As a reader of Sustainable Industries, you're eligible to receive $50 off William Newman's June 3-14 workshop, "Sustaining Networks." Simply click here to register.
It was the winter of 2009. Some would call it the “winter of our discontent” in the Motor City. As history would show, the U.S. automotive industry was hours away from stopping – not due to a major labor strike or natural disaster, but caused by a meltdown of the liquidity market.
I was meeting with a CXO who was affable and open to new ideas and conversations. We had met earlier at a local economic lunch and exchanged pleasantries. Now, in his C-level offices of a multi-billion dollar automotive supplier, his candor was striking.
“We just survived a near-death experience,” he summarized slowly and purposefully, as if he had given the answer a thousand times before to his employees. “As far as the triple-bottom line goes, we are going to focus on the bottom line for the next three to four years.”
And that was that. Sustainability and the thought of strategically embracing the triple-bottom line was off the table.
Fast forward those three to four years. While gains have been made to move executive thinking on the topic of sustainability and triple-bottom line decision making, little has changed in the psyche of CXO executives in many global organizations. Why?
No doubt the issue of sustainability is on the minds of executives. Countless studies confirm this. The now-infamous UN Global Compact Survey (2010) indicated 93% of global executives believed sustainability would have an impact or a profound impact on their operations. Striking in those figures was an improbably 100% affirmative response from automotive executives like the same CXO who scoffed at my overtures. A more recent study by Deloitte, CFOs Are Coming to the Table (2012), illustrates that spend on sustainability has risen commensurate with an increase in sustainability activities inside the organization. But the same study admits only 39% feel that it is important to communicate the value of sustainability to their employees.
If so many CXOs believe there is a strategic importance to move towards sustainable business models and triple-bottom line decision making, then why is it that a minority of those same executives feel the need to engage employees by communicating the importance of these business practices? I submit that there is an “engagement gap” among the majority of top executives when it comes to sustainability. Many are able to “talk the talk” but only a minority is able to “walk the walk.” I suggest three key areas to consider as possible reasons why this gap exists.
[pagebreak]1. Lack of understanding as to what sustainability means to the organization
Sustainability as a management practice can mean many things to many organizations. In 2012, I presented in my University of Oregon Sustainable Leadership Program workshop that there are currently over 60 major guidelines, standards, methods, and regulations governing sustainability efforts in the world today, and that number continues to grow with the roll-out of new state and federal mandates, including Dodd-Frank compliance. Organizations can get bedazzled by so many compliance efforts and simply resort to throwing money and people at the problem until it goes away (which I submit accounts for the rise in spending around sustainability efforts). Organizations – I am fond of saying – do things for one of two reasons: they want to, or they need to. So far, the “need to” side of the equation is outweighing the “want to” side of the equation for most global companies.
This isn’t to say that sustainability programs aren’t bubbling up from employee engagement activities like “green teams.” But to move past feel-good “uber recycling” programs, companies need to understand the free market drivers which favor sustainable business practices. And so far those drivers are still a mystery to most large corporations.
2. Lack of understanding as to economic benefit
The same root cause impacts from the Great Recession facing my automotive supplier CXO colleague continue to this day. So why have many organizations embraced sustainable business practices – greening the workplace, reducing energy consumption, and improving product packaging as quick hits – and others have not? Part of this I believe is the overwhelming force on large and particularly mid-sized organizations (revenues normally $0.5 billion to $2 billion annually) to continue to “do more with less resources.” While this is changing – slowly – as employment expands, particularly in the U.S., costs are being contained by increased worker productivity. According to the Conference Board periodic studies on worker productivity, productivity in the U.S. grew over 10% from 2005 to 2009, and those practices have continued with diminishing returns. With less than 2% total global productivity gains realized in 2012, CXOs now need to try something different and change behavior. The turnip is now dry.
When I speak to executives who have engaged in product redesign and greening the workplace to increase employee engagement as well as other business practices, I find sustainability becomes less of a cost item and more of an item to create a better place to live and work. This may seem altruistic, but economic gains from reduced staff turnover and increased employee engagement can push worker productivity to new levels. When the economic benefits of the triple-bottom line become clearer, CXOs and directors in companies who undertake GRI and Dow Jones Sustainability Index reporting to demonstrate their status generally find this “shift” in thinking makes the decision to commit resources to document and report less of a “need to” function and more of a “want to” after effect of realizing economic benefit. In short, it’s good business.
[pagebreak]3. Lack of skills Inside the organization
Part of the reason sustainable business practices tend to be absent from the majority of companies operating in the world today is simply because these skills have yet to be developed, both internally and externally. This means CXOs have a natural disposition to not understand basic concepts such as reduced energy consumption and increased community involvement beyond “special project” status. In meetings, these executives nod their heads enthusiastically, but behind closed doors in private they can often sling the “we aren’t going to do that here” defense. There are a few underlying factors that can lead to this.
First is the notion that behavior is driven, particularly in the U.S., by compensation models. The fastest way I know to drive change in behavior is to make that new behavior part of the reward and recognition equation at the individual employee as well as the company level. Often sustainability initiatives are absent from these performance management processes. Second, functional teams have been trained over the years to maximize their process, not to maximize the overall well-being of the organization. I see this particularly in manufacturing and finance organizations. This suggests organizations work through a collection of “lenses” where they view the same problem with different outcomes which do not always aggregate to the best possible result for the organization. (There are a number of management approaches to ferret this symptom out; I like using the logical diagram approach whereby cross-functional teams need to agree on the outcome first and then work backwards to the proper conditions, interim results and assumptions to get there.) Finally, the collapse of the management board itself has created myopia in the C-suite. Since the Great Recession, it is now very common to have information technology, human resources and purchasing all report into the finance function and the CFO. The CFO still behaves with a “finance first” mentality, and as such has been well trained to maximize financial returns rather than employ triple-bottom line decision making.
A call to action
While my rationale is largely empirical, our team at Newport Consulting Group – combined with the good people at the University of Oregon Sustainability Leadership Program and Sustainable Industries – have put our hypothesis to the test. We invited hundreds of decision makers to take our survey to uncover the reasons behind this “Sustainability Engagement Gap” and determine possible barriers which can be identified and – hopefully – overcome. The involvement of so many of Sustainable Industries readers is helping us bring clarity to this issue and determine some quick approaches to breaking down the walls CXOs face today. My hope is that the findings of this survey will give sustainability managers and CXOs alike the common ground to remove the barriers and create an environment where the conversation on sustainable business practices might begin. The findings will be discussed in a CXO Engagement Study webinar on June 13 at 10am PT – please sign up for the webinar and join us then!
William Newman is a recognized author, speaker, analyst and consultant on matters of management strategy and technology. He serves as managing principal of Newport Consulting Group, an independent management and technology consulting firm. Mr. Newman is also a member of the adjunct faculty at the University of Oregon Sustainability Leadership Program. Contact him via email at: wnewman@newportconsgroup.com or follow him on Twitter @william_newman.
As a reader of Sustainable Industries, you're eligible to receive $50 off William Newman's June 3-14 workshop, "Sustaining Networks." Simply click here to register.
Slideshow image by Providence Public Library.