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What Does Sustainability in Business Really Mean?

Posted on January 3, 2019 in Uncategorized

The term “sustainable” is used with growing frequency in the mission statements of large companies. CEO’s and politicians make nearly inflationary use of the term. My impression is this: Sustainability is becoming a platitude.

Sustainability in large companies

For example, the Internet pages of an internationally active machine-tool conglomerate reads as follows:

“Our own understanding of sustainable operations:

… A world-wide uniform environmental policy is the foundation for our successful environmental management…
… Our employees are committed to complying with environmental statutes and internally established standards…”

What does this actually really mean? The company is committed to complying with environmental statutes. Period. Nothing more, nothing less. But clearly, this is not the idea. Sustainable operations and sustainable leadership entails a good bit more than complying with the law.

What is sustainability?

Sustainability means to meet the needs of the present without risking the possibility of not being able to meet the needs of tomorrow.

For humanity this means: We must conduct ourselves in such a way that our children and grand-children can also lead a good life on this planet. Citizens and politicians must establish the legal framework in such a way that this is possible. – Companies are then expected to comply with these rules and regulations.

But:

A company is a long ways from operating sustainably only because it adheres to rules and regulations! A company practices sustainability if it does not compromise its own future with the needs of the present.”

Short-term vs. long-term orientation

First, let’s take a look at what the above definition means to a company. According to this definition, a CEO is not working in a sustainable manner if he is only focused on the next quarterly results. If so, he would most likely partially compromise the future development of the company.

He would be operating in a sustainable manner if he is focused on quarterly results only to the extent that is necessary to ensure the company’s survival.

Do CEO’s of publicly traded companies act in a sustainable manner?

Rather not. Ultimately, the opinions of investors matter most. If the shareholders expect high profits for the next quarter because they want to sell their holdings, the CEO will focus on the highest possible quarterly results – and not on the sustainable development of the company. Ultimately, he wants to keep his job.

As a dependent employee, he places his own interests ahead of the company’s. Sustainable operations? Not so!

What happens in owner operated businesses?

Do entrepreneurs act in a sustainable manner? It depends. The key to this is the entrepreneur’s vision. What does he want to achieve? What purpose is he pursuing with the company?

If his primary motivation is to make money with the company, it will be difficult to operate in a sustainable manner. The focus will keep returning to the money.

He might treat his employees well, and he might also get involved with customer needs, and even become socially engaged, as long as things are going well. But the focus is clear when trouble arises:

“I need to make money.”

All other considerations are secondary to this.

Entrepreneurs with vision

But if the entrepreneur has a true vision, and he is pursuing the implementation of a dream with his company, then the likelihood is high that he will operate in a sustainable manner.

He is ultimately pursuing an objective that is larger than himself and the need to satisfy his ego. The right attitude is needed to operate in a truly sustainable manner:

“My work and this company are directed at accomplishing something of value for the world.”

As an aside, this does not mean that the entrepreneur is not permitted to make good money. To the contrary. In order to attain the purpose of the company, i.e. to achieve something of value for the world, he should and must make enough money to be satisfied and content.

Only then can he work on attaining the purpose. And if it important to him to live in a beautiful home and drive a Porsche, then this is OK. The luxury then becomes the means to an end.

Sustainable leadership

I believe that an entrepreneur will find it easiest to lead in a sustainable manner if he has a true vision, lives by it, and rigorously aligns his company accordingly.

This creates the highest likelihood that he will make decisions that are driven by sustainability even in critical situations. Ultimately, the point is to strive for long-term success with his dream and the company.

An employed manager, whether as department head or CEO, has much more difficulty to lead and operate in a sustainable manner. When push comes to shove and investors apply pressure, the best intended sustainable vision will quickly get brushed aside. Investors call the shots – and their “vision” is usually monetary in nature and not sustainable.