Business sustainability

Jayashree Sadri and Sorab Sadri
BUSINESS SUSTAINABILITY
Professor Jayashree Sadri
And
Dr Sorab Sadri

Basis
 This presentation is based on the following
works:
 Sadri, Jayashree and Ajgaonkar (2002)
 Jayashree, Sadri and Dastoor (2008)
 Sadri and Jayashree (2009)
 Sadri and Guha (2009)

The Logical Culmination
 We have argued that Business Ethics and
Corporate Governance combine to create the
conditions for Organizational Excellence.
 Organizational Excellence is not a finite point
but more like a horizon we move towards.
 To make this horizon meaningful and
measurable we argue that it converts
Organizational Excellence into Business
Sustainability

SOME ISSUES TO BE CONSIDERED
1. What is sustainability?
2. Is sustainability compatible with maximizing long-
run financial performance?
3. Corporate strategies and multiple long-run
objectives.
4. The balanced scorecard and multiple long-run
objectives.
5. The relationship between reporting on sustainability
and investing in sustainability?

DEFINING SUSTAINABILITY
 One of the most often-cited definitions of
sustainability is the one created by the
Brundtland Commission, led by the former
Norwegian Prime Minister Gro Harlem
Brundtland. The Commission defined
sustainable development as development
that meets the needs of the present without
compromising the ability of future generations
to meet their own needs.

The Scope Of Sustainability
 Sustainability relates to the continuity of
economic, social, institutional and
environmental aspects of human society, as
well as the non-human environment.
 Sustainability can be defined both
qualitatively in words, and quantitatively as a
pair of compound exponentials—the rising
one being the life of a system, the declining
one leading to death if the final tipping point
for intervention is irreversibly past.

WHY SUSTAINABILITY?
 Organizational Excellence is definitely a goal
to be desired but it is not a finite point; rather
it is like a horizon you move towards.
 This movement is within an environment that
is marked by dynamic dis-equilibria and an
attendant uncertainty.
 So it is prudent to use excellence such that
business remains sustainable.

Ethics Governance
Excellence
THE ORGANIZATIONAL TRIAD

BASIS OF THE TRIAD
 The three aspects of sustainability are
inextricably founded on sound business
ethics and good corporate governance that
combine companies to pursue excellence.
 This is enabled by a corporate culture that
promotes creativity and innovation by
adopting a learning environment.

Why Sustainability
“We do not inherit the earth from our
ancestors. We borrow it from our children.”
Sustainable development “meets the needs
of the present without compromising the
ability of future generations to meet their
own needs.”
- 1987, World Commission on Environment and
Development (a.k.a the Brundtland Commission)

Sustainability
We desperately need to recognize that we are the guests
not the masters of nature and adopt a new paradigm for
development, based on the costs and benefits to all people,
and bound by the limits of nature herself rather than the
limits of technology and consumerism.

- Mikhail Gorbachev
- President of Green Cross International

Questions about Sustainability
1. What is sustainability?
2. Is the goal of sustainability compatible with
maximizing long-run financial performance?
3. Can corporate strategies accommodate multiple
long-run objectives?
4. Does the balanced scorecard accommodate
multiple long-run objectives?
5. What is the relationship between reporting on
sustainability and investing in sustainability?

Is sustainability compatible with maximizing
long-run financial performance?
The business case for sustainability investment is
gaining momentum so as to avoid inertia
The positive correlation between sustainability
and financial performance will provide an
enormous boost to the sustainable investment
sector, said Markus Knisel, Director of Morgan
Stanley Private Wealth Management.

Sustainability and maximizing long-run
financial performance: the case of Nike
Can one suggest that Nike would have benefited
financially from requiring its suppliers to meet
higher standards at the inception of its then-
novel overseas manufacturing program in the
1960s. Insistence on adult workers (no children),
safe working conditions, and reasonable hours
and pay would have cost Nike real dollars and
cents. [The Traditional –Paternalistic View]

“Prior to the 1990’s, when workers and
consumers in industrialized countries awakened
to the conditions of workers overseas, it would
have been difficult to cite even minimal
reputational benefits from such a stance.”

“By the 1980s, Nike already had a glowing
reputation and spectacular earnings. Far from
being a cause for embarrassment, its strategy of
outsourcing production to cheap Asian labor was
praised as an innovative way to drive down costs,
beat the competition, and create shareholder
value.”
- Lynn Sharp Paine, 2000 Harvard Business School

Corporate Finance
“Success is usually judged by value:
Shareholders are made better off by any
decision which increases the value of their
stake in the firm.”
- Brealey and Myers,
Principles of Corporate Finance (1988)

Economics
Most Positive Economists will agree that
When we model the behavior of firms, we will
want to describe the objective as profit
maximization and the constraints as
technological constraints and market
constraints.”

Corporate Mission Statements
“Do a great job for our customers, employees, and
stockholders by being the preeminent building block
supplier to the worldwide digital economy.”
- Intel
Hence even CSR seems to be moving towards
meeting stakeholders interests rather than remain
at a “do social good level.
Mohanty Sadri and Dange

Corporate Mission Statements That
Recognize Stakeholder Interests
We will become the world's most valued company to patients,
customers, colleagues, investors, business partners, and the
communities where we work and live.
- Pfizer
GM’s vision is to be the world leader in transportation products
and related services. We will earn our customers’ enthusiasm
through continuous improvement driven by the integrity,
teamwork and innovation of GM people.
- General Motors

Corporate Mission Statements
“Nike’s corporate responsibility (CR) mission is simple and
straightforward. It is clear acknowledgement that CR work
should not be separate from the business – but should instead
be fully integrated into it. Our CR mission:
 We must help the company achieve profitable and
sustainable growth.
 We must protect and enhance the brand and company.”
- Nike

Motivation for Adopting Sustainable
Practices
PwC 2002 Survey
Source: PriceWaterhouseCoopers,2002 Sustainability Report. August 2002.

Accounting: The Spinal Column of Corporate
Governance
The search for new and better means of
meeting economic problems has resulted in the
development of various kinds of institutions …
aimed at improving the allocation of resources
and the application of human effort toward the
satisfaction of human wants. Accounting is one
of these institutions.
- William Vatter (1950)
Hence the importance of Corporate Governance will only
increase with time.

Accounting
“Accounting reports serve a great number of purposes
… . For example, there are accounting reports that
serve to tally valuables entrusted to custodians against
the stewardship expected of them. … Thus, accounting
is not necessarily confined to the situation of measuring
gains and losses; it is basically a means of meeting the
requirement that custody and management of property
carries with it an obligation to account for it.”
“ Of course, the accounting reports of business
enterprises serve many other uses. The information
presented in financial statements may be used by
present or prospective investors … ..”
- William Vatter (1950)

Accounting
Financial reporting should provide information
that is useful to present and potential investors
and creditors. … The primary focus of financial
reporting is information about earnings and its
components.
FASB (Statement of Financial
Accounting Concept #1)
The Right to Information Act in India is thus a step
in the right direction making public bodies
accountable and transparent.

Stewardship
 A working definition: the responsibility for
taking good care of resources entrusted to
one.
 However much delegation of power is desired
one must recall that:
Delegation without accountability creates
tyrants
Accountability without delegation creates
slaves

Reporting Tools Of Sustainability
 Given that top management is
increasingly concerned with converting
organizational excellence into business
sustainability, how will the latter be
measured?
 The Triple Bottom Line
 The Balanced Scorecard
 Third Party reporting and criteria

1. The Triple Bottom Line
 Disclosure (reporting) is a key part of doing
sustainable business.
 Sustainability reporting is broader in scope than
traditional financial reporting.
 The Triple Bottom Line (TBL) is one way to
report on sustainable business activity.
 TBL defines sustainability in terms of three
separate elements: economic, environmental,
and social perspectives of operations.

Three Elements of the
Triple Bottom Line
Economy – reflects activities related to shaping
demand for products and services, employee
compensation, community contributions, local
procurement policies, and other monetary issues
related to company activities. This is often referred to
as Profit

Triple Bottom Line
Society - reflects activities in shaping local, national
and international public policy, equality, treatment of
minorities, employee issues and public concern. That
is, organizational citizenship and is often referred to as
People.

Triple Bottom Line
Environment – reflects the impact made through processes,
products or services that affect the environment. These may
include air, water, land, natural resources, flora, fauna and
human health. This is often referred to as Planet

2. The Balanced Scorecard
 A performance measurement tool and a
performance management system.
 Created in 1992 by Robert Kaplan and David
Norton.
 Emphasizes financial measurement, but adds
non-financial measures.

The Balanced Scorecard
 Four components of the balanced scorecard:
 The Learning and Growth Perspective
 The Internal Business Process Perspective
 The Customer Perspective
 The Financial Perspective
 Each component would ideally have specific
performance measures associated with it.

3. The Balanced Scorecard
 The Sustainability Balanced Scorecard adds
sustainability issues into the Balanced
Scorecard.
 This gives business sustainability a rightful
place within overall management strategy.
 The adoption of this tool is increasing
globally.

THIRD PARTY REPORTING AND
CRITERIA ON SUSTAINABILITY
 Reporting on sustainability is not synonymous with
engaging in activities that promote sustainability.
 Neither is reporting on profitability synonymous with
being profitable.
 No “GAAP” for reporting on sustainability.
 Guidelines have been issued by governmental entities
and other groups.
 The Environmental Protection Agency (EPA)
 The Global Reporting Initiative (GRI)
 ISO 14000
 Independent reporting agencies have emerged.

Global Reporting Initiative
 The Global Reporting Initiative (GRI) has emerged as a
prominent source of guidance for reporting under the
Triple Bottom Line.
 The GRI is a collaborating center of the United Nations
Environment Program.
 The GRI incorporates participation of representatives
from business, accountancy, investment,
environmental, human rights, research and labor
organizations from around the world.

International Organization for
Standardization
 Organization de Standards International (ISO) is an
important management practice standard setting body.
 Founded in 1947 in Amsterdam.
 Sets a variety of standards for various products and
production processes.
 A network of the national standards institutes from 148
countries.
 Conformance with ISO standards is a contractual
requirement by some customers.
 ISO 14000: provides a framework for measuring
environmental performance.

Motivation to Report on
Sustainability
 Sustainability reporting is largely voluntary
 Exceptions: France and Japan
 Motivations to disclose sustainability information
 The desire to avoid added complex and costly
government regulation or negative attention from the
government.
 For example, GAO 2004 study
 The desire to improve public relations and company
image.
 For example, CalPERS

Sustainability and TBL Concepts
 Because sustainability reporting is largely voluntary,
the attitudes of business leaders towards sustainability
is important.
 Such an attitude reflects a high sense of values and
ethics on the one hand and good corporate
governance practices on the other.
 It is more likely to find a place in companies that
pursue organizational excellence.

CONCLUSION
 Business Ethics and Corporate Governance
combine to create conditions for
Organizational Excellence.
 Organizational Excellence needs a value
centered corporate culture for stability.
 Excellence has to be translated into
sustainability.
 Three measures of sustainability are Triple
Bottom Line, Balanced score Card and Third
Party Reporting.

Business sustainability

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