Why Firms Delay Reaching True Sustainability

• Published date: 01 July 2016
• DOI: http://doi.org/10.1111/joms.12199
• Date: 01 July 2016

Why Firms Delay Reaching True Sustainability

Anton Shevchenko, Moren Levesque and Mark Pagell

York University; York University; University College Dublin

ABSTRACT This paper explores a discrepancy between what the literature says about

sustainability and how sustainability is actually practiced. Our analysis reveals that we are in a

transition era in which firms incrementally offset – rather than eliminate – their negative impacts

on the environment and society. We also argue that external stakeholders have yet to create the

conditions that would compel firms to become truly sustainable. We further find that a firm’s

response to external pressure to become truly sustainable greatly depends on its capabilities. For

large firms, the decision to become truly sustainable is driven by their ability to manage external

stakeholders’ expectations, with the most innovative of large firms remaining unsustainable even

in the long term. In contrast, small innovative firms guide their decision-making based on their

internal readiness to change and therefore will be the first to reach true sustainability. Finally,

and regardless of size, firms that lack an innovation capability are unlikely to become truly

sustainable; they will struggle to survive the transition era.

Keywords: optimal stopping risk, stakeholder pressure, sustainability

INTRODUCTION

It is nearly 20 years since Ray Anderson, then CEO of Interface Carpets, first noted, ‘in

the future people like me will go to jail’ (Kinkead and Gunn, 1999). Anderson’s point

was that business as usual was unethical and unsustainable. Practitioners and researchers

know that firms need to make dramatic changes in how they create value to eliminate

their unethical negative impacts on the environment and society (e.g., Schaltegger and

Wagner, 2011). However, according to the Global 100 Index, eight of the 100 most sus-

tainable firms are in the oil industry, some with operations in the Canadian tar sands

(Corporate Knights, 2015). All oil firms are in an extractive industry that depends on

non-renewable resources, and extracting oil from the tar sands requires operations that

are energy intensive and polluting. Yet these firms are global leaders in sustainability?

Today the answer is yes.

Address for reprints: Anton Shevchenko, Schulich School of Business, York University, 4700 Keele Street,

Toronto, ON M3J 1P3, Canada (ashevchenko11@schulich.yorku.ca).

V

C2016 John Wiley & Sons Ltd and Society for the Advancement of Management Studies

Journal of Management Studies 53:5 July 2016

doi: 10.1111/joms.12199

This manuscript’s raison d’^etre is the discrepancy between the literature on sustainabil-

ity and how sustainability is practiced. Society is in a transition era where the need to be

sustainable is known but not yet acted upon. Hence, inherently unsustainable firms in

extractive industries are some of today’s global leaders because there are few if any

(known) truly sustainable firms and even the ‘most sustainable’ firms focus mainly on

how to become less unsustainable as opposed to truly sustainable (e.g., Pagell and Shev-

chenko, 2014). The literature is clear that it is unethical for firms to continue contribut-

ing to environmental and social degradation and that to reach true sustainability firms

need to eliminate their negative impacts on the environment and society by radically

altering how they create value (e.g., Cohen and Winn, 2007). Today’s situation where

the need to become truly sustainable is known but generally not acted upon shows that

most firms have a rationale for remaining unsustainable. This research thus asks, What

allows firms to delay reaching true sustainability?By answering this question

we can also create a better understanding of the conditions necessary for firms to

become truly sustainable.

We mathematically analyse this question using an optimal-stopping approach (e.g.,

Armstrong and Levesque, 2002). The optimal-stopping framework explores sustainabil-

ity by examining what is beneficial for a firm’s survival instead of via the lens of profits

(e.g., Golicic and Smith, 2013). We use a mathematical analysis because most empirical

methods require the firm to act prior to studying its actions, creating a vicious cycle

where the only way to study a firm’s attempts to become sustainable is to wait for such

novel actions to occur. Unlike empirical studies that help us understand the past using

data on what already happened, mathematical analyses allow us to study future events

to inform practice today.

This formal analysis provides insights both to firms and their external stakeholders.

The analysis helps firms to determine when in the future they will benefit from attempt-

ing to reach true sustainability based on their individual characteristics. For external

stakeholders the analysis provides the information needed to stimulate the transition to

true sustainability.

By predicting when and why attempts to reach true sustainability will occur, we make

unique contributions to the literature that explores the link between sustainability, ethics

and entrepreneurship. First, using a risk perspective, the analysis explains why it is more

beneficial for firms’ survival to offset rather than eliminate negative impacts. Offsetting

harm is especially important for highly visible large firms that need to be perceived as

ethical to maintain their license to operate (Weaver et al., 1999). Large innovative firms

are most likely to have the capabilities to become truly sustainable. However, they are

able to survive and remain unethical even in the long term by responding to external

pressure by offsetting, but not eliminating harm. The analysis also indicates that the

decision-making of small firms is driven by their internal readiness to change and that

they are likely to be the first to transition to true sustainability.

Second, the analysis reveals how external stakeholders contribute to the conditions

that delay the transition to true sustainability. Some of the most salient external stake-

holders (such as the media, academics, regulators, and NGOs) often tolerate or even

praise actions taken by current leaders in sustainability that are focused exclusively on

offsetting firms’ negative impacts on the environment and society. The analysis shows

912 A. Shevchenko et al.

V

C2016 John Wiley & Sons Ltd and Society for the Advancement of Management Studies