Sustainable leadership practices for

enhancing business resilience and

performance
Gayle C. Avery and Harald Bergsteiner

Gayle C. Avery, Professor of mplicit in the decision process of corporate leaders is a central question: what and who
Management at Macquarie
Graduate School of
Management, Sydney
I is this business here for? Many subscribe to the belief that the primary goal of
leadership is to maximize shareholder value; their decisions determine whether
shareholder value will be enhanced in the short term, the long term, or some combination of
(gayle.avery@ the two.
mgsm.edu.au) and Director
of the Institute for But the shareholder-first approach that originated and prevails in the Anglo/US world has
Sustainable Leadership received heavy criticism from a number of well-regarded management researchers.[1]
(ISL), is the author of Almost two decades ago, French economist Michel Albert wrote that in its extreme form, the
Understanding Leadership: sole pursuit of profit is a threat to neoliberal capitalism itself because the focus on short-term
Paradigms and Cases profits discourages long-term thinking, investing, and planning.[2] Charles Handy reminds
(2004), Leadership for us that the purpose of a business goes beyond making a profit to something better, a higher
Sustainable Futures: level purpose: ‘‘Owners know this. Investors don’t care.’’[3] A few years ago in Strategy
Achieving Success in a & Leadership, Michael Raynor[4] debunked the premises on which the shareholder-first
Competitive World (2005)
model rests, and a few months ago Michael Porter[5] criticized the current belief that looking
and co-author, with
beyond the business is bad for business. In the January/February Harvard Business Review
Harald Bergsteiner, of
he argues that companies should be considering other stakeholders, and so generate
Sustainable Leadership:
economic value by creating societal value.
Honeybee and Locust
Approaches (2010). These respected thinkers offer another answer to the question about the purpose of a
Bergsteiner, Director of the business: the firm should see itself as an interdependent part of a community that consists of
Institute for Sustainable multiple stakeholders whose interests are integral to business success. In this view, an
Leadership (ISL) and an enterprise can be seen as a system of long-term cooperative relationships between affected
Honorary Fellow at the parties. These include the firm’s managers and employees, customers and clients,
Australian Catholic
investors, suppliers, the towns, states and nations where the firm is located or sells goods
University, Sydney
and services and even future generations of stakeholders.[6] In such a system, stakeholder
harrybergsteiner@
influence generates pressure for the organization to behave in ethical and environmentally
internode.on.net), is also
the author of Snakes and
and socially responsible ways, and in turn, this interdependency helps the firm be
Ladders: Accountability sustainable and resilient.[7]
Theory and Practice. This alternative approach to leadership is variously referred to as ‘‘sustainable,’’ ‘‘Rhineland’’
or ‘‘honeybee’’ leadership. By sustainable we don’t just mean a firm is being green and
socially responsible. Research and observations in over 50 firms around the world, including
in many listed corporations, suggest that sustainable leadership requires taking a long-term
perspective in making decisions; fostering systemic innovation aimed at increasing
customer value; developing a skilled, loyal and highly engaged workforce; and offering
quality products, services and solutions.[8] What senior executive would reject these as
legitimate goals for an enterprise seeking to both thrive and endure?
To some cynics, sustainable leadership – a management approach aimed at delivering
better and more sustainable returns, reducing unwanted employee turnover and
accelerating innovation – sounds too good to be true. They dismiss it as just another form

DOI 10.1108/10878571111128766 VOL. 39 NO. 3 2011, pp. 5-15, Q Emerald Group Publishing Limited, ISSN 1087-8572 j STRATEGY & LEADERSHIP j PAGE 5
 This alternative approach to leadership is variously referred to
as ‘sustainable,’ ‘Rhineland’ or ‘honeybee’ leadership. By
sustainable we don’t just mean a firm is being green and
socially responsible. ’’

of humanistic management, merely good management practices, or as following

old-fashioned values. There is some truth in each of these characterizations. Certainly,
sustainable leadership embraces aspects of humanistic management in that it includes
valuing people and considering the firm as a contributor to social well being. The individual
practices of sustainable leadership are not new:
B Warren Bennis advocated recruiting, training, and employing an effective top leadership
team rather than just relying on the heroic CEO. He also proposed that firms become
financially transparent as a step to becoming more ethical.
B Peter Drucker wanted managers to promote change and allow innovations to come from
all over the organization, thereby enabling ordinary people to make extraordinary things
happen.
B Stephen Covey urged using the knowledge and engagement of a firm’s employees.[9]
What is new is the understanding that these practices form a self-reinforcing leadership
system that enhances the performance of a business and its prospects for survival. What is
also significant is that sustainable leadership practices are diametrically opposed to the
typical shareholder-first approach, which business schools, management journals, the
media, and many practitioners continue to promote.

The ties that bind

Under sustainable leadership, firms become very savvy in leveraging common long-term
interests that bind various stakeholders together. For example, they choose suppliers not
just on the basis of low cost, but they also value the added benefits that long-term
relationships with innovative and reliable suppliers can bring to both parties. Automaker
BMW, for example, did not take advantage of the global recession by squeezing its
long-term suppliers; instead it lent them money to help them through the crisis. This
contrasts sharply with the Anglo/US practice of only awarding work to the lowest bid and
then pitting suppliers against each other by calling for new tenders every few months rather
than fostering long-term relationships.
Other stakeholders, particularly employees, also benefit from long-term relations with a
company. Part of the implicit deal with stakeholders involves the enterprise behaving
ethically and responsibly towards both the environment and the community. In return,
stakeholders support the enterprise. Examples of this support include customer loyalty,
investors leaving their dividends in the business, and employees accepting lower wages
and/or shorter working hours in difficult times, as occurred during the recent global financial
crisis.
In short, the objective of sustainable leadership is to keep people, profits, and the planet in
balance over the life of the firm, and in so doing ensure that the business generates the
social capital needed to weather downturns. Many management writers are calling for
businesses to reinstate the moral and social dimensions of what they do.[10] Responsible
leaders aim to achieve excellent outcomes for their own organizations and other
stakeholders over the long term. In contrast, when a firm’s leaders manipulate short-term
profit results and fail to invest resources effectively, they jeopardize the firm’s and others’
long-term future.

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PAGE 6 STRATEGY & LEADERSHIP VOL. 39 NO. 3 2011
 Sustainable leadership practices
Several authors have pointed out the advantages of the sustainable leadership approach
over its short-term shareholder-first counterpart.[11] Avery and Bergsteiner[12] have
identified and investigated these principles, showing how they differ in practice. Using a
sample of 14 European organizations operating on principles diametrically opposed to the
shareholder-first philosophy, Avery[13] first identified 19 leadership practices,
distinguishing what she then referred to as the Rhineland and Anglo/US approaches. She
found that these two approaches comprise two diametrically opposed sets of practices that
form self-reinforcing systems. Avery then tested the 19 criteria on a sample of 14
organizations from other parts of the world that adopted sustainable Rhineland practices to
varying degrees. She demonstrated that enterprises led this way can flourish in diverse
industries and locations ranging from the developed world of the USA, UK, Australia,
Europe, and Scandinavia to emerging economies in South Africa and Thailand. Avery and
Bergsteiner[14] expanded the list of practices to 23 as shown in Exhibit 1, by adding four
elements. Exhibit 1 contrasts the extremes for the sustainable ‘‘honeybee’’ leadership
approach and the shareholder-first or ‘‘locust’’ approach on every practice. (Although these
are referred to as practices, some more precisely reflect broad principles or attitudes).

Exhibit 1 Criteria distinguishing typical sustainable leadership and shareholder-first perspectives

Sustainable leadership ‘‘honeybee’’ philosophy Shareholder-first ‘‘locust’’ philosophy
Leadership elements Sophisticated, stakeholder, social, sharing Tough, ruthless, asocial, profit-at-any-cost

Foundation practices
1. Developing people Develops everyone continuously Develops people selectively
2. Labor relations Seeks cooperation Acts antagonistically
3. Retaining staff Values long tenure at all levels Accepts high staff turnover
4. Succession planning Promotes from within wherever possible Appoints from outside wherever possible
5. Valuing staff Is concerned about employees’ welfare Treats people as interchangeable and a cost
6. CEO and top team CEO works as top team member or speaker CEO is decision maker, hero
7. Ethical behavior ‘‘Doing-the-right thing’’ as an explicit core value Ambivalent, negotiable, an assessable risk
8. Long- or short-term perspective Prefers the long-term over the short-term Short-term profits and growth prevail
9. Organizational change Change is an evolving and considered process Change is fast adjustment, volatile, can be
ad hoc
10. Financial markets orientation Seeks maximum independence from others Follows its masters’ will, often slavishly
11. Responsibility for environment Protects the environment Is prepared to exploit the environment
12. Social responsibility (CSR) Values people and the community Exploits people and the community
13. Stakeholders Everyone matters Only shareholders matter
14. Vision’s role in the business Shared view of future is essential strategic tool The future does not necessarily drive the
business
Higher-level practices
15. Decision making Is consensual and devolved Is primarily manager-centered
16. Self-management Staff are mostly self-managing Managers manage
17. Team orientation Teams are extensive and empowered Teams are limited and manager-centered
18. Culture Fosters an enabling, widely-shared culture Culture is weak except for a focus on
short-term-results that may or may not be
shared
19. Knowledge sharing and retention Spreads throughout the organization Limits knowledge to a few ‘‘gatekeepers’’
20. Trust High trust through relationships and goodwill Control and monitoring compensate for low trust
Key performance drivers
21. Innovation Strong, systemic, strategic innovation evident at Innovation is limited and selective; buys in
all levels expertise
22. Staff engagement Values emotionally-committed staff and the Financial rewards suffice as motivators, no
resulting commitment emotional commitment expected
23. Quality Is embedded in the culture Is a matter of control

Source: Avery, G.C. and Bergsteiner, H. (2010) Honeybees and Locusts: The Business Case for Sustainable Leadership. Sydney: Allen &
Unwin, pp. 36-37

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VOL. 39 NO. 3 2011 STRATEGY & LEADERSHIP PAGE 7
 It became evident that US management experts, among others, had been calling for
managers to implement these ‘‘honeybee’’ practices for many years, but these calls go
unheeded in locust firms. The research evidence also suggested that each ‘‘honeybee’’
practice could add considerable value to a business – including to its bottom line. In
addition, many managers do operate on sustainable leadership, as Avery and
Bergsteiner’s[15] observations of around 45 enterprises show.
The 23 ‘‘honeybee’’ practices have been arranged in the form of a pyramid to serve as a
guide for intervention (Exhibit 2). The practices form three groups in the pyramid: foundation
practices, higher-level practices, and key performance drivers. A fourth level crowning the
pyramid contains performance outcomes that research shows contribute to sustainability:
1. Foundation practices form the lowest level of the pyramid. They can be introduced at any
time management decides to do so. The 14 foundation practices include programs for
training and developing staff, striving for amicable labor relations, staff retention
(avoiding layoffs), succession planning, valuing employees’ experience and their
contribution to customer loyalty and to innovation, deciding whether the CEO’s role is to
be that of hero or top team member, ensuring ethical behavior, promoting long-term
thinking, managing organizational change sensitively, striving for independence from the
financial markets, promoting environmental and social responsibility, balancing multiple
stakeholder interests, and ensuring that a shared vision drives the business.
2. Higher-level practices form the second layer of the pyramid. These six practices cover
devolved and consensual decision making, creating self-managing employees,
harnessing the power of teams, developing a trusting atmosphere, forming an
organizational culture that enables sustainable leadership, and sharing and retaining
the firm’s knowledge. The pyramid has been developed on the idea that when relevant
foundation practices are in place they facilitate and support the emergence of the
higher-level practices. For example, it is unwise to simply decree that employees will
become self-managing unless the people involved have received the appropriate training
to enable them to self-manage, know and share the firm’s vision, have been with the firm
for some time (and so understand the culture and have established networks), be
empowered to make decisions, and feel valued. Similarly, trust cannot simply be
enhanced the way that skills can be developed because trust depends on the operation

Exhibit 2 The Sustainable Leadership Pyramid from Avery and Bergsteiner[18]

SUSTAINABILITY

brand & reputation

customer satisfaction

inancial performance
long-term shareholder value
long-term stakeholder value
PERFORMANCE OUTCOMES
strategic, staff quality
systemic engagement
innovation

21 22 23 KEY PERFORMANCE DRIVERS

devolved & self- team enabling knowledge trust
consensual management orientation culture retention
decision- and sharing
making

15 16 17 18 19 20 HIGHER-LEVEL PRACTICES
developing amicable long-term internal valuing CEO and ethical long-term considered indepen- environ- social stakeholder strong,
people labor retention of succession people top-team behavior perspective organizat- dence from mental responsi- approach shared vision
continuously relations staff planning leadership ional change
inancial responsi- bility
markets bility

1 2 3 4 5 6 7 8 9 10 11 12 13 14
FOUNDATION PRACTICES © Harald Bergsteiner

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‘‘ Sustainable leadership embraces aspects of humanistic
management in that it includes valuing people and
considering the firm as a contributor to social well being.
These practices form a self-reinforcing leadership system that
enhances the performance of a business and its prospects for
survival. ’’

of many of the foundation practices. Hence, in the pyramid, self-management and trust
appear as higher-level practices that emerge from a combination of multiple foundation
practices.
3. Key performance drivers create the third level. The elements of innovation, staff
engagement, and quality essentially provide what end-customers experience and so
drive organizational performance. The key performance drivers in turn emerge from
various combinations of the foundation and higher-level practices. A body of research[16]
indicates, for example, that a team orientation, skilled and empowered employees, and a
culture that supports knowledge sharing and develops trust all enhance quality. These
practices in turn depend for their existence on various foundation elements being in
place. Thus, the key performance drivers emerge from both sets of lower level practices.
4. Performance outcomes. The apex of the pyramid contains five performance outcomes
that create sustainable leadership. The 23 elements from the various levels in the pyramid
collectively drive:
B Integrity of brand and reputation.
B Enhanced customer satisfaction.
B Solid operational finances (all firms have to survive financially including in the short
term).
B Long-term shareholder value.
B Long-term value for multiple stakeholders.

The pyramid is intended to be dynamic in all directions. Interactions between the elements
not only flow bottom-up and top-down, practices on the same level also influence each other.
Furthermore, how the 23 practices are actually implemented leaves enormous scope for
variation, avoiding a one-size-fits-all approach. For example, it is clearly a matter of long-run
survival to operate ethically (think of Enron and many other firms), but there are many ways in
which senior executives can ensure that this happens operationally.
Sustainable leadership relies on complex interconnections between multiple practices. In
the short run, it may be simpler to lead using the Anglo/US or shareholder-first model.
However, considerable research attests to the sustainable leadership or Rhineland model
leading to better performance outcomes over the long term than the Anglo/US model.[17]
That said, a sustainable leadership system is vulnerable in the sense that it can be disrupted
by a range of external events, such as mergers and acquisitions, by taking on additional
major shareholders who do not appreciate sustainable values, or by the arrival of a CEO who
subverts the existing system. This can involve major disruptions such as suddenly laying off
staff or taking a short-term view on an issue. It can lead to cuts in training, reducing
environmental protection or social responsibility programs, or violating ethics to satisfy
investors in the next quarter. Short-termism can also lead to other non-sustainable practices
such as reducing investment in research and development or ignoring the interests of
stakeholders other than investors. Almost inevitably, sacrificing long-term success for

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 short-term wins will be associated with unanticipated organizational change and disruption
to a sustainable culture.
On the other hand, by maintaining an informed long-term perspective that commits to being
adaptive and innovative, a company can attract and educate patient investors. If the firm
can adapt to changes in its markets and new competitors, staff will be retained, training will
continue, the firm’s innovation and levels of quality will be maintained, its knowledge
retained, stakeholders’ interests (including those of the environment and community)
acknowledged, and abrupt ill-considered change averted.

Using the pyramid

The Sustainable Leadership Pyramid provides a framework for examining an organization’s
current practices. It depicts a system in which the elements mutually influence each other in
different directions. For example, trust, one of the higher-level practices, can be expected to
develop in the presence of certain other practices and to be jeopardized in their absence.
Trust enhancing practices include amicable labor relations, developing people, empowered
decision making, long-term retention of staff, and caring for people. In addition, ethics,
long-term perspective, environmental and social responsibility, a stakeholder approach, and
a shared vision contribute to creating trust.
The beneficial financial effects flow both up and down the pyramid. For example, when
savings from recycling practices boost financial performance. As a top down effect, a
profitable manufacturer could decide to invest the surplus in reducing toxic waste or
recycling. In this example, financial success drives environmentally-friendly initiatives.
Research shows that firms that perform well financially invest more in corporate social
responsibility than underperforming firms.[19] This does not mean that only rich firms can
afford environmental and social responsibility, but that sustainable practices are linked in
complex ways to financial performance.
At each level of the pyramid the practices reinforce, and are reinforced by, other practices at
that level. For example, devolved decision making reinforces all five of its higher-level
companion practices. This mutual reinforcing of elements at the same level occurs at all
levels of the pyramid, including among performance outcomes. For example, shareholder
value is created when the brand is protected and customers and investors are satisfied.

Sustainable leadership in practice

Sustainably-led organizations have been identified across different sectors, countries,
institutional contexts, and markets.[20] Examples of successful enterprises that consistently
embrace sustainable leadership principles abound, particularly among privately-held firms
and SMEs. Unlisted companies displaying virtually all of the 23 characteristics of a
sustainable enterprise include: in the USA, WL Gore & Associates (Goretexw and other
products) and SAS (software); in Germany, Giesecke & Devrient (bank notes and securities)
and Kärcher (cleaning solutions); and in Switzerland, Endress & Hauser (flow technologies)
and Migros (retail conglomerate).
However, it is likely to be more difficult for listed corporations or private equity groups to
operate on sustainable principles because of the pressures on them to achieve short-term
performance goals. Yet numerous listed enterprises manage to operate sustainably, if
necessary by standing up to or managing their relationships with the financial markets.
Well-known examples include Germany’s Munich Re from the finance industry; Colgate
(consumer goods) based in the USA; Britain’s BT Group (telecommunications); the Thai
construction corporation, Siam Cement Group, and its competitor from Switzerland, Holcim.

How Wal-Mart implemented sustainable leadership

In 2005, Lee Scott, ex-CEO and President of Wal-Mart Stores and now Chairman of its
Executive Committee, announced that the company would essentially adopt sustainable

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 leadership principles going forward, although he did not use that term. Financial
performance was solid, but the company was the target of many complainants –
employees, local communities, suppliers, and environmentalists. Scott decreed that
Wal-Mart, one of largest Fortune 500 corporations, would become more ethical, and more
socially and environmentally responsible. The company would use its political might to
benefit ordinary Americans in healthcare and energy savings, and make people’s lives
better. Scott even advocated paying more for products from ethical suppliers – an
extraordinary reversal by an enterprise built around a low-cost strategy. In the years since,
Wal-Mart has experimented with environmentally-friendly stores and other
socially-responsible measures.[21] Interestingly, its bottom line has not suffered during
this process, posting net sales increases for the past five years, according to Wal-Mart’s
2009 annual report. In recent months, in a move to improve the healthiness of its products,
the firm announced plans to reduce the fat and salt in its house brand groceries and cut
prices on fresh produce.

Does sustainable leadership pay off?

A considerable body of evidence shows that sustainable practices are more likely to
enhance business performance than the shareholder-first approach. First, various writers
have examined and compared the Anglo/US system with its Rhineland counterpart,
concluding that Rhineland principles are more sustainable and lead to better outcomes than
the shareholder-first approach.[22] Second, Avery and Bergsteiner have gathered extensive
evidence for each of the individual practices in their pyramid model, showing how they are
more likely to contribute to positive business outcomes than their counterparts under the
shareholder-first model. For example, a major difference between shareholder-first and
sustainable practices lies in whether they retain people or lay them off when times get
difficult (See the sidebar ‘‘Staff retention: how sustainability supports competitive
advantage’’). Staff retention is regarded as a foundation element in the pyramid because
conditions aimed at keeping staff can be initiated at any time. However, retaining staff
supports various higher order outcomes in the pyramid; it allows knowledge to be retained,
and supports quality, trust, and innovation, for example, and enhances financial
performance, as well as staff and customer satisfaction. Similar cases can be made for
the other 22 elements.

Where to start implementation

Changing the purpose of a firm from shareholder-first to being a highly performing
contributor to society is not easy, especially for large corporations where systems,
processes, the culture, investor and employee expectations, and other elements in the
leadership system have been aligned to the Anglo/US approach. Sustainable leadership
requires a major shift in mindsets, values, and assumptions about how business works. This
is not easy when managers have been educated to make shareholder value the immediate
and overriding goal.[23]
In terms of where to start using Avery and Bergsteiner’s model, it is wise to begin with an
audit of how the members of an organization perceive the current status on the 23 practices.
Some elements may already be in place, but others may be seriously lagging, and
intervention should be targeted appropriately.

‘‘ Under sustainable leadership, firms become very savvy in

leveraging common long-term interests that bind various
stakeholders together. ’’

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VOL. 39 NO. 3 2011 STRATEGY & LEADERSHIP PAGE 11
 Staff retention: how sustainability supports competitive advantage
Turnover of valuable staff is costly, and it can also lead to intangible losses. On the cost side,
replacing talented senior staff costs between one and two year’s salary and benefits.[24] Whether
employees stay or not can make a difference to the bottom line as a six-year study of 904 university
graduates hired by six public accounting firms showed. The difference in related human resource
costs depended on the various firms’ organizational values, but was assessed at about US$6
million.[25] Estimates like these generally exclude hidden costs such as lost productivity while the
new employee is learning the job, training costs, and time spent conducting exit interviews and
briefing search consultants or advertising agencies. Losing employees means that knowledge and
expertise not only disappear, but they may end up serving a competitor. Similarly, laid-off staff can
take customers with them, which given that the estimated cost of acquiring a new customer is up to
five times the cost of retaining an existing one,[26] can be costly. Adding these costs together
makes layoffs quite expensive.
On the plus side, retaining employees can generate unique competitive advantage for a firm,
derived from the linkages that form between long-term employees that enable ideas and skills to be
shared in firm-specific ways.[27] Job security promoted by retaining staff contributes to higher
productivity,[28] and lowers rates of absenteeism, sick leave, and ‘‘internal migration’’, all of which
are often associated with layoffs and are costly to a firm.[29] Furthermore, retaining staff adds to
company value. Low voluntary turnover contributes about 3.2 percent to a company’s value and a
strong commitment to job security adds an additional 1.4 percent, according to global
research.[30] Overall, firms shedding staff tend to experience more long-term financial
difficulties than their counterparts, beyond the obvious short-term improvements.[31] Another
consequence of staff layoffs can be damage to the firm’s reputation, as a study of Fortune’s most
admired companies in America showed.[32] Interestingly, although executives rated the laying-off
firms negatively, financial analysts were even more negative in their appraisals of downsizing firms.
Thus, laying off value-adding employees tends to produce medium to long-term losses once
hidden costs are taken into account. Although layoffs are sometimes unavoidable, employers who
continue to invest in and care for their people can minimize negative effects, such as productivity
losses and absenteeism.[33]

Change can begin by ensuring that dysfunctional foundation elements are addressed first.
Next, company leadership can promote the advantages of the higher-level practices and
key performance drivers. Realistically, top-line performance is not likely to improve unless
the foundations are in place. For example, executives can’t command their staff to be more
innovative and so simply issue an edict and increase the R&D budget. Without some of the
lower-level practices, systemic innovation is unlikely to become widespread. These include
taking a long-term perspective underpinned by a strong vision; and retaining, skilling, and
valuing employees. Supportive foundation practices in turn foster the six higher-level
practices that systemic innovation depends on. Innovation is stimulated by many things,
including having an appropriate culture that supports and values systemic and systematic
creativity; effective teamwork and collaboration; as well as self-managing employees willing
to initiate ideas, make autonomous decisions, and share knowledge. Trust also supports the
long-term perspective required for systemic innovation to work. Innovation and staff
engagement mutually reinforce one another – engaged staff tend to be more innovative, and
a highly innovative culture boosts staff identification with the organization, in turn supporting
engagement. Hence, a virtuous circle begins.
After anchoring the foundation elements, support can then be given to developing and
institutionalizing the six higher-level practices. When all of this and the supporting systems
and processes are in place, increased innovation, staff engagement, and quality in products
and services can be expected. Establishing a successful innovation culture can take 10
years or longer.

The cost of not changing

Other competitive forces, including the need to collaborate with the best suppliers and
attract and retain customers and talented employees, may impel change. However, perhaps
the major force brought to bear on a recalcitrant management will be the increased cost of

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PAGE 12 STRATEGY & LEADERSHIP VOL. 39 NO. 3 2011
doing business in an unsustainable way. The financial sector could exert enormous pressure
for change if it chose to, valuing people-centered, innovative, ethical and stakeholder-based
leadership practices over current business-as-usual practices. Major global players, such
as Munich Re, have already integrated sustainability into their corporate strategy and now
invest their own funds-under-management almost exclusively in sustainable equities and
property. As this policy spreads to pension funds and other long-term investors, top
executives will be forced to consider a more sustainable model simply to maintain the firm’s
share price (and their own compensation packages). The costs of borrowing for unethical
firms will increase because of the potential risk to their reputations, and hence to their
finances and other forms of sustainability. No doubt, in addition to stiff penalties, BP has
experienced very high costs of all kinds following its 2010 oil spill disaster in the Gulf of
Mexico. A combination of optimizing business conditions, gaining stakeholder support, and
protecting the firm’s reputation should make sustainable leadership practices an obvious
choice.
If self-interest fails to motivate enterprises to change, governments can intervene to prod
them, as has already happened in the UK. Unsatisfactory levels of social responsibility
displayed by British firms led the government to take action in the early 21st century. The
British government created a sustainable development strategy with the specific objective of
furthering socially responsible behavior in business. The strategy aimed at ensuring
minimum levels of environmental protection and performance in health, safety, and equal
opportunity.

Challenges
There are many obstacles in changing to sustainable leadership. First, sticking with
conventional wisdom is comfortable and easy – it’s business as usual. Second, change is
disruptive and initially creates both financial and intangible costs, although as the Wal-Mart
case shows these may not slow growth and profits. Third, most people disregard hard
evidence and make their decisions on the basis of ideological beliefs. Managers are no
exception to this human foible despite their training and experience in decision making.
Fourth, major change involves risks, bringing with it the chance of a drop in short-term
performance, so stakeholders need to be prepared to focus on the long term. Finally, radical
change can take a long time to embed and then maintain. A major Australian bank converted
from a shareholder-first strategy to a sustainable leadership model. The change took a
decade to take hold, with outstanding results, but unraveled in only a few years to under a
new CEO with a different agenda.
The choice to adopt a more sustainable strategy, one that research and practice show leads
to higher resilience and performance over the long term, remains in the hands of each
executive team. Unfortunately, executives remunerated on a short-term basis may have no
incentive for seriously pursuing long-term change, to the detriment of shareholders and
other stakeholders. This is where the fundamental short-term focus of the shareholder-first or
business-as-usual model begins to destroy shareholder value and endanger a firm’s very
survival.

Notes
1. Albert, M. (1993) Capitalism vs Capitalism: How America’s Obsession with Individual Achievement
and Short-term Profit Has Led It to the Brink of Collapse. New York: Four Walls Eight Windows;
Ghoshal, S. (2005) Bad management theories are destroying good management practices,
Academy of Management Learning & Education, 4(1), 75-91; Hall, P.A. and Soskice, D. (2001) An
introduction to varieties of capitalism, in P.A. Hall and D. Soskice (eds) Varieties of Capitalism: The
Institutional Foundations of Comparative Advantage, Oxford: Oxford University Press. pp. 1-68;
Hutton, W. (2002) The World We’re in. London: Little, Brown; Kennedy, A. A. (2000) The End of
Shareholder Value: The Real Effects of the Shareholder Value Phenomenon and the Crisis It Is
Bringing to Business. London: Orion Business Books; Mitchell, L.E. (2001) Corporate
Irresponsibility: America’s Newest Export. New Haven: Yale University Press.

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VOL. 39 NO. 3 2011 STRATEGY & LEADERSHIP PAGE 13
 2. Albert, M. (1992) The Rhine model of capitalism: an investigation. European Business Journal, 4(3),
8-22, p. 15.

3. Handy, C. (2002) What’s a business for?. Harvard Business Review, 80(12), 48-55, p. 51.

4. Raynor, M.E. (2009) End shareholder value tyranny: put the corporation first. Strategy & Leadership,
37(1), pp. 4-11.

5. Porter, M. and Kramer, M. (2011) The big idea: creating shared value. Harvard Business Review,
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Corresponding author
Gayle C. Avery can be contacted at: [email protected]

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