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BUSN9229

Week 1
Corporate Sustainability

Acknowledgement:
The powerpoint slides used in this topic have been adapted from materials developed by Dr Nick Mangos and Maz
Demosthenous of the Flinders Business School, and their kind assistance in developing this topic is gratefully
acknowledged.

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Four Pillars of Corporate Sustainability
Concept

According to Wilson (2003) Corporate Sustainability1 includes:

> Sustainable development


> Corporate Social Responsibility
> Stakeholder Theory
> Accountability

1. See reference List


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Definition of Corporate Sustainability

> Managers consider the traditional business model as one


that fits with Growth and Profit Maximisation.

> However a new and evolving corporate management


paradigm has emerged that which includes the economic
(growth and profit maximisation ) together with the social
and environmental issues. Thus the ideology is to sustain
profit maximisation, together with sustaining environment
for intergenerational purposes as well as sustaining socially
responsible to the community at large. 3
Sustainability includes
> Corporate Societal goals
> Environmental protection
> Social justice and equity
> Economic development

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2. Sustainable Development
Sustainable development is a broad concept that combines:
> Economic
> Social Justice
> Environmental Science
> Environmental Management
> Business Management
> Politics and
> Law

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Role of Sustainable Development
> Not to be left in the exclusive hands of government
regulators and policy makers
> Industry has a significant role to play in achieving
sustainable development.
> Industry needs to be more proactive role in balancing the
economics with social equity and environmental protection.

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Supporting Sustainable Development
Sustainable Development is as much an economic necessity as it
is an
> environmental and
> social necessity

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Sustainable Development contributes to
Corporate Sustainability in TWO ways
1. Sets out areas that corporation should focus:
> Environmental
> Social
> Economic performance

2. Provides common societal goals for:


> Corporations
> Governments
> Civil Society
To work towards ecological, social & economic sustainability

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Corporate Social Responsibility and Sustainable
Strategic Management (SSM)
Whether Corporations care about SSM is determined by their levels of
Corporate Social Responsibility (CSR) and stakeholder consideration
and salience.

CSR: deals with the role of business in society

Premise of CSR: Corporate managers have an ethical obligation to


consider and address needs of society not just to act in the interests of
shareholders or their own self-interest

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CSR is based on four philosophical theories

> Social Contract theory


> Social Justice theory
> Rights Theory
> Deontological Theory
(Wlison, 20031)

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Stakeholder Issues in Business Strategies

Consider stakeholder theory:

Go beyond shareholder concerns which includes profit


maximisation, economic reductionism objectives of the firm
to include all stakeholders of the firm.
Stakeholders have been defined (Freeman 1984, in Wilson,
20031) in past work and more recent times as.
> any group or individual who can affect or is affected by the
achievement of the organisations objectives

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Goal of Stakeholder Theory
> To help corporation strengthen relationships with external
groups in order to develop a competitive advantage
Stakeholders include:
> shareholders
> Investors
> Employees
> Customers
> Suppliers
The article Wilson (20031) in this weeks readings falls short in
including what he sees as primary stakeholders.
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5. Corporate Governance/Accountability
and SSM
Definition of Corporate Accountability:
Accountability is the legal or ethical responsibility to provide an
account or reckoning of the actions for which one is held
responsible..referring to ones duty to explain, justify or report on his
or her actions (Wilson, 20031, p. 4).
This definition is based on the principal and agent contract relationship
where the shareholders are the principals and the corporate manager
is the agent. Sometimes called Agency theory / agency law.

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Corporate Contracts
> Explicit and implicit contracts are entered into by the
corporations with other stakeholder groups and these
contracts for the basis of corporate accountability
relationships.
> It is the nature of the relationship between corporate
managers and society at large that defines corporate
accountability theory.

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Sustainability John Elkington (1997)
Elkiington (1997, in Wilson,20031) UK consulting argues that:
..companies should report on their environmental, social, and
economic performance not just financial performance
Elkington3 suggest that this is accounting on:
> Environmental
> Social
> Economic performance
As a Triple Bottom Line reporting:

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Sustainable Strategic Management: An
Evolutionary Perspective

..bringing the concept of ecological and social sustainability


into the lexicon of management in general and strategic
management.. (Stead and Stead, 20082).

> Second half of the 19th century and the 20th century through
ideas of Smith, Taylor and Weber, ideas of Effectiveness
and efficiency were the prime success factors in
management focus for manufacturing activities. These
were narrow and economic in nature.

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6. Sustainable Strategic Management: An
Evolutionary Perspective (continued)

> Strategic management evolved in the beginning with


internally focused concept of business policy 1960s. With
an emphasis on efficient use of resources, functional
activities of the firm to earn a profit.
Strategic planning in the 1970s was a process of defining a
firms mission, vision, goals and formulating strategies to
maximise stockholder and corporate returns (profits).

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6. Sustainable Strategic Management: An
Evolutionary Perspective (continued)

In the 1980s environment become more turbulent with a


myriad of stakeholders emerging, and a new management
stakeholder paradigm emerged: no firm can prosper
without serving the needs of its stakeholders.
It is the dynamic (not static) relationship between
corporations and the environment and society in which it
interacts that inevitably creates an evolutionary change to
a sustainable focus. It is the relationship with the business
and society and the changing needs of the planet, involving
concerns for long-term health and welfare of mankind
which drive organisations to SSM which has emerged in
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the 21st century
6. Sustainable Strategic Management: An
Evolutionary Perspective (continued)
> Emergence and Growth of SSM
Neo classical economic assumption is that the economy is a
closed one with respect to Social and Ecological
systems. Refer to figure 1 page 67 in Stead & Stead2.
It is what it ignores that is significant.
Shift to SSM required a paradigm shift
Sustaining economic activity is economic reductionism

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Emergence and Growth of SSM continued

> Move towards a new sustainability paradigm in figure 2, p.68.


> Move towards sustainability strategies: a firm with a vision to
develop strategies designed to enhance long-run profitability (Stead
and Stead 20082).
> This is NOT simply a strategy designed to make a profit while doing as
little ecological damage as possible. More so a firm need to develop
instrumental value systems to serve sustainability needs of various
stakeholders.
> Organisations should be strategically ecologically designed to reduce:
resource depletion, materials use, energy consumption, emissions and
effluents.

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Emergence and Growth of SSM continued

> Sustainable competitive advantage:


Market driven strategies allowing firms to ecologically
differentiate their products from their competitors in the
market place.
Eg-minimise environmental hazards and life cycle costs
-any other environmental friendly claim/ploy on product.

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SSM Strategy Formulation
> Strategic management formulation needs to be more inclusive of
stakeholder needs and wants as well as the societal and
ecological/biological sectors.
> It is an expansion of the neoclassical model to an open system as
depicted in figure 3. (Stead and Stead, 20082, p. 74).
> Included here is stakeholder needs, society and Biological nutrients as
well as the neoclassical economic activities.

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An Enterprise Strategy Perspective on SSM

> Summary version of a model is provided in figure 4 (Stead


& Stead, 20082, p. 78).
> Key sustainable centred stakeholders should be
considered by managers in strategic decisions made about
economic, social and ecological issue they face.
> It is suggested that firms that apply the model will by
definition be consistent with the tenets of SSM as the
corporate competitive and functional levels and stand for
sustainability

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Reference List
1. Wilson (2003) Corporate Sustainability: What is it and Where does it come
from Ivey Business Journal, pp 1-5, March/April 2003
2. Stead, J, G and Stead E., (2008) Sustainable Strategic Management: an
evolutionary perspective, International Journal Sustainable Strategic
Management. Vol. 1, No. 1. pp. 62-81
3. Elkington, J. (2004). Enter the triple bottom line. The triple bottom line: Does it
all add up, pp. 1-16.
http://kmhassociates.ca/resources/1/Triple%20Bottom%20Line%20a%20hist
ory%201961-2001.pdf

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