Leading sustainability: The importance of stakeholder relations

As part of their course Current Trends in Leadership and Change (LFCS05), LFC students have written blog posts about resilience, circular economy practices, stakeholder relations, conflicts in organizations and relational frictions in European monarchies.

There are several topics and areas that the management must consider when they are trying to move into a more sustainable way of doing business. In this blogpost, we will introduce and elaborate some themes that we find important when considering sustainable leading, focusing especially on the stakeholder point of view.

Sustainability has been discussed for a long time. During the first global environmental conference in 1972, the concept of sustainable development was first introduced by the United Nations Conference on the Human Environment, where nations discussed environmental issues. In 2015, the United Nations General assembly adopted “The 2030 Agenda for Sustainable Development” and defined 17 sustainable development goals (SDGs) with 169 related targets that address the major economic, social and environmental concerns our society is currently facing” (UN General Assembly, 2018). There are two sustainable development goals that refer to entrepreneurship mainly because of their association with education, creation of jobs, creativity and innovation – goal 4 and goal 8 (see UN General Assembly, 2018). Despite that sustainability has been on the table for a while, the question of “how to lead sustainably” is yet to be answered. We hope that in this blog post we can introduce some ways in which companies could be led in a more sustainable manner.

When one discusses the topic of sustainability, the background factors must be acknowledged, because every company operates in different settings. Gerard, MacMillan & Norma bring out some external factors that can affect sustainable leadership. The external environment is something that many people often consider as constant, something that one company or other actor is unable to change, whereas the internal environment is something that the company can affect. However, as discussed during the lecture and also in Gerard et al. (2017) article, stakeholder relations are an important part of the business environment of the company, and they are something that the company is able to affect at least to some extent.

Moving from the external environment towards the internal factors of the company, we must stop at the threshold and look into stakeholders. The lecture “Leading sustainability in business” presented how both firms and stakeholders are key elements in sustainability development, with both having the capabilities to act as change agents in the business environment.

In accordance to this, one of the United Nations´ Sustainable Development goals for 2030 is “Partnership for the Goals”, which points out the importance of collaboration between firms and stakeholders in order to be able to lead in sustainability. In this regard, Laszlo (2013) argues that firms need to dig deeper to understand how their business affects the environment, society, and their stakeholders, in order to find the base for their stakeholder value creation and sustainable value creation processes. For this understanding to happen, firms are pressured to start collaborating with their stakeholders and shifting their view on the relationship from being merely a transaction to becoming a partnership. When a partnership is created, common interests are met. By joining efforts, not only environmental and social issues are tackled, but also firms can secure an improvement of their business performance. Some other outcomes that results from these collaborations are creative solutions, innovation development, feedbacks, brand-building, stakeholder engagement and co-creation of sustainable value. As Laszlo (2013) states, this partnership relationship between firm and stakeholders “is based on contribution and value in both directions, which inspires further innovation and commitment and becomes a self-reinforcing spiral toward positive business results.”

As discussed in the lecture and also in Sulkowski, Edward & Freeman’s (2018) article, companies can “shake” their stakeholders so that together they can co-create value in a sustainable manner. As Sulkowski et al. (2018) argue, shaking shareholders means that the company aims to disrupt the traditional way of doing business and by that they are able to create something new. Moreover, one could also argue that the “shaking” could also be done inside of the company. The managers and leaders should have the courage and the skills to shake the things inside of the company. As Gerard et al. (2017) bring out in their article, organizational processes also play a big role in the sustainability of an organization. Leadership should not be based on authority and formal leading figures. One could argue that for the sake of sustainability, leadership models and methods should be reconsidered.

We have introduced stakeholder factors that should be considered when thinking about sustainability, and now we will focus more on the internal side of sustainability. Firstly, many associate sustainability with corporate social responsibility (CSR), which however is not the synonym for sustainability. While those following Fridman’s way of thinking would argue this is a waste of shareholders’ resources, Edward Freeman offers an opposite point of view. Freeman & Velamuri (2005) have long claimed corporate social responsibility is not enough, heavily criticizing the concept. They propose the idea of company stakeholder responsibility, which, unlike CSR, emphasizes that all companies carry responsibility, and companies should focus on their stakeholders, because they are the ones who are affected. Freeman (1984) also argues that we can’t distinguish between a company’s business and social responsibilities, but rather we should focus on the stakeholder part.

Companies and leaders therefore need to change their mindset. It is not simple, but there are some examples which prove that if one is inspired to look beyond the “business as usual”, one can see that profit and sustainability not only can, but must go hand in hand.

One example of this is introduced by Kramer and Porter (2011): Nespresso, one of Nestlé’s fastest-growing divisions (pg. 10). To provide the best quality coffee to consumers around the world, Nestle needs stable supplies of good quality coffee grains and thus heavily depends on the local farmers in Africa and Latin America. Increasing productivity has been a struggle for farmers, so Nestlé started providing them with an access to knowledge, mechanizations, bank-loans and other inputs they needed but couldn’t access. With the increased productivity, farmers were able to earn more money, which they spend in their local communities, hence benefiting also many other actors. In addition, increased productivity meant in this case lower environmental pollution. Nestlé built trustworthy and long-lasting relationships with their suppliers and customers, who get good coffee at a reasonable price. This is also visible in Nestlé’s high revenues and market shares around the world.

To have a “success story” like Nestlé’s, companies need a solid business model that supports their sustainability goals. Business models are a “comprehensive understanding of how a company does business and how value is created, as well as the logic, the data, and other evidence that support a value proposition for the customer plus the structure of revenues for the company when delivering value” (Witjes, S., & Lozano, R., 2016). By defining the business model of a company (value proposition, value creation and value capture), also the strategy will be defined and the central stakeholders. Creating value for stakeholders and addressing their value propositions should be the core of companies’ activities since is the only way they can capture value for themselves. Within the business scenario, many value propositions exist, sustainability being one of the most demanded from the stakeholders’ side.

Nowadays stakeholders are demanding a real implication from companies within the society at large, asking companies to be conscious about their effects on environment and populations. Corporate sustainability being integrated as a main concept in companies’ strategies illustrates the mentality change that has emerged in the past decades. Moreover, that change also implies a redesign of traditional business models in technological, social and organizational perspectives. Redesigning the business model of a company in a more sustainable grasp also implies a change of how companies and suppliers relate to each other, a shift from product-focused to include service-focused operations, and that customers are seen as important stakeholders throughout the life-cycle of the product.

When a company has a solid business model, they need to do something in practice in order to move towards a more sustainable way of tackling, for instance, pollution and usage of natural resources. These innovative initiatives within organizations can potentially improve environmental, social and societal quality of business processes and products or services provided. Companies and stakeholders must work together to develop innovative solutions. As a model to help developing and implementing these innovative solutions, Bossink (2012) introduces three basic managerial levels for eco-innovation and sustainability. The first level is co-ideation, where entrepreneurs and leaders cooperate and act as main drivers to generate innovative ideas linked to sustainability within business processes. The second level is co-innovation, where ideas can be implemented upon collaboration in organizational settings, such as projects, teams and partnerships, to actually transform ideas into businesses. At the third level, the co-institutionalization level, key actors and decision makers from private and public sectors must interact and collaborate to build institutional structures and arrangements that enable a growth of sustainable businesses and practices. Key players within this level are, for example, commercial institutions, non-profit organizations, NGOs and governmental organizations that can develop structural settings to enable viable and profitable business sustainable initiatives within various industries. This model is aligned with the stakeholder value creation approach, promoting cooperation among all business and societal stakeholders to find effective solutions to sustainability issues.

In this post we have introduced some factors that should be considered when thinking about sustainability in leadership. We argue that one of the key elements is collaboration with stakeholders and other parties. Only by working together we can become more sustainable.

This blog post was compiled by April Hautala, Belen Fuentas Brinquis, Gabriel Maciel Marães, Mariana Dieste, Vilma Perttula and Katarina Sladakovic.

Bibliography

Bossink, B. (2012). Eco-Innovation and sustainability management. New York: Routledge.

Freeman, E. R. (1984). Strategic management: A stakeholder approach. Boston: Pitman

Freeman, E. R. & Velamuri, Ramakrishna, S. (2005). A new approach to CSR: Company stakeholder responsibility. SSRN. Retrieved from http://ssrn.com/abstract=1186223.

Gerard, L., McMillan, J., & D’Annunzio-Green, N. (2017). Conceptualising sustainable leadership. Industrial and Commercial Training, 49(3), 116–126.

Kramer, M. R. & Porter, M. E. (2011). Creating shared value: how to reinvent capitalism and unleash a wave of innovation and growth. Harvard Business Review, 89(1-2), 62–77.

Laszlo, C. (2003). The sustainable company: How to create lasting value through social and environmental performance. Washington: Island Press.

Sulkowski, A.J, Edwards, M. & Freeman, R.E. (2018). Shake your stakeholder: Firms leading engagement to cocreate sustainable value. Organization & Environment, 3(3), 223–241.

UN General Assembly (2018). Entrepreneurship for sustainable development. Report of the Secretary-General (UN) (Report No. A/73/258). New York: United Nations.

Witjes, S., & Lozano, R. (2016). Towards a more Circular Economy: Proposing a framework linking sustainable public procurement and sustainable business models. Resources, Conservation and Recycling, 112, 37–44.

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