used by the researchers and the scope of the companies surveyed.

[3] Id. at 45.

[4] Id.

[5] Id. at 47.

[6] Id. at 46-47.

[7] Id. at 47.

[8] Id.

[9] Id.

[10] Id. at 48.

[11] Id. at 49.

[12] Id.

[13] Id. at 49-50.