Environmental and social issues often influence the costs and income of a company

Strategic Interpretation on Sustainability Issues: Eliciting Cognitive Maps of Boards of Directors

As the interest in sustainability and its role in companies’ strategies has gained increasing attention among practitioners and management scholars, in this study, the research objective was to examine strategic interpretation on sustainability issues among the boards of directors in the cleantech companies. Our initial sample of companies was based on the OECD and national classification of the cleantech cluster in Finland (Sitra, 2007). The companies were selected from different business sectors within the industry to establish cognitive diversity between them. All companies publicly identified themselves as actors within the cleantech cluster gaining a significant share of their turnover from cleantech cluster operations.

As known, decision makers do not pursue action against environmental stimuli, per se. They respond to such issues that meet their previous experience and are advocated by the meaningful stakeholders, e.g. sustainability directives set by the EU commission. Strategic decision makers focus on issues that are perceived as having a potential impact on the organization and their stakeholders and that resonate the goals of the organization. Here, boards of directors act as strategic knowledge processors who filter, interpret, and utilize information from inside and outside the organization being the key intermediaries between their organization and the business environment.

Representing the social-cognitive approach on strategic management research, we applied the hybrid cognitive mapping technique for direct access to identify the boards of directors’ strategic sense-making process by utilizing the board members’ cognitive maps as constructs of interpretation of the business environment. Despite the research setting and the topicality of the sustainability management in business and research, our study provides results that can be seen unexpected.

Strategic issues

Figure 1. Frequency of the strategic issues in the industry-level cognitive map: E=environmental, Ec=economic and S=sustainability

First, we explored the attention of the directors on sustainability management. As in Figure 1, it can be seen that the economic issues dominate the directors’ attention as the most labeled issues in their business environment.

This does not yet demonstrate the influence of the issues in the companies’ strategies. Despite the high frequency rate, the issue may play either a central or minor role in the directors’ shared cognitive structures.

As shown in Figure 2, when analyzing directors’ shared cognitive structures, the economic issues were perceived as the most central issues in sustainability management, e.g., Long term profitability, Growth of the firm, Sales, and Shareholder value. Also, the issue Brand, company image was perceived as central and may reflect the increasing importance of sustainability issues among the companies’ stakeholder networks. Considering the sustainability issues, the most central issues belonged to the social category Ethical behavior and human rights and Employees attitude. The first highly central environmental issue was the Use and development of environmental friendly technologies in products.

cognitive map

Figure 2. Centrality of the strategic issue interpretation in the shared cognitive map of the industry

By comparing companies’ backgrounds, some similarities were observed between their interpretations on sustainability management issues. The issues Energy use of products and services and Resource overuse were considered to be central in the OEM (original equipment manufacturer) companies. A surprising result was that the issue Use and development of environmentally friendly technology in products was perceived as central by all of the companies except the OEM companies. Instead of this issue, the OEM companies stressed the role of Technology expertise in renewables.

In company operating financial sector, the directors perceived the social category issues the most central as Employee training and education, Wages and benefits of employees, Corporate governance (transparency, following rules/regulation), and Employees attitude. An explanation can be that the technological as well as environmental issues may have a very minor role in their business processes.

Environmental and social issues pose a direct influence on the economic success of the company

According to our results, the economic category issues achieved the most central role, and the sustainability issues had only a minor or no role in boards’ shared cognitive maps. However, previous research on corporate sustainability has indicated that environmental and social issues often influence both the costs and income of a company, posing a direct influence on the economic success of the company. In this case, our results support this evidence, and corporate sustainability represents not the goal but the means of achieving more traditional corporate objectives, which are at the center of top decision-makers’ attention. The alternative explanation is related to the nature of the board as representatives of shareholders rather than a wide range of stakeholders. It can be assumed that the views of the stakeholders would be more closely associated with the sustainability agenda.

Now we are able to set a question for the companies: “Do the companies recognize the energy transition and its effects on their business environment?”

Writer:

Bergman_kuva

Jukka-Pekka Bergman
Lappeenranta University of Technology

Source:

Jukka-Pekka Bergman, Antti Knutas, Pasi Luukka, Ari Jantunen, Anssi Tarkiainen, Aleksander Karlik, Vladimir Platonov (in Press). ”Strategic Interpretation on Sustainability Issues – Eliciting Cognitive Maps of Boards of Directors”. Corporate Governance: The international journal of business in society, Vol. 16, No. 1.