Organizational Design for Sustainability

While sustainability has become an important issue for many companies, not surprisingly since consumers have confirmed that they would be willing to make purchasing decisions based on the level of social responsibility of the brands from which they are selecting, they often struggle with understanding and implementing “sustainable organizational design principles” into their infrastructures and supply chains.[1]  Surveys have found that while a large percentage of executives worldwide say that they believe that sustainability is important to the financial success of their companies, less than half of them were actually taking steps to embed sustainability into their core business practices.[2]  Companies need to take organizational design for sustainability seriously, particularly since research has shown that building sustainability into business units doubles an organization’s chance of profiting from its sustainability activities.[3]

The alignment of organizational design and sustainability should begin 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.  Strategies should be based on an overall vision for the company and a set of commitments that are selected by the board of directors and members of the senior executive following consultation with internal and external stakeholders and that serve as the foundation for strategies and tactics that will bind all of the business units together to work toward a common purpose.   Many options are available in terms of sustainability-related commitment topics such as climate change, waste reduction and management, resource consumption, education, human rights, community engagement and procurement (i.e., supply chain management). 

Development and ongoing integration of sustainability strategies can and should be facilitated by incorporating certain attributes into the company’s organizational structure including architectural processes that capture and use sustainability information that is integrated into strategic decision making about innovative solutions necessary for maintaining a sustainable business (e.g., network organizations, virtual organizations and communities of practice), incorporate employees’ knowledge into strategic decision making and rapidly respond to sustainability opportunities and threats.[4]  Also important is creating multiple and diverse entry points into the organization in order for companies to capture and use sustainability information for strategic purposes and ensuring that relevant information is not confined to specialist units but is instead diffused throughout the organization for wider use in strategic decisions.[5] 

Companies that are relatively new to sustainability often begin with a fairly simple “stand-alone” structure based on treating the sustainability program as a separate function like finance, operations or marketing.[6]  A high level executive, often given the title “chief sustainability officer” (CSO) will oversee the function and reports directly to the CEO from the same level in the organizational hierarchy as other C-level executives.  The job of the CSO, which is discussed in more detail in a separate chapter of this publication however, is to begin the difficult process of engaging the business units that are overseen by other C-level executives.  The CSO should be given adequate resources to carry out his or her responsibilities including support from various sustainability directors worked primarily inside the sustainability function.  The advantages of this type of structure is that it creates a group that is solely focused on and responsible for initiating and implementing sustainability-related activities and serves as a magnet for recruiting the specialized skills necessary for sustainable programs to be successful.  However, a stand-alone approach has several critical drawbacks: sustainability is not integrated into the rest of the organization; limited buy-in from employees because they are not accountable to the sustainability function; and funding challenges since the function is typically focused on reducing costs as opposed to business development.

Companies often attempt to address and resolve some of the key shortcomings of the stand-alone structure by designing an “integrated structure” that recognizes and promotes reporting relationships between the sustainability directors, still sitting primarily in the sustainability function, and the business units.  Advantages of this approach include enablement of organization-wide integration and the creation of direct ties between the sustainability experts and the business units, thereby allowing the sustainability expertise to be available for supporting sustainability programs in the business units.  The enhanced access for the sustainability directors also encourages and improves employee buy-in, although there is still no formal accountability and the actions of employees with respect to sustainability are largely determined by the priorities of the leaders of their specific business unit.  In fact, the main problem with this structure is that responsibility and accountability remain disperse; however, the structure can be helpful for companies with sustainability goals that are primarily focused on reducing costs and efficiency.

Another more advanced and dynamic structure for sustainability is referred to as an “embedded structure” and actually transfers the sustainability directors out of the sustainability function and into each of the business units and functions themselves.  The sustainability director reports both to the leader of the business unit or function and back to the CSO—a matrix structure that can cause issues with respect to authority.  Advantages of the embedded structure include the ability to select and implement sustainability programs that drive business value and become part of the company’s core business and the opportunities to encourage significant buy-in from all employees.  However, the embedded structure makes it more difficult for the CSO to coordinate sustainability activities across the organization and efforts may be duplicated.  An embedded structure is considered to be the most advanced of the basic structures for sustainability and generally makes sense for mature organizations that have a good basic understanding of sustainability already integrated into their business units and are looking for revenue-generating opportunities.

Regardless of the particular structure adopted by an organization to facilitate its sustainability initiatives, it is essential to have executive sponsorship and visible and proactive support from the CEO and other members of the executive team and the board of directors.  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.  Clear procedures regarding decision rights should be established, recognizing the integration of sustainability programs and goals often challenge existing decision rights.  The leader of the sustainability initiative must establish relationships with the business and relevant functions in all of the company divisions and organizational units such as health, safety and environment; ethics and compliance; legal; product development; manufacturing; public affairs; marketing and communications; human resources and procurement.  As companies grow larger, they often create an entire sustainability leadership team to assist in oversight and coordination of a wide range of specific sustainability topics such as philanthropy, sustainability strategy and stakeholder engagement; environment, health and safety, business continuity, communications and reporting, social business and special projects. 

The efforts of the sustainability leader will often be supported by a “sustainability board” that includes representatives from all relevant functions and divisions and is dedicated to ensuring that sustainability activities are directed, guided and coordinated across the company and that duplication is minimized, results are reported and best practices are quickly shared.  The sustainability board should have its own charter that describes the board’s responsibilities and composition.  For example, the board might be assigned responsibility for approving and/or recommending to the corporate social responsibility (CSR) committee of the board (and ultimately the entire board) an overall sustainability strategy, sustainability targets, sustainability policies, external sustainability positions, sustainability materiality assessment, sustainability communication and reporting approach, sustainability stakeholder engagement plan and major environmental, social and governance index submissions.  The sustainability board may also convene sustainability dialogue sessions with external stakeholders on the sustainability topics that are most material to the company’s business, develops reports for internal and external use and ensure that information regarding sustainability activities is shared throughout the organization.  The role of the board is to be particularly mindful of the cross-divisional/cross-functional implications of sustainability activities and thus it is important for board to include the leaders of all business and functional units. 

One of the notable features about a sustainability-focused organizational structure is the emphasis on aligning the internal structure of the company with an external structure that is designed to promote direct, intense and continuous engagement with stakeholders.  This begins with making sure that the core responsibilities for implementing the sustainability programs are vested in departments have close ties to stakeholders and the requisite decision-making powers with respect to issues related to the programs.  Assessment of the organizational structure should reveal clear paths for stakeholders to express their concerns and pose questions to the company and provision should be made for both transparent goals for stakeholder relationships and metrics that can be used by both internal and external stakeholders to evaluate how well the structure is performing.  Evaluation and reporting should be done on a regular basis, generally quarterly or bi-annually, and should be accompanied by informal face-to-face discussions among the managers of the sustainability initiatives and the employees reporting to them and members of the stakeholder constituencies they are serving.  Performance measurement and reporting should be taken seriously and the results should be used to identify and implement the structural changes that will be needed as the sustainability initiative gains traction and becomes more embedded in day-to-day operations and decisions.[7]

It is also important to understand that many companies lack all of the elements necessary for them to completely organize and manage their sustainability initiatives on their own and thus must rely to some extent on external resources and parties.  For example, companies may seek and gain access to knowledge and legitimacy by publicly adopting the Global Reporting Initiative standards and participating in cross-sector partnerships and multi-stakeholder standards-setting groups.[8]  Another common illustration is incorporating multi-stakeholder or industry-wide standards into the company’s internal code of conduct and sustainability commitments.[9]

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This article is an excerpt from the author’s forthcoming book on Sustainability Management, which will be published by Routledge in late 2020.  For further information, visit the following page on the author’s Sustainable Entrepreneurship Project website: https://alangutterman.com/topics/governance-management/

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About the Author

This article was written by Alan S. Gutterman, whose prolific output of practical guidance and tools for legal and financial professionals, managers, entrepreneurs and investors has made him one of the best-selling individual authors in the global legal publishing marketplace.  His cornerstone work, Business Transactions Solution, is an online-only product available and featured on Thomson Reuters’ Westlaw, the world’s largest legal content platform, which includes almost 200 book-length modules covering the entire lifecycle of a business.  Alan has also authored or edited over 90 books on sustainable entrepreneurship, leadership and management, business law and transactions, international law and business and technology management for a number of publishers including Thomson Reuters, Practical Law, Kluwer, Aspatore, Oxford, Quorum, ABA Press, Aspen, Sweet & Maxwell, Euromoney, Business Expert Press, Harvard Business Publishing, CCH and BNA.  Alan is currently a partner of GCA Law Partners LLP in Mountain View CA (www.gcalaw.com) and has extensive experience as a partner and senior counsel with internationally recognized law firms counseling small and large business enterprises in the areas of general corporate and securities matters, venture capital, mergers and acquisitions, international law and transactions, strategic business alliances, technology transfers and intellectual property, and has also held senior management positions with several technology-based businesses including service as the chief legal officer of a leading international distributor of IT products headquartered in Silicon Valley and as the chief operating officer of an emerging broadband media company.  He has been an adjunct faculty member at several colleges and universities, including Berkeley Law, Golden Gate University, Hastings College of Law, Santa Clara University and the University of San Francisco, teaching classes on corporate finance, venture capital, corporate governance, Japanese business law and law and economic development.  He has also launched and oversees projects relating to sustainable entrepreneurship and ageism.  He received his A.B., M.B.A., and J.D. from the University of California at Berkeley, a D.B.A. from Golden Gate University, and a Ph. D. from the University of Cambridge.  For more information about Alan and his activities, and the services he provides through GCA Law Partners LLP, please contact him directly at alangutterman@gmail.com, follow him on LinkedIn (https://www.linkedin.com/in/alangutterman/) and visit his website at alangutterman.com.

About the Project

The Sustainable Entrepreneurship Project (www.seproject.org) was launched by Alan Gutterman to teach and support individuals and companies, both startups and mature firms, seeking to create and build sustainable businesses based on purpose, innovation, shared value and respect for people and planet.  The Project is a California nonprofit public benefit corporation with tax exempt status under section 501(c)(3) of the Internal Revenue Code dedicated to furthering and promoting sustainable entrepreneurship through education and awareness and supporting entrepreneurs in their efforts to launch and scale innovative sustainable enterprises that will have a material positive environmental or social impact on society as a whole. 

Copyright Matters and Permitted Uses of Work

Copyright © 2020 by Alan S. Gutterman.  All the rights of a copyright owner in this Work are reserved and retained by Alan S. Gutterman; however, the copyright owner grants the public the non-exclusive right to copy, distribute, or display the Work under a Creative Commons Attribution-NonCommercial-ShareAlike (CC BY-NC-SA) 4.0 License, as more fully described at http://creativecommons.org/licenses/by-nc-sa/4.0/legalcode. 

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[1] D. Sampselle, Sustainable Organization Design Principles, OTMT 608.13.  .

[2] Id. (citing Mirvis, Googins and Kinnicutt “Vision, Mission, Values: Guideposts to Sustainability”, Organizational Dynamics, 39 (2010), 316).

[3] D. Kiron, G. Unruh, N. Kruschwitz, M. Reeves, H. Rubel, and A.M. zum Felde, “Corporate Sustainability at a Crossroads: Progress Toward Our Common Future in Uncertain Times,” MIT Sloan Management Review (May 2017), 11. 

[4] A. Griffeths and J. Petrick, “Corporate architectures for sustainability”, International Journal of Operations and Production Management, 21(12) (2001), 1573, 1581-1583.

[5] Id. at 1581.

[6] The discussion in this paragraph is adapted from H. Farr, Organizational Structure for Sustainability (July 14, 2011), http://abettercity.org/docs/events/BCBS%20Hayley%20Farr_28%20July%202011.pdf (accessed April 23, 2020).

[7] For further discussion, see A. Gutterman, Sustainability and Corporate Governance (New York: Routledge, 2020).

[8] For further discussion of the role of CSR in gaining legitimacy for organizations, see also T. Emtairah and O. Mont, “Gaining legitimacy in contemporary world: environmental and social activities of organisations”, International Journal of Sustainable Society, 1(2) (2008), 134.

[9] A. Rasche, F. de Bakker and J. Moon, “Complete and Partial Organizing in Corporate Social Responsibility”, Journal of Business Ethics, 115 (July 2013), 651.