Jens Mueller: Sustainability is an eye-opener

If you haven't heard about "sustainability" yet, you live on far-away planet. The term has become a rallying cry for activists and academics, but has it really touched business leaders yet?

Sustainability, the way to operate a business now so that it can operate equally efficiently or even better in the future, is a new force in business. It shapes the thinking of forward-oriented managers, it is the war-paint for some shareholders.

Yet, most managers look at sustainability the same way they pass the Salvation Army's red collection cans: eyes somewhere else and picking up the pace.

We at the Waikato Management School and our colleagues worldwide have looked at hundreds of local and overseas firms - and, although managers largely agree that understanding sustainability is important for their career prospects, their companies proceed with eyes shut.

Few businesses have formal sustainability plans in place and many do not yet include this issue in their strategic planning process. 

In the early days, sustainability was mainly reserved for the responsible use of resources.

We cried over the depletion of the Amazon trees, we sued the neighbour who polluted the air with belching factory chimneys or noisy race cars and we made sure the mating habits of the yellow-hooded owl were not affected by nearby oil drilling rigs.

This hijacking of the term, mainly by environmentally concerned activists, has likely helped to lessen the involvement of many businesses in this debate. But at the end of the day, many firms interact more subtly with their environment.

We drive the car to work, we use electricity to fire up the computers and we throw away packaging materials. Does this mean we do not have to be as concerned about sustainability as the firms who dig for oil, spew toxic fumes into the air or fell a forest.

Sustainability warns firms about not rushing to gain short-term advantages while compromising next year's performance.

Reducing staff turnover rates through employee involvement and empowerment is a more practical way to address sustainability in the workplace than to discount the issue because the firm is a "white collar" outfit that doesn't fell trees.

We are concerned with truthful and comprehensive reporting. Do the financial statements really tell all? Look at Wal-Mart, the world's largest company with 1.6 million employees. Would the employee turnover rate be important information for a prospective shareholder? If it were 20 per cent (low for retail), the firm would have to hire 320,000 employees a year just to keep the pace.

Like Bob the Builder would say: "Is this costly? Yes, it is." Therefore, traditional financial reporting does not tell the whole story.

It tells of the momentary condition of a firm and is more backwards-oriented than predictive.

Sustainability adds factors to our reporting of the firm's position which give a more accurate picture. It takes into account how the firm is positioned financially, socially and environmentally.

We know through the Triple Bottom Line reporting, where financial, economic and social relationships are reported, that firms can easily tell themselves and their stakeholders how they perform in all important aspects of their business, the financial side, their position within the social fabric and their commitment to the environment.

Every firm has internal and external stakeholders, and their perception of and interaction with the firm impacts on the bottom line.

If we only report financial data in the conventional sense of accounting rules, we, intentionally or by accident, omit the reporting of factors that may have a significant influence on the business.

In the present climate of valuing full disclosure to stakeholders, we must take care to advise business owners of their duty to communicate clearly and comprehensively, the true "state of the nation" when it comes to corporate reporting.

Does it make sense that local "poverty" will affect your business' bottom line? Absolutely. Poverty creates hardships in the local area, reducing consumerism, increasing stress on all firms in the area, depriving it of an educated and motivated work force.

It makes all the commercial sense in the world to dedicate some of the firm's resources to address this issue.

We all live by the grace of our clients and customers, and some are local, living close to us. The reputation of the business is essential for its survival.

If those reputations are gained locally, should we be concerned about, and should we consider to report, how we employ locals, how we train them up to become employable and how we further community well-being by spreading our payroll around?

The alternative is to ignore the point and wait until the business has alienated itself from its neighbours and loses reputational value.

* Jens Mueller is associate professor of entrepreneurship and strategy at Waikato Management School in Hamilton and teaches at several MBA programmes worldwide.