Corporate Sustainability, Research Paper Example

Abstract

Corporate sustainability is the responsibility of the corporation to ensure the actions that they are taking now and the resources they are consuming in the present do not compromise the ability of future generations to meet their needs to remain sustainable.  The corporations’ role in creating a responsible environment for sustainability is of utmost importance due not only to the fact that the corporations are consuming resources and changing the composition of the environment in which future generations will try to thrive, they also are key contributors to the society as a whole and can make great strides in sustainable development.  General Electric (GE) and General Motors (GM) both have economic, environmental and social aspects reported in their annual reports.  These companies are part of a group of the largest and most powerful corporations globally.  The decisions they make and the actions they perform directly impact the ability of sustaining future generation’s ability to thrive.  The actions taken by these corporations are both financially and voluntary motivators by either providing an increase to the bottom line or providing a persona of corporate responsibility that could also build loyalty among the consumers and build branding opportunities for the company.  Corporate sustainability is heavily impacted by larger corporations to either fall on the positive or negative side of sustainable efforts.

Corporate Sustainability

Corporate Sustainability Overview

The basic preface of corporate sustainability is the actions taken by a corporation to ensure that their current activities do not compromise the future generation’s potential for sustainability (GRI 2011).  The challenges for ensuring corporate sustainability revolve around balancing the ability to meet the stakeholder’s commitments as well as understanding the priorities of each of the stakeholders.  The sustainability provided by the corporations is also in a fluid and dynamic environment due to the ever changing variables in the global market.  Sustainable efforts by corporations require a concerted effort by the business in new and innovative ways of thinking regarding the current use of resources as well as future demands on resources and sustainable requirements.  The way that corporations present how they are providing sustainable corporate responsibility is through reporting on their economic, environmental and social contributions.  These reports show the efforts that are endorsed and performed throughout the year.  This also shows a transparency to the public about where and how the corporations are implementing sustainable efforts.  Stakeholders hold significant impact on how and where efforts of the corporation are applied and it is also important to show where the efforts of the corporation are applied to understand which shareholders hold the most impact on the corporation’s business decisions.

The practice and purpose of sustainability reporting involves the measurement, disclosure, representing accountability to internal and external stakeholders and performance toward sustainable development (GRI 2011).  The framework of sustainable reporting involves benchmarking, performance and comparisons.  These three areas allow comparisons and analysis on a company’s performance regarding their sustainable efforts.  The benchmarking efforts assess and create a baseline for measurement in respect to the current activities and their source purpose of the performance of those activities.  Some actions taken by corporations in regard to sustainable efforts may be driven by laws, policies or other regulating factors while additional efforts or volunteer efforts are based on a desire solely to create a better future for future generations.  Once the benchmarking is established performance can be measured by comparing the baseline or benchmark to specific points in time or specific events that occur.  This could be conducted yearly, quarterly or some other time interval based upon the corporation measuring the information.  This could also measure performance based upon expectations of shareholders and could determine if the corporation is holding up their end of the commitment or not.  Once the company is measured within itself it can also be compared to other corporations in the same industry to compare and contrast the differing efforts and the overall impacts each company is having toward the sustainability efforts.  By comparing and contrasting different companies, each area that is being analyzed can leverage off of the other areas to better understand if there are areas that need to be addressed or if there are certain shareholders that require more attention than others.  The number one objective of the corporation is to build shareholder wealth.  The issue arises when the corporation must determine how their limited resources are utilized in order to build the type of shareholder’s wealth the different shareholders require.  The overall purpose of the sustainability report is to measure and define the efforts taken by the corporations toward sustaining the economic, environmental and social aspects necessary for future generations to not only survive but to thrive in a continued existence.

Stakeholder Theory

When determining how well an organization is performing toward their sustainability efforts there must be a source for the requirements.  When a corporation builds their strategic intent with goals and objectives defining how and where resources are placed there must be a reason behind those decisions.  The overall objective of any company is to increase shareholder wealth and to provide a return on what the shareholders deem important.  In the traditional sense, a shareholder is one that owns a vested interest in the company and the decisions the company makes.  So if a shareholder’s main objective is to earn wealth why would a company also provide limited resources to address certain sustainability efforts when those same resources could be utilized to sell more services or products and ultimately drive more revenue and increase profitability.  The reason is that not only do shareholders hold a stake in the claim of the company but also stakeholders hold a claim in the decisions or influenced actions a company takes.  The stakeholder theory is a theory based on a corporations moral and ethical value decisions on how the limited resources of the company are utilized.  In essence, the corporation ultimately takes into account not only the primary investors of the company but also those that are impacted by the decisions made by the company and how the company’s business impacts their lives.  It boils down to the company taking their own accountability on the actions they take and how they impact others.  According to the stakeholder theory, while there is a financial responsibility to the shareholders of the company, there is an ethical responsibility to the stakeholders of the company that may, in some instances, supersede the demands of the shareholders.  Examples of stakeholders could be governmental entities, unions, neighborhoods, suppliers, customers, leasing parties or anyone involved in the business lifecycle of the service or product the company is providing or producing.  A stakeholder is any group or individual that can be or is impacted by a corporation’s actions of trying to reach their goals and objectives (Fontain, C., Haarman, A., and Schmid S. 2006).  These stakeholders have a certain amount of power and influence on a corporation that is inherent to their role in the company’s future.  The stakeholder theory is presented as such that the stakeholders represent a grouping of interests each of which have a varying degree of influence and power.  While each group does not necessarily benefit from the company profiting from their core business they do have a stake in the overall corporation’s business objectives whether it is in relation to the prevention of specific activities or promotion of others, each stakeholder has certain objectives that the corporation takes into account.  The overall concept of the stakeholder theory is that the corporation is a grouping of stakeholders with the purpose of the corporation being the conglomerated grouping of all of the stakeholders interests, desires and objectives all managed collectively.  This view incorporates a broader view which expands the scope of the corporation from building only shareholder wealth but also managing stakeholder’s interests including sustainability efforts.  Empirical studies show that stakeholder groups can be more effective in demanding the social responsibility depending on their type of stakeholder.  According to Deegan, of the studies done those with financial concerns had a greater influence on the actions taken toward their concerns than those stakeholders that had less financial influence.  While the companies still managed the stakeholder’s concerns it was by a varying degree in correlation to the financial impact to the company.  This could be direct financial contributions or the mitigation or avoidance of penalties or fines.

Legitimacy Theory

Legitimacy Theory is defined by the assumption that a business binds itself into a social contract in which in return for its existence the corporation will act and conduct actions that are corollary to social objectives.  Legitimacy is viewed like other resources that can be used or built up over time.  Certain actions or non-actions can help build the company’s legitimacy among those that the company is bound to in the social contract.  There are other actions such as not obeying rules or regulations or even utilizing other corporations that do not meet the requirements of the parent country’s social contract that would diminish this legitimacy ranking.  Legitimacy is somewhat ambiguous when it comes to reporting and measuring due to the fact that the entire perception of legitimacy is based on a subjective measurement but is supposedly directly measured.  The legitimacy of the company could also be viewed by how well the company garners the limited resources it needs to conduct its business.  It is established in the legitimacy theory that if the company can receive support and resources from the four critical organizational stakeholders that the legitimacy and the corporations ability to meet the social contract than the company is legitimate and the scale of legitimacy is based on the ease and amount of resources available from the critical stakeholders (Tilling 2004).  The four critical stakeholders are the state, the public, the financial community and the media.  These four areas cover everything from the rules and regulations set up by the government to the customers of the company and the financial investors supporting the efforts for the company to meet their goals and objectives.  The legitimacy theory states that a company is in a social contract with multiple entities that have a vested interest in what the company directly or indirect does.  The corporation performs in such a way as to manage their level of legitimacy due to the fact that the more legitimate and socially conscience the company is the better their ability to ensure a consistent and continued inflow of limited resources into the corporation so that they can continue to perform the actions needed to meet their goals and objectives (Deegan 2009).

Motivators for Voluntary Sustainability

Corporate sustainability is in essence twofold.  The first objective is to ensure the corporation could meet their goals and objectives for creating the good or service the company is providing.  The second is meeting the stakeholder demands according to the stakeholder theory as well as building legitimacy according to the legitimacy theory.  While the actions perform by the companies have varying degrees of social, environmental and economic impact to not only themselves but all of the people, places and things that are touched along the company’s manufacturing or service footprint, there is always a core reason why a company would directly or indirectly take on something that does not pertain to the core business.  Voluntarily performing socially responsible actions are driven by a responsibility of the company to their stakeholders.  These stakeholders hold resources such as investment funding, potential sales from the end customer, or raw material suppliers domestically or from a global supply chain.  These stakeholders may also need to be appeased solely on the basis of avoiding the consequence of not meeting these external demands that are placed on the corporation.

Motivators for voluntary sustainability reporting include the corporations desire to build their legitimacy to a point where it is almost a branding activity in which the corporations activities in the social, environmental and economic arenas of social sustainability are so great that they build a philosophy and doctrine around being a social and just company that also provides a good or service as part of their other efforts.  The voluntary action is a way to showcase the socially conscience actions the company is taking in order to fulfill their stakeholders’ requirements.

Reporting of Economic, Environmental and Social aspects of GE and GM

While researching companies in the global top 500 the first two companies that caught my eye were General Electric and GM.  GE is a conglomerate that manufactures goods in the areas of aviation, home appliances, lighting solutions, healthcare and energy.  GE has taken a best practice approach to reporting their sustainability efforts as well as incorporating sustainable efforts into their core business functions.  Throughout the reporting GE is illustrating their ability to be a green innovator.  GE has initiatives such as Ecoimagination that provides insights into how GE is taking steps to provide continued and sustainable efforts for future generations.  The annual report takes all of the activities of GE and completes the entire picture by placing financial data around the projects and assorted efforts that range from renewable energy to returning work to the base of appliance operations so that they can control and manage the manufacturing of their goods in the most efficient and economical method possible.

GM also reports their sustainability but they face a more daunting task as opposed to GE. GE has ingrained innovation and green thinking into their culture and many of their initiatives fulfill their core business requirements as well as sustainability efforts required by stakeholders outside of the core investors. General Motors is a company trying to rise from the ashes of the economic crisis and automotive industry demise a few short years ago.  In GM’s first report since the automotive industry calamities, GM took into consideration the growing concerns and requirements of the stakeholders and while rebuilding their corporation ingrained these sustainability efforts into the corporate strategic plan (GM 2011).  Their report shows efforts in electric vehicles which directly impacts their core business process but also they took on projects to conserve and better utilize the water they consume while manufacturing their automobiles (Kaye 2012).  The annual report shows an alignment between social responsibility and awareness with the core business of building and selling automobiles.

Both of these companies reported on their sustainability efforts.  GE and GM are taking steps in sustainable efforts but both are not making the same amount of progress according to their reporting.  GE is leaps and bounds above their competition regarding sustainability and the investment they are providing for green innovation.  This is apparent not only by the annual report but also through each of the social and media outlets that provide a glimpse into the efforts of this company regarding their contributions for our future generations.  GM on the other hand are taking as big of steps as they can considering their efforts need to be placed in only the most critical areas that can provide a return on investment that is conducive to shareholders and stakeholders.

Managing Legitimacy

Managing legitimacy become an art form in which the company must balance the amount of effort associated with each action to build or maintain their legitimacy with the efforts needed to build or provide their goods or services.  The management of legitimacy falls into the prioritization of efforts by the corporation to determine where the best return on invest could be achieved for both the stakeholders as well as the shareholders that are holding the purse strings for investment.  Each company, both GE and GM, are managing expectations in regard to both stakeholder and legitimacy theories by presenting their efforts in such a way that they are known to the community and they have a specific project details, the financial impact and the overall efforts associated with their efforts.  The management of each company’s legitimacy has a goal of building and communicating their sustainable efforts with all the stakeholders involved.

References

Deegan, D. Financial accounting theory. 3rd. Australia: McGraw-Hill Education , 2009.

General Electic. (2011). General Electric annual report. Retrieved from: http://www.ge.com/ar2011/

General Motors. (2011). Sustainability in motion. Retrieved from: http://www.gmsustainability.com/_reportBuilderImages/GeneralMotorsSustainabilityReportPDF.pdf

Fontain, C., Haarman, A., and Schmid S., (2006). The stakeholder theory. Retrieved from: http://edalys.fr/documents/Stakeholders%20theory.pdf

Global Reporting Initiative. (2011). Sustainability reporting guidelines. Retrieved from: https://www.globalreporting.org/resourcelibrary/G3.1-Guidelines-Incl-Technical-Protocol.pdf

Kaye, L., (2012). The new GM: New fuels, less waste, more involvement in Detroit. Retrieved from http://www.triplepundit.com/2012/01/new-gm-new-fuels-waste-involvement-detroit/

Tilling, M., (2004). Refinements to legitimacy theory in social and environmental accounting. Commerce Research Paper Series 04-6. Retrieved from: http://www.flinders.edu.au/sabs/business-files/research/papers/2004/04-6.pdf