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Sustainability in Business: Integrated Management of Value Creation and Disvalue Mitigation  

Markus Beckmann and Stefan Schaltegger

Sustainable development is about meeting the needs of current and future generations while operating in the safe ecological space of planetary boundaries. Against this background, companies can contribute to sustainability in both positive and negative ways. In a world of scarce resources, the positive contribution of businesses is to create value for diverse stakeholders (i.e., goods in the actual sense of good services and things with value) without social shortfalls or ecological overshooting with regard to planetary boundaries. Yet, when value-creation processes cause negative social or ecological externalities, companies create disvalue for current or future stakeholders, thus undermining sustainable development. Sustainability in business therefore aims at the integrative management of value creation and disvalue mitigation. Various institutions, such as sustainability laws as well as quasi-regulatory and voluntary sustainability standards, aim at providing an enabling environment in this regard yet are often insufficient. Corporate sustainability therefore calls for proactive management. Neither value nor disvalue fall from heaven but are rather co-created or caused through the interaction with stakeholders. Transforming from unsustainability to sustainability thus requires transforming the underlying relational arrangements. Here, market and non-market stakeholder relations need to be distinguished. In markets, companies transact with customers, employees, suppliers, and financiers who typically have voluntary exchange relationships with the firm. As a result, stakeholders can use the exit option when the relationship causes them harm. Companies therefore need to know and respect their value-creation partners, their potential contributions, and above all their needs. Sustainability can influence these market relationships in two ways. First, as sustainability addresses environmental, social, and ethical issues that are otherwise often overlooked, sustainability can relate to specific goals and motivations that stakeholders pursue when they care about these matters. Second, sustainability can be linked to transaction-specific particularities. This can be the case when sustainability features lead to information asymmetries, higher transaction costs, or resource dependencies. Non-market relationships, however, can differ in that stakeholders are involuntarily affected by the firm. In many cases, such as environmental pollution, stakeholders like local communities experience disvalue but cannot simply walk away. From a sustainability perspective, giving voice to non-market stakeholders through dialogue and participation is therefore crucial to identify early-on potential issues where companies cause disvalue. Such a proactive dialogue does not necessarily present a constraint that limits value creation in the market. Giving a voice to non-market stakeholders can also help create innovations and mobilize valuable resources such as knowledge, legitimacy, and partnership. The key idea is to find solutions that create value not only for market stakeholders but also for a larger circle, including non-market stakeholders as well. Such stakeholder business cases for sustainability aim at the synergistic integration of value creation and disvalue mitigation.

Article

Corruption and Business Ethics  

Steven G. Koven and Abby Perez

Corruption remains a way of life for many cultures and subcultures, an ethos that is often consistent with the goal of corporate profit maximization. Corruption may yield benefits at the personal or individual firm level, but at the societal level corruption is detrimental to aggregate growth, individual effort, and faith in institutions. Corruption, as defined by the Oxford English Dictionary, is dishonest or fraudulent conduct by those in power, typically involving bribery. Corruption exists on a continuum that can range from rampant to minimal. Rampant corruption exists when entire organizations willingly and knowingly promote actions that are injurious to workers, consumers, or society as a whole. Egregious examples include knowingly producing and selling harmful products or ignoring conditions that impair the health and safety of workers. At the other extreme, minimal corruption can include petty violations such as stealing a small amount of office supplies for personal use. Moral, ethical, and legal guides have evolved over time in efforts to ameliorate the most obvious and egregious forms of corruption. These guides are supported by perspectives of philosophy such as utilitarianism, deontology, virtue ethics, intuition, and ethical relativism. Each of these perspectives represent an important and qualitatively different lens in which to assess ethical behavior. While some philosophical viewpoints emphasize the categorical nature of right or wrong action, others emphasize context, net benefits of actions, or individual virtue reflected in individual actions, and perspectives that are systematically reviewed. Philosophical influences are viewed as highly relevant to an understanding of modern-day corruption. Business ethics is also influenced by various competitive and complementary models that compete for influence. While the market model of business ethics has long endured, alternative perspectives of business ethics such as the stakeholder model of corporate social responsibility and the sustainability model have recently arisen in popular discourse and are explored. These alternative models seek to replace or supplement the market model and advocate for a greater recognition of environmental responsibilities as well as responsibilities to a broad array of stakeholders in society such as workers and consumers. Alternative models move beyond the narrow perspective of profit maximization and consider ethical implications of business decisions in terms of their effects on others in society as well as future generations. Various philosophical perspectives of ethics are examined, as well as how these perspectives can be applied to attain a more complete understanding of the concept of corruption.

Article

Corporate Social Entrepreneurship  

Elisa Alt

Corporate social entrepreneurship (CSE) is a subject of growing interest for scholars in the areas of corporate entrepreneurship, social entrepreneurship, and corporate social responsibility as it has the potential of engaging corporations in activities that transform traditional practices, advance corporate purpose, and promote positive social change. CSE consists of identifying, evaluating, and exploiting entrepreneurial opportunities that address social and environmental problems through market means from within corporations. Dual value creation—the simultaneous pursuit of social and economic value creation—is a core element of CSE, however, in organizations that have not been originally designed for this purpose. As an umbrella concept, CSE embraces similar terms such as social intrapreneurship and sustainable corporate entrepreneurship. CSE often starts autonomously through managers and employees acting as social intrapreneurs, until initiatives are accepted and integrated into the firm’s concept of strategy. CSE introduces a societal concern to corporate entrepreneurship, contextualizes social entrepreneurship in corporations, and advances entrepreneurial approaches to corporate social responsibility—all of which are topics that remain relatively unexplored and that offer vibrant opportunities for future research.

Article

Sustainability Innovation: Drivers, Capabilities, Strategies, and Performance  

Devashish Pujari and Anna Sadovnikova

Though concern for environmental issues dates back to the 1960s, research and practice in the field of sustainability innovation gained significant attention from academia, practitioners, and NGOs in the early 1990s, and has evolved rapidly to become mainstream. Organizations are changing their business practices so as to become more sustainable, in response to pressure from internal and external stakeholders. Sustainability innovation broadly relates to the creation of products, processes, technologies, capabilities, or even whole business models that require fewer resources to produce and consume, and also support the environment and communities, while simultaneously providing value to consumers and being financially rewarding for businesses. Sustainability innovation is a way of thinking about how to sustain a firm’s growth while sustainably managing depleting natural resources like raw materials, water, and energy, as well as preventing pollution and unethical business practices wherever the firm operates. Sustainability innovation represents a very diverse and dynamic area of scholarship contributing to a wide range of disciplines, including but not limited to general management, strategy, marketing, supply chain and operations management, accounting, and financial disciplines. As addressing sustainability is a complex undertaking, sustainability innovation strategies can be varied in nature and scope depending upon the firm’s capabilities. They may range from incremental green product introductions to radical innovations leading to changes in the way business is conducted while balancing all three pillars of sustainability—economic, environmental, and social outcomes. Sustainability innovation strategies often require deep structural transformations in organizations, supply chains, industry networks, and communities. Such transformations can be hard to implement and are sometimes resisted by those affected. Importantly, as sustainability concerns continue to increase globally, innovation provides a significant approach to managing the human, social, and economic dimensions of this profound society-wide transformation. Therefore, a thorough assessment of the current state of thinking in sustainability innovation research is a necessary starting point from which to improve society’s ability to achieve triple bottom line for current and future generations.

Article

Science and Innovation Policy  

Cristina Chaminade and Bengt-Åke Lundvall

This is an advance summary of a forthcoming article in the Oxford Research Encyclopedia of Business and Management. Please check back later for the full article. Scientific advance and innovation are major sources of economic growth and are crucial for making social and environmental development sustainable. A critical question is if private enterprises invest sufficiently in research and development and, if not, to what degree and how governments should engage in the support of science and innovation. While neoclassical economists point to market failure as the main rationale for innovation policy, evolutionary economists point to the role of government in building stronger innovation systems and creating wider opportunities for innovation. Research shows that the transmission mechanisms between scientific advance and innovation are complex and indirect. There are other equally important sources of innovation, including experience-based learning. Innovation is increasingly seen as a systemic process where the feedback from users needs to be taken into account when designing public policy. Science and innovation policy may aim at accelerating knowledge production along well-established trajectories or at giving new direction to the production and use of knowledge. It may be focused exclusively on economic growth, or it may give attention to the impact on social inclusion and the natural environment. An emerging topic is the extent to which national perspectives continue to be relevant in a globalizing learning economy facing multiple global complex challenges, including the issue of global warming. Scholars point to a movement toward transformative innovation policy and global knowledge sharing as a response to current challenges.

Article

Stakeholder Engagement in Management Studies: Current and Future Debates  

Sybille Sachs and Johanna Kujala

Stakeholder engagement refers to the aims, practices, and impacts of stakeholder relations in businesses and other organizations. According to a general framework, stakeholder engagement has four dimensions: examining stakeholder relations, communicating with stakeholders, learning with (and from) stakeholders, and integrative stakeholder engagement. Stakeholder engagement is increasingly used in areas like strategic management, corporate social responsibility (CSR), and sustainability management, while stakeholder-engagement research in marketing, finance, and human resources (HR) is still less common. Two main camps in the stakeholder-engagement literature exist: the strategic and the normative. To foster an inclusive understanding of stakeholder engagement, future research in both camps is needed. While the strategic camp necessitates a relational view, including both the firm and the stakeholder perspectives, the normative camp requires novel philosophical underpinnings, such as humanism and ecocentrism. Furthermore, there is constant debate about the argument that stakeholder engagement is, and should be, most importantly, practical. Stakeholder-engagement research should focus on solving real-life problems with practical consequences intended to make people’s lives better.

Article

Innovation in Artificial Intelligence: Illustrations in Academia, Apparel, and the Arts  

Andreas Kaplan

Artificial intelligence (AI), commonly defined as “a system’s ability to correctly interpret external data, to learn from such data, and to use those learnings to achieve specific goals and tasks through flexible adaptation,” can be classified into analytical, human-inspired, and humanized AI depending upon its application of cognitive, emotional, and social intelligence. AI’s foundations took place in the 1950s. A sequence of vicissitudes of funding, interest in, and support for AI followed subsequently. In 2015 AlphaGo, Google’s AI-driven system, won against the human grandmaster in the highly complex board game Go. This is considered one of the most significant milestones in the development of AI and marks the starting of a new period, enabling several AI innovations in a variety of sectors and industries. Higher education, the fashion industry, and the arts serve as illustrations of areas wherein ample innovation based on AI occurs. Using these domains, various angles of innovation in AI can be presented and decrypted. AI innovation in higher education, for example, indicates that at some point, AI-powered robots might take over the role of human teachers. For the moment, however, AI in academia is solely used to support human beings, not to replace them. The apparel industry, specifically fast fashion—one of the planet’s biggest polluters—shows how innovation in AI can help the sector move toward sustainability and eco-responsibility through, among other ways, improved forecasting, increased customer satisfaction, and more efficient supply chain management. An analysis of AI-driven novelty in the arts, notably in museums, shows that developing highly innovative, AI-based solutions might be a necessity for the survival of a strongly declining cultural sector. These examples all show the role AI already plays in these sectors and its likely importance in their respective futures. While AI applications imply many improvements for academia, the apparel industry, and the arts, it should come as no surprise that it also has several drawbacks. Enforcing laws and regulations concerning AI is critical in order to avoid its adverse effects. Ethics and the ethical behavior of managers and leaders in various sectors and industries is likewise crucial. Education will play an additional significant role in helping AI positively influence economies and societies worldwide. Finally, international entente (i.e., the cooperation of the world’s biggest economies and nations) must take place to ensure AI’s benefit to humanity and civilization. Therefore, these challenges and areas (i.e., enforcement, ethics, education, and entente) can be summarized as the four summons of AI.

Article

Innovation for Society  

Sanjay Sharma

At a macro level, innovation for society refers to innovation of societal institutions. At a micro level, it refers to innovations undertaken by social entrepreneurs as start-ups with a social and/or environmental mission and innovations undertaken by firms in products/services, processes, operations, technologies, and business models to address social and environmental challenges while achieving core economic objectives. The focus here is on firm-level innovations and the drivers for such innovations. Exogenous drivers include institutional-level influences such as regulations, societal norms, and industry best practices (mimetic forces) and stakeholder-level influences including shareholders, investors, customers, regulators, nongovernmental organizations, media, and others that have power, legitimacy, and urgency of their claims directly or indirectly via other stakeholders. The endogenous drivers include institutional ownership, activist shareholders, boards of directors, ownership, and competitive strategy focused on developing profitable businesses that address societal challenges. Even when the firm is motivated due to exogenous and endogenous drivers to undertake investments in innovating for society, it needs the capacity to generate and implement such innovations. Innovations for society require motivated managers, managerial capacity, and organizational capabilities that go beyond routine innovations that firms undertake to improve products and processes and enter new markets. This capacity enables firms to reconcile their performance on economic, social, and environmental metrics to address societal challenges while achieving core economic objectives. Managerial capacity requires firms to overcome cognitive biases and create opportunity frames that convert negative loss bias, where managers perceive lack of control over outcomes, to a positive opportunity bias, where managers perceive the ability to control their decisions and actions. Opportunity framing involves legitimization of innovation for society in the corporate identity, integration of sustainability metrics into performance evaluation, creation of discretionary slack, and empowerment of managers with a relevant and ongoing information flow. Innovating for society also requires major changes in a firm’s decision-making processes and investments in new organizational capabilities of engaging stakeholders and integration of external learning, processes of continuous improvement of operations, higher order or double-loop organizational learning by integrating external learning with internal knowledge, cross-functional integration, technology portfolios, and strategic proactivity, all leading to processes of continuous innovation. Knowledge about the role of firms in addressing societal challenges has grown over the past three decades as scholars in multiple disciplines have explained the motivations of firms to undertake innovations for society, processes to build organizational capabilities to adopt and implement sustainability strategies, and linkages of such strategies to financial performance. Nevertheless, such innovations and strategies are far from a universal norm.

Article

A Practice-Based View of Innovation Adoption  

Rangapriya Kannan and Paola Perez-Aleman

Innovation adoption is challenging at both intra-organizational and interorganizational levels. Several decades of innovation adoption research have identified various barriers at both levels. Intra-organizational barriers are often related to the characteristics of the innovation, adopters, managers, environment, and ecosystem but can also include an incompatibility with an organization’s strategy, structural impediments, organizational resource constraints, a lack of fit of the innovation with an organizational culture and climate, decision making challenges, a lack of integration with an organization’s knowledge management, human resource management practices, dynamic capabilities, and active innovation resistance from customers. Interorganizational barriers include uncertainty with learning and implementation, the distributed nature of the innovation process, differences in production systems, disparities in regulatory systems, variation within local contexts, and the nature of embedded knowledge adopted in diverse organizational contexts. One of the key missing aspects in understanding innovation adoption is how extant practices within an organizational or interorganizational context enhance or hinder innovation adoption. Although the practices of innovation adoption emerge and evolve dynamically, existing research does not highlight fine-grained practices that lead to its success or failure. A practice lens focuses on people’s recurrent actions and helps to understand social life as an ongoing production that results from these actions. The durability of practices results from the reciprocal interactions between agents and structures that are embedded within daily routines. A practice lens allows us to study practices from three different perspectives. The first perspective, empirically explores how people act in organizational contexts. The second, a theoretical focus investigates the structure of organizational life. This perspective also delves into the relations between the actions that people take over time and in varying contexts. Finally, the third perspective which is a philosophical one focuses on how practices reproduce organizational reality. By focusing on the unfolding of constellations of everyday activities in relation to other practices within and across time and space, a practice lens hones in on everyday actions. Everyday actions are consequential in producing the structural contours of social life. A practice lens emphasizes what people do repeatedly and how those repetitive actions impact the social world. A practice theory lens also challenges the assumption that things are separable and independent. Instead, it focuses on relationality of mutual constitution to understand how one aspect of the issue creates another aspect. Relationality of mutual constitution is the notion that things such as identities, ideas, institutions, power, and material goods take on meaning only when they are enacted through practices instead of these being innate features of these things Focusing on duality forces us to address the assumptions that underlie the separation. A practice perspective on innovation adoption highlights the concepts of duality, dynamics, reciprocal interactions, relationality, and distributed agency to inform both the theory and practice of innovation adoption. Understanding these concepts enables a practice lens for successful adoption of innovations that impact organizational and societal outcomes, such as economic development, productivity enhancement, entrepreneurship, sustainability, equity, health, and other economic, social, and environmental changes.

Article

The Resource-Based View of the Firm  

Douglas Miller

The Resource-Based View of the firm (RBV) is a set of related theories sharing the assumptions of resource heterogeneity and resource immobility across firms. In this view, a firm is a bundle of resources, capabilities, or routines which create value and cannot be easily imitated or appropriated by competitors due to isolating mechanisms. Grounded in the economic traditions of the “Chicago School” of economic efficiency, the “Austrian School” of economics, and organizational economics, the RBV comprises theories that explain the existence of (sustained) competitive advantage and of economic rents. Empirical research from this perspective addresses both firm performance and firm behavior at the level of business strategy (e.g., within-industry competition) and corporate strategy (e.g., acquisitions). Initially developed through a series of papers by several authors in the 1980s–1990s, major extensions and refinements of the RBV include the knowledge-based view of the firm (KBV), dynamic capabilities, and the relational view, which recognizes capabilities can be developed and shared through alliances between firms.

Article

Corporate Social Responsibility  

Abagail McWilliams

Corporate social responsibility (CSR) is a legitimate responsibility to society, based on the principle that corporations should share some of the benefit that accrues from the control of vast resources. CSR goes beyond the legal, ethical, and financial obligations that create profits. In the research literature, corporate social responsibility is defined in a variety of ways, depending on the aspect of CSR being examined. An inclusive definition is that social responsibility requires the firm to take into account the interests of all stakeholders, where stakeholders are defined as everyone who affects or is affected by the firm’s decisions and actions. A firm-focused definition holds that social responsibility includes actions that further a social goal, beyond what is required by ethics, law, and profitability. A political economy–oriented definition posits that firms have a responsibility to correct market failures such as negative externalities and government failures such as limits to jurisdiction that result in worker rights violations. When implemented, altruistic CSR implies that firms provide a social good unrelated to the firms’ business that does not benefit the bottom line. Strategic CSR implies that firms are simultaneously profitable and socially responsible. To achieve this, CSR must be a core value of the firm and must be integrated into processes and products. When employed strategically, CSR can be an element of a differentiation strategy, leading to premium prices, enhanced brand and firm reputation, and supportive community relations. Corporate environmental responsibility often takes the form of overcompliance with regulation, improving the environment more than is required. A primary benefit of this is to stave off further regulation. To capture the benefits of being socially responsible, the firm must make stakeholders aware of its record. This has led to triple bottom line reporting—that is, reporting about firm performance in terms of profits, people, and the planet. Social enterprises go a step further and make social responsibility the primary goal of the organization.

Article

Governance Through Ownership and Sustainable Corporate Governance  

Marc Goergen

Sustainable corporate governance has been defined as corporate governance that ensures corporations are run in such a way that they are sustainable over the long term. Note that for corporations to be sustainable in the long run, they need to ensure the preservation, as well as possibly the enhancement, of their ecosystem. This not only includes establishing and maintaining good relations with their shareholders and stakeholders but also preserving their environment. Here, the term environment should be understood as taking on a broader meaning. Indeed, corporations preserving their environment should not be reduced to mere environmentalism but they should also operate in harmony with the broader economic and social system. Put differently, sustainable corporate governance should also ensure that corporations are run in such a way to avoid future crises, such as the Great Recession. This would require a move away from business models that focus on short-term shareholder value while endangering the survival of the corporation over the long term. Whereas much of the existing literature suggests that corporations should merely maximize shareholder value and that a stakeholder approach will result in vague and often contradictory objectives for the management, long-term shareholder value creation is nevertheless compatible with the corporation looking after the interests of its immediate, as well as possibly more remote, stakeholders. Ultimately, sustainable business practices will not only benefit the corporation’s employees, customers, and the broader society but also its owners. The key question that arises is whether there is a link between various types of owners and sustainable corporate governance. A number of related questions emerge. What different types of owners are there and how influential are they in putting their stamp on how their investee firms are managed? Attempting to answer these questions requires revisiting the premise of the principal-agent theory that owners are typically disinterested from engaging with their investee firms. The main critique of this premise is that, even within the Anglo-Saxon corporate governance system, firms tend to have block holders, and there exist activist shareholders. Further, since the 1980s there has been an emergence—as well as an increase in the prevalence—of activist shareholders. Are some types of owners or shareholders more likely to enhance and maintain sustainability than others? A review of extant evidence on the effects of various types of shareholders on long-term financial and non-financial goals suggests the following. While some types of owners are found to promote and support sustainable corporate governance, the effect of other types is less clear or even negative. This difference in effects could be due to three reasons. First, context, including the national setting, is important. Second, some types of investors, such as sovereign wealth funds, show great diversity in their characteristics and objectives. Finally, the goalposts are shifting with an increasing number of investors embracing corporate social responsibility and environmental, social, and governance issues. Importantly, given the increasingly visible consequences of global warming and societal unrest caused by a worsening of wealth inequality, the transition to a more sustainable society should not merely be the responsibility of corporate owners. Others, including corporate executives and business schools, are key to achieving this transition.