Sustainability Management Control Systems and Corporate Sustainability
Performance: the moderating effect of motivation
ByVera Uilenberg S2330709 University of Groningen Faculty of Economics and Business
MSc Business Administration – Organizational & Management Control
January 2017
Supervisor: dr. H. J. van Elten Co-assessor: A. Rehman Abbasi MSc
Word count: 12.189 Abstract
Even though sustainability is a recurring subject in the literature, the link with management control systems has barely been made (Arjaliès & Mundy, 2013). Since management control systems can help in assisting to achieve sustainability strategies (Epstein & Roy, 2001), this is an intriguing research avenue which will be explored in this study. Also the moderating effect of motivation will be explored, based on a research of Brønn & Vidaver-Cohen (2009). This is based on the assumption that even if the control systems are in place, business unit managers have to make use of the available information. In other words, motivation to act sustainable is expected to have a positive moderating effect on the relation between the sustainability management control systems and corporate sustainability performance. To test the hypotheses, a survey was filled out by 33 business unit managers. However, no support was found for the relation
between sustainability management control systems and corporate sustainability performance. The moderating effect of motivation on the relation be between sustainability management control systems and corporate sustainability performance could not be tested due to multicollinearity issues.
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Introduction
Since the publication of the report of the World Commission on Environment and Development, ´Our Common Future´ in 1987, corporate sustainability (CS) is an important theme in the academic literature (Montiel, 2008). CS encompasses ‘meeting the needs of a firm’s direct and indirect stakeholders (such as shareholders, employees, clients, pressure groups, communities etc), without compromising its ability to meet the needs of future stakeholders as well’ (Dyllick & Hockerts , 2002, p. 131).
In a study conducted amongst more than 1000 CEOs, it was found that 97% of the responding CEOs believed that sustainability is important for the future success of their organization (United Nations Global Compact & Accenture, 2016). Even though the importance of sustainability is widely recognized, this study proves that its importance is also recognized by CEOs. Furthermore, the study of the United Nations Global Compact & Accenture (2016) found that 86% of the CEOs believe that ‘standardized impact metrics will be important in unlocking the potential of business on the SDG’, where SDG stands for sustainable development goals. So this study points out that sustainability is important for future success of almost all organizations, but there is a need for standardized metrics. The aim of this study is not to develop these metrics, however, it will be helpful to test the influence of management control systems on performance.
Even though the literature field concerning sustainability is quite advanced, the relation with management control systems (MCS) has barely been made (Arjaliès & Mundy, 2013). Arjaliès & Mundy (2013) found that ‘MCS has the potential to contribute to society’s broader sustainability agenda through processes that enable innovation, communication, reporting, and the identification of threats and opportunities’ (p. 284). There are studies that were devoted to MCS and CS, however, they were mostly focused on certain aspects of sustainability (Pondeville, Swaen & De Rongé, 2013; Arjaliès & Mundy, 2013; Durden, 2008; Fryxell & Vryza, 1999; Henri & Journeault, 2010). Since this study will take a look at the three aspects of sustainability (economic, ecological and the social aspect), a contribution to the literature can be made.
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obliged to do it, they feel that is economically relevant to do it or they want to do it. Since Brønn and Vidaver-Cohen (2009) did not research whether these different types of motivation lead to difference in CS performance, this research will build upon this research by linking these different motives to CS performance. Duren (2008) also mentions the lack of research which is devoted to the role of motivation. Although his research is focused on the motivation for disclosing sustainability motivation, he mentions that a large part of the current literature is focused on stakeholder theory and legitimacy theory.
Self-determination theory explains the role of motivation. This theory states that when people have an autonomous motivation, they can identify themselves with related values (Deci & Ryan, 2008). Gagné & Deci (2005) used self-determination theory in organizations to study work motivation and found that autonomous motivation is positively related to performance. Since previous research found that motivation for sustainability can differ per organization (Van Marrewijk, 2003), it will be useful to link self-determination theory to corporate sustainability. A research that already linked this theory to the environmental aspect of sustainability, is the one of Green-Demers, Pelletier, & Ménard (1997); they researched the role of motivation in performing pro-environmental behaviors and found that self-determination is positively related to pro-environmental behaviors. Based on the rationales of self-determination theory, it is expected that motivation will have a positive impact on the relation between sustainability management control systems and CS performance. This is based on the expectation that business unit manager who have an autonomous motivation to act sustainable, will use the sustainability management controls more intensively. Therefore, motivation is a moderating variable in this research, using the social motives of Brønn and Vidaver-Cohen (2009).
This research will therefore address two existing research gaps: the relation between sustainability management control systems and CS performance will be researched, (mentioned by Arjaliès & Mundy (2013)), as well as the role that sustainability motives play in this relation (based on Brønn and Vidaver-Cohen (2009)) . Therefore, the research question will be:
RQ: To what extent do sustainability management controls, and sustainability motives affect BU’s sustainability performance?
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Theoretical background
This section contains a literature review of the most important subjects for this research. Firstly, the concepts corporate sustainability and corporate sustainability performance are described; the latter being the dependent variable in this research. Secondly, the terms management control systems and sustainability management control systems (SMCS) are explained. Thirdly, motivations to engage in corporate sustainability are addressed. Lastly, a conceptual model containing these three concepts is presented.
Corporate sustainability
The most well-known definition of sustainability is the one proposed by Brundtland: ‘development that meets the needs of the present without compromising the ability of future generations to meet their own needs’ (Brundtland, 1987, p. 41). Sustainability is very broadly defined, as the terms ‘needs of the present’ and ‘future generations’ indicate. The term corporate sustainability is somewhat narrower, since this is focused on the company’s stakeholders. Dyllick & Hockerts (2002) based their definition on the broad sustainability definition of Brundtland (1987): ‘Corporate sustainability can accordingly be defined as meeting the needs of a firm’s direct and indirect stakeholders (such as shareholders, employees, clients, pressure groups, communities etc.), without compromising its ability to meet the needs of future stakeholders as well’ (p. 131).
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Even though the definitions of CS make clear that it includes an economic, environmental and social aspect, and has a stakeholder perspective, its measurement is less clear. As Van Marrewijk (2003) mentions in his research on CS and CSR: ‘there is no such thing as the features of corporate sustainability or CSR’ (p.103). This makes the implementation and evaluation of CS performance (CSP) a difficult task. This is also addressed in the research of Searcy (2012), who reviewed CSP measurement systems (sustainability performance measurement systems (SPMS)).
‘It is important to reemphasize that corporate sustainability is fundamentally a complex problem and there are no approaches that universally apply. […] To assess the success or failure of a corporation’s sustainability initiatives and whether or not it is making progress on its key economic, environmental, and social goals, an SPMS designed to meet the unique needs of the corporation is necessary’ (Searcy, 2012, p. 250).
Therefore, it is a complex task to assess the sustainability performance of an organization. Related to the sustainability performance measurement systems are assessment criteria and indicators available for sustainability performance. Singh et al. (2009) provided an overview of the sustainability assessment methodologies available, and concluded their research by mentioning that there are several sustainability indices available, however, a comprehensive assessment methodology, measuring the three components of sustainability (economic, social and environmental), is missing. They mention:
‘Indices and rating systems are subject to subjectivity despite the relative objectivity of the methods employed in assessing the sustainability. […] Although there are various international efforts on measuring sustainability, only few of them have an integral approach taking into account environmental, economic and social aspects. In most cases the focus is on one of the three aspects. Although, it could be argued that they could serve supplementary to each other, sustainability is more than an aggregation of important issues, it is also about their interlinkages and the dynamics developed in a system’ (Singh et al., 2009, p. 209).
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Management control systems
Management control systems (MCS) can be defined as ‘systems, rules, practices, values and other activities management put in place in order to direct employee behaviour’ (Malmi & Brown, 2008, p. 290). MCS can be divided in formal and informal controls; ‘Formal control consists of high levels of output and process control, whereas informal control includes high levels of professional and cultural control’ (Cravens et al., 2004, p. 241).
The importance which is placed on MCS has changed over time; according to Chenhall (2003): ‘the definition of MCS has evolved over the years from one focusing on the provision of more formal, financially quantifiable information to assist managerial decision making to one that embraces a much broader scope of information. This includes external information related to markets, customers, competitors, non-financial information and a broad array of decision support mechanisms, and informal personal and social controls’ (p. 129).
So, where MCS was first focused on the formal MCS, it is also important to include informal MCS which also includes non-financial information and informal personal and social controls: the informal management control systems.
Sustainability management control systems are specific controls which have a focus on sustainability issues. Sustainability management control systems (SMCS) can operate together with MCS, however, the two systems have to be integrated, otherwise ‘there is the consequence of hampering organizational decision-making’ (Gond et al., 2012, p. 10). SMCS ‘capture environmental and social issues in a more systematic and broader way than conventional MCSs do and are usually operated by groups other than the finance/accounting team within the organisation’ (Moon et al., 2011, p. 1).
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is expected for sustainability in general (so also the economic and social aspect included). The importance of a management control systems devoted to sustainability issues is also mentioned by Epstein & Roy (2001): ‘To drive a sustainability strategy through an organization, various management systems – such as product costing, capital budgeting, information, and performance evaluation – must be designed and aligned’ (p. 594). They further mention that without a system which is aligned to the sustainability strategy of an organization, ‘corporations may not reap all the benefits associated with sustainability performance’ (Epstein & Roy, 2001, p. 594). Therefore, the first hypothesis will be as follows:
Hypothesis 1. The use of formal sustainability management control systems is positively related to corporate sustainability performance.
Informal management control systems consist of high levels of professional and cultural control (Cravens et al., 2004). ‘An informal systems, in contrast to a formal system, does not control behaviour through explicit, verifiable measures. Rather, an informal system consists of shared values, beliefs, and traditions that guide the behavior of group members (employees)’ (Norris & O'Dwyer, 2004). These informal controls are implemented to ensure involvement from managers and employees (Pondeville, Swaen & De Rongé, 2013). Therefore, it also supports other management controls, since it gives employees a feeling of responsibility. Furthermore, Pondeville, Swaen & De Rongé (2013) mention that ‘in proactive companies, team-work offers an interesting means to solve environmental issues and coordinate work. It helps control the results in a less conventional way than formal controls do’ (p. 318). Since this would also enhance sustainability performance, the second hypothesis will be as follows:
Hypothesis 2. The use of informal sustainability management control systems is positively related to corporate sustainability performance.
Self-determination theory
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ideally will have integrated it into their sense of self’ (Deci & Ryan, 2008 ,p. 182). This group of motivation is therefore linked to one’s own values and makes people perform certain behaviors voluntarily. About the other group of motivation, controlled motivation, Deci and Ryan (2008) mention that it ‘consist of both external regulation, in which one’s behavior is a function of external contingencies of reward or punishment, and introjected regulation, in which the regulation of action has been partially internalized and is energized by factors such as an approval motive, avoidance of shame, contingent self-esteem, and ego-involvements’ (p. 182). This means that controlled motivation does not necessarily mean that behavior is the result of pressure from external parties, but it is just not related to one’s own values.
Self-determination theory has been linked to pro-environmental behaviors, (Green-Demers, Pelletier & Ménard, 1997; Pelletier & Sharp, 2008; Graves et al., 2013) and therefore the link with an aspect of sustainability has already been made in previous research. For example, in a research of Green-Demers, Pelletier & Ménard (1997), the motivation behind environmental sustainability was researched by looking at three types of pro-environmental behaviors: recycling, purchasing products which are not harming the environment, and the search for environmental behavior (learning what can be done to be sustainable). They found that these three types of pro-environmental behaviors occurred more often when self-determination was higher. This was especially the case for the more ‘advanced’ type of pro-environmental behavior, where people were looking for ways to be environmental sustainable (Chirkov et al, 2010). Although this study did only focus on the environmental part of sustainability, evidence was found for the importance of motivation for sustainable behaviors.
Another research which related motivation to sustainability, is Van Marrewijk & Werre (2003). They mention that ‘the external life conditions and the dominant value systems within an organization determine the potential for CS within a specific organization’ (p. 117). In his research, he measures how the culture of an organization and of employees can affect the implementation of CS. The items which are measured are: ‘the core personal values of individual managers and employees; the core values within the current organization; the core values in the ideal organization (as perceived by the employees)’ (p. 117). In this study, self-determination theory was not used for explaining the different motivations behind behavior. However, since the link with core values was made, it could be said that this belongs to the category of autonomous motivation.
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use in this research, and at the same time it can contribute to this theory since the link with sustainability in general will be made.
Motivations behind corporate sustainability
A research that is devoted to investigating the different motivation behind engaging in sustainability, is the one of Brønn and Vidaver-Cohen (2009). They created a categorization of motives to engage in social initiatives, and came up with three categories: sustainability motives, legitimacy motives, and profitability motives.
Sustainability motives relate to personal values of sustainability, where organizations truly believe that they have to engage in social initiatives because it is the best thing to do for the society. Brønn and Vidaver-Cohen (2009) performed a principal component analysis, and the ‘sustainability motives’ category includes factors like: concern for society, personal satisfaction, and share resources with society. Since these factors are related to personal values, it can be said that sustainability motives are linked to autonomous motivation. Graves et al. (2013) mention that ‘the self-consistent or self-expressive nature of autonomous motivation facilitates employee performance’ (p. 82). Although this research is not necessarily interested in employee behavior, it is expected that it also influence the BU managers’ performance and that there is motivation to use the control systems intensively. Therefore, it is hypothesized that the relation mentioned in the first and second hypothesis is positively moderated by sustainability motives: Hypothesis 3a. The relation between formal sustainability management control systems will be positive moderated by sustainability motives.
Hypothesis 3b. The relation between informal sustainability management control systems will be positive moderated by sustainability motives.
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upon the values of their stakeholders (the evaluator or audience as mentioned by Suchman (1995)). Since the values which are related to sustainability are not necessarily incorporated into the organization when having legitimacy motives, it can be said that it belongs to controlled motivation, just like profitability motives. However, since the values of stakeholders have an influence on the actions that the organization takes with regard to sustainability, (the ‘audience’s socially constructed value system’ as mentioned by Suchman (1995)), it is proposed that it will positively moderate the relation mentioned in hypothesis 1 and 2.
Hypothesis 4a. The relation between formal sustainability management control systems will be positively moderated by legitimacy motives.
Hypothesis 4b. The relation between informal sustainability management control systems will be positively moderated by legitimacy motives.
Profitability motives are related to ‘the belief that engaging in social initiatives can yield direct financial benefits for the firm, either by generating new revenues or by protecting existing profit levels’ (Brønn and Vidaver-Cohen, 2009, p. 104). This can be part of the culture of an organization, since organizational culture can be focused on economic performance and profitability. According to Linneluecke & Griffith (2010) these organizations can be classified as having an internal process culture; for these cultures profitability is more important than sustainability. ‘Organizations that are narrowly focused on achieving economic outcomes alone might miss out on sustainability innovations and business opportunities that a focus on sustainability creates (Senge & Carstedt, 2001)’ (Linneluecke & Griffith, 2010, p. 359). This can be explained by the fact that they only focus on aspects which will lead to profitable outcomes and are not necessarily inherent interested in sustainability. Therefore, profitability motives belongs to the controlled motivation of the self-determination theory mentioned earlier, since sustainability is not related to the values and beliefs of a company. It is expected that the relation between formal- and informal SMCS and CSP is negatively moderated by profitability motives, since there is a narrow focus on profitability, and therefore not all the available information will be used to achieve a greater CSP. This is in line with the suggestion of Graves et al. (2013), who propose that controlled motivation inhibits performance. Therefore, hypotheses 3a and 3b will be as follows:
Hypothesis 5a. The relation between formal sustainability management control systems will be negatively moderated by profitability motives.
11 H1 H2 H4a H3a H3b H4b H5a H5b The aforementioned hypotheses can be depicted as follows:
Figure 1 - Conceptual model Corporate Sustainability Performance – Formal Sustainability Management Control Systems
Formal Sustainability Management Control Systems Informal Sustainability Management Control Corporate sustainability performance Profitability motives Legitimacy motives Sustainability motives Corporate sustainability performance Legitimacy motives Sustainability motives Profitability motives
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Methods
This section presents the sample of this research and describes how the concepts are measured. This is done by presenting the factors which are related to each variable included in the model, with their respective reliability scores. The descriptive statistics of the variables and the correlations between the variables are displayed at the end of this section.
Sample
To test the aforementioned hypotheses, primary data was collected from 33 business units. The business unit is chosen as the unit of analysis since management control systems are tailored to business units, for example, Kaplan & Norton (1995) mention about the application of the balanced scorecard: ‘Business units devise customised scorecards to fit their mission, strategy, technology, and culture’ (p. 5). Since business units can have different missions, strategies, technologies and cultures, the business unit was most appropriate as unit of analysis when researching management control systems. Business units managers were contacted by mail and telephone and the surveys were filled out during a meeting with the respective business manager. This also brought the advantage of conducting a face-to-face interview to ask for further clarification.
The descriptive statistics of the sample can be found in table 1.1 and 1.2. The employees in the BU (Mean = 425.73, SD = 936.88) also includes temporary/interim employees who directly or indirectly report to the BU manager (Mean = 425.73, SD = 936.88). The size of the organization is measured by organization employees (Mean= 16246.06, SD = 28167.66), which also includes temporary/interim employees.
N Minimum Maximum Mean Std. Deviation
BU employees 33 23 5000 425.73 936.88
Organization employees 33 120 104500 16246.06 28167.66
Table 1.1 Descriptive Statistics Size
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Frequency
Agriculture, forestry, and fishing 2
Construction 2
Finance, insurance, and real estate 7
Manufacturing 3
Mining 1
Non-classifiable establishments 4
Retail trade 4
Services 6
Transportation, communications, electric, gas, and sanitary services 2
Wholesale trade 2
Total 33
Table 1.2 Descriptive Statistics Industry
Measurement
To measure the relationships in the aforementioned hypotheses, a questionnaire was used consisting of a 7-point Likert scale. The questionnaire consists of four parts: general information about the organization and the BU managers’ experience, the second part is about formal- and informal (sustainability) management information, the third part entails the sustainability considerations, while the last part consist of questions about the actual (sustainability) performance.
Since there are multiple questions measuring the same construct, a confirmatory factor analysis has to be performed for the independent-, moderating-, and dependent variables. The factor analyses will be discussed below for each variable, including the loadings of the respective items which belong to the variables. For each variable, the Kaiser-Meyer-Olkin (KMO) and the Bartlett’s test of sphercity will be mentioned to test the factorability of data, as suggested by Pallant (2010). The Bartlett’s test of sphercity needs to be significant (otherwise the correlations between the variable are not significantly different from zero (Field, 2013)), and the KMO statistic should have a minimum value of 0.6 (Pallant, 2010). The KMO statistic ranges from 0 to 1, and the closer this value is to 1, the more reliable the factor is (Field, 2013).
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looking at the Cronbach’s alpha, since the ‘Cronbach’s Alpha indicates the overall reliability of a questionnaire, and values around 0.8 are good’ (Field, 2013, p. 715).
Concerning the missing values, pairwise deletion has been chosen as the best method to handle the missing data. ‘In this method, the maximum amount of available data is retained’ (Schlomer et al., 2010, p. 3), since the biggest limitation of this study is the amount of data (see also the section limitations), this method is most suitable for this study.
The remaining section will discuss the variables: the independent variables, the moderating variables (interaction effects), the dependent variable and the control variables. Thereafter, the descriptive statistics of the variables will be given, after which the analysis of the hypotheses testing will be provided. An interpretation of the data will be given in the discussion section. Independent Variables
Formal sustainability management control systems. The eleven items in the survey which used to test the formal sustainability management information, are based on the research of Pondeville, Swaen & De Rongé (2013). The questions consists of a 7-point Likert scale, ranging from ‘to a small extent’ (1) to ‘to a large extent’ (7); a higher score indicates that the BU makes more use of formal sustainability management control systems.
From the eleven items in the questionnaire, two items which did not load on the factor: the items which are included to test the similarity of other BUs inside and outside of the organization. This can be explained by the fact that these items were included to test for isomorphism instead of the formal sustainability management information itself. These are the items: ‘[…] largely similar to other BUs (or organizations) outside of our organization’ and ‘[…] largely similar to other BUs (or organizations) in of our organization’ (factor loadings of 0.278 and 0.226, respectively). Therefore, these two items were excluded from this factor. The remaining items belonging to this factor can be found in table 2.
The Kaiser-Meyer-Olkin value is 0.814, and the Bartlett test of Sphericity is significant at p < 0.000, which indicates that the factorability of this variable is sufficient.
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Item Loading
Documented sustainability rules and procedures 0.866
Detailed description of sustainability functions 0.821
Procedures of external sustainability communication 0.779
Environmental or social information on employees 0.732
Integrated sustainability criteria in the investment decisions 0.702 Integrated sustainability performance indicators in promotion/career advancements 0.698 Integrated sustainability objectives in the planning systems 0.691
Comparison of results to sustainability objectives 0.687
Integrated sustainability performance indicators in compensation/rewarding systems 0.679
Variance explained 55.07%
Cronbach’s Alpha 0.902
Table 2 – Factor analysis Formal Sustainability Management Control Systems
The mean scores of the nine items included in table 2 will form a new variable: FSMCS (formal sustainability management control systems).
Informal sustainability management control systems. The ten items which are included in the questionnaire to test for the amount of informal sustainability management control systems available in a BU, are based on the research of Pondeville, Swaen & De Rongé (2013). The questions were constructed in the same way as for the formal sustainability management control systems: they consist of a 7-point Likert scale, ranging from ‘to a small extent’ (1) to ‘to a large extent’ (7); a higher score indicates that the BU makes more use of informal sustainability management control systems.
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Items Loading
BU employee suggestions for sustainability improvements on products/services 0.868 Sustainability issues are discussed at periodic meetings at BU level 0.831 BU employee suggestions in the field of sustainability. 0.789 Work teams at the BU level are built to manage sustainability problems 0.761 BU management is really involved in the BU sustainability management process 0.754 BU employee suggestions for sustainability improvements on primary process 0.708 Persons from different BUs work in teams to manage sustainability issues 0.701
Variance explained 60.10%
Cronbach’s Alpha 0.885
Table 3 – Factor analysis Informal Management Control Systems
The Kaiser-Meyer-Olkin value is 0.773, and the Bartlett test of Sphericity is significant at p < 0.000; therefore the factorability of this factor is sufficient. The Cronbach’s Alpha has a value of 0.885, which indicates reliability of the questionnaire.
The mean scores of the items included in table 3 will form a new variable: ISMCS (Informal sustainability management control systems).
Moderating variables
The questions measuring the three types of motives (sustainability, legitimacy and profitability) consists of a 7-point Likert scale, ranging from ‘strongly disagree’ (1) to ‘strongly agree’ (7). Furthermore, the questions were taken from the questionnaire of Brønn & Vidaver-Cohen (2009). A factor analysis was performed to check whether the same factors were found as in the research of Brønn & Vidaver-Cohen (2009).
Sustainability motives. The seven items which belong to the ‘sustainability motives’ in the research of Brønn & Vidaver-Cohen (2009) are: share resources with society, concern for society’s future, personal satisfaction, learn from social agencies, strengthen global networks, no good reason not to, and lastly, prevent future business problems.
The item ‘Prevent Future Business Problems’ loaded on sustainability motives as well as on legitimacy motives in the research on Brønn & Vidaver-Cohen (2009), and for this research it had on both motives a sufficient component loading as well. However, since the loading is stronger on legitimacy motives, this item was removed for sustainability motives.
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Items Loading
Share Resources with Society 0,811
Concern for Society’s Future 0,754
Personal Satisfaction 0,744
Learn from Social Agencies 0,726
Strengthen Global Networks 0,520
No Good Reason Not To 0,509
Variance explained 47,25%
Cronbach’s Alpha 0,762
Table 4 – Factor analysis Sustainability Motives
The Kaiser-Meyer-Olkin value is 0.549 and the Bartlett test of Sphericity is significant at p < 0.000. Since the KMO is below 0.6, the factorability is questionable according to Pallant (2010). However, according to Kaiser (1974), values in the 0.5 are acceptable, but are labelled as miserable. Since the Bartlett test of Sphericity is significant, the factorability is not seen as a problem for this specific factor.
The Cronbach’s Alpha has a score of 0.762. According to Field (2013), values around 0.8 are good. However, since this value is lower than the values shown in previous factor, the questions for this factor are less reliable than the questions asked for the other factors.
Although the factorability and the reliability of the questionnaire for this factor are questionable, it will be accepted for this study. The mean scores of the items included in table 4 will form a new variable: sustainability motives.
Legitimacy motives . The five items which belong to the ‘legitimacy motives’ in the research of Brønn & Vidaver-Cohen (2009) are: fulfill stakeholder expectations, be recognized for moral leadership, serve long-term company interests, prevent future business problems and improve image. The item improve image showed a loading of 0.158 and was therefore removed from this variable.
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Item Component Loading
Fulfill Stakeholder Expectations 0.833
Be Recognized for Moral Leadership 0.809
Serve Long-term Company Interests 0.646
Prevent Future Business Problems 0.601
Variance explained 53.18%
Cronbach’s Alpha 0.678
Table 5- Factor analysis Legitimacy Motives
The Kaiser-Meyer-Olkin value is 0.688 and the Bartlett test of Sphericity is significant at p < 0.01. Therefore, for this motive, the factorability is sufficient. The Cronbach’s Alpha has a score of 0.674. Since this value should be around 0.8 (Field, 2013), it can be said that the reliability of the questions in the questionnaire are questionable. However, Gliem & Gliem (2003) mention that ‘increasing that value of alpha is partially dependent upon the number of items in the scale’ (p. 87) and values greater than 0.6 are questionable. Furthermore, Gliem & Gliem (2003) mention that there is no lower limit, but that 0.8 is a reasonable goal. Therefore, a lower Cronbach’s Alpha than desired is accepted for this study, but it will be addressed in the limitations section later.
The mean scores of the items included in table 5 will form a new variable: legitimacy motives. Profitability motives. The five items which belong to the ‘profitability motives’ in the research of Brønn & Vidaver-Cohen (2009) are: create financial opportunity, remain competitive, meet shareholder demands, avoid regulation and solve social problems better.
The item ‘solve social problems better’ showed a loading of 0.142 and was therefore removed from this variable. The questions was stated as follows: ‘As a private firm, we can solve social problems better than non-profit agencies’, and the link with the other profitability items is somewhat weaker (as proven by the low factor loading), since it is has a focus social problems instead of a focus on financial outcomes.
The item ‘avoid regulation’ showed a factor loading of 0.470 and was also removed from this factor.
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Item Loading
Create Financial Opportunity 0.907
Remain Competitive 0.808
Meet Shareholder Demands 0.670
Variance explained 64.15%
Cronbach’s Alpha 0.718
Table 6 – Factor analysis Profitability motives
The Kaiser-Meyer-Olkin value is 0.544 and the Bartlett test of Sphericity is significant at p < 0.000. For this motive, the KMO is also lower than the recommended value of 0.6 by Pallant (2010), but since Kaiser (1974) mentions that a value of 0.5 is also sufficient, the factorability of this factor is not seen as a problem. The Cronbach’s Alpha has a score of 0.718. For the same reason as for legitimacy motives, this is not considered as a problem for this research.
The mean scores of the items included in table 6 will form a new variable: profitability motives. Interaction effects. In order to test the hypotheses, which consists of several moderators, interaction effects have to be constructed. ‘An interaction effect occurs when the effect of one independent variable on the dependent variable depends on the level of a second variable’ (Pallant, 2010, p. 265). The hypotheses 3a, 3b, 4a, 4b, 5a and 5b consists of interaction effects, since the relation between sustainability management control systems and corporate sustainability performance is expected to depend on the different sustainability motives.
Since cross-products are created, the independent variable (FSMCS and ISMCS) and the moderating variables (sustainability motives, legitimacy motives and profitability motives) are standardized. This is needed to draw correct interpretations from the outcomes (Field, 2013). However, since this approach led to kurtosis values higher than 10, results were not interpretable. Therefore, the cross-products consists of standardized moderating variables (sustainability motives, legitimacy motives and profitability motives) and unstandardized independent variables (FSMCS and ISMCS).
The standardized moderating variables and the unstandardized independent variables are multiplied, which created six interaction effects.
Dependent variable
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0.316). Therefore, this item was removed. In table 7, the remaining seven items are displayed with the related loadings.
Item Loading
Overall BU sustainability performance 0.855
Achievement of BU goals concerning sustainability 0.847
Satisfaction of external customers of your BU concerning the sustainability of your products/services
0.697
Satisfaction of internal customers of your BU concerning the sustainability of your products/services
0.692
Cooperation with other BU(‘s) on sustainability topics 0.691
BU employee satisfaction with the sustainability of your products/services 0.676 Compliance with standards and behavioural guidelines concerning sustainability 0.593
Variance explained 52.82%
Cronbach’s Aplha 0.839
Table 7 – Factor analysis Corporate Sustainability Performance
The Kaiser-Meyer-Olkin value is 0.783 and the Bartlett test of Sphericity is significant at p < 0.000. Both values indicate that the factorability is sufficient. The Cronbach’s Alpha has a score of 0.839, which indicates that the questionnaire for these items is reliable.
The mean scores of the items included in table 7 will form a new variable: CSP (corporate sustainability performance).
Control Variables
This research includes three control variables from which is expected to have an effect on sustainability performance: BU size, organization size and experience with the current position. BU size and organization size are both measures in number of employees, while experience is measured in the number of years the BU managers exerts the current position.
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The experience a BU manager has with the current position, measured in number of years, is the third control variable in this research. Since it can be expected that when a BU manager has more experience with the position, there will also be more knowledge about the sustainability practices, which can have an effect on corporate sustainability performance. Therefore, this variable is also included in the study.
Descriptive statistics
In the table below, the descriptive statistics of the variables mentioned in the previous sections can be found. The minimum, the maximum, mean, and standard deviation are provided. Furthermore, the values of skewness and kurtosis are also given for each variable. These values provide information about the shape of the distribution (DeCarlo, 1997). Skewness indicates the symmetry of the distribution: ‘Positive values of skewness indicate a pile-up of scores on the left of the distribution, whereas negative values indicate a pile-up on the right’ (Field, 2013, p. 182). Kurtosis indicates whether the distribution is ‘pointy’ or flat: ‘Positive values if kurtosis indicate a pointy and heavy-tailed distribution, whereas negative values indicate a flat and light-tailed distribution.’ (Field, 2013, p. 182).
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Min. Max. Mean Std. Dev. Skewness Kurtosis
CSP 2.433 6.00 4.2915 .9253 .005 -.626 FSMCS 1.00 6.44 3.6094 1.3722 -.205 -.328 ISMCS 1.29 6.00 4.3247 1.3206 -.771 -.309 Profitability motives 1.75 6.50 4.6818 1.0772 -.912 .565 Legitimacy motives 1.75 7.00 5.1212 .9963 -1.142 3.174 Sustainability motives 1.83 6.17 4.6010 1.0573 -.614 .166 Profitability motives * FSMCS -8.32 8.23 .4384 3.6570 -.450 .237 Legitimacy motives * FSMCS -6.15 10.54 .6533 3.5011 .822 1.709 Sustainability motives * FSMCS -7.95 9.54 .7968 3.6792 .259 .287 Profitability motives * ISMCS -10.38 6,75 .4345 4.2812 -.800 .256 Legitimacy motives * ISMCS -7.67 11.31 0.6046 3.8433 .445 1.361 Sustainability motives * ISMCS -4.65 8.88 .9045 3.9415 .455 -.892
BU employees 23 5000 425.73 936.875 4.068 18.553
Organization employees 120 104500 16246.661 28167.661 2.175 3.756 Years in current position 0.5 16.0 5.379 4.5518 1.026 -.104
Table 8 – Descriptive statistics
Correlations
To test whether the aforementioned variables are related to each other, a Pearson correlation was performed, which can be found in table 9. Correlation coefficients can range from -1 to +1, where -1 indicated a perfect negative relationship and +1 indicates a perfect positive relationship (Field, 2013).
Corporate sustainability performance (CSP) is significantly associated with formal sustainability management control systems (r = .480) and informal sustainability management control systems (r = .579). This indicates that the use of FSMCS and ISMCS is positively associated with CSP, which is consistent with the theory, meaning that the use of sustainability management control systems might lead to a higher CSP.
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24 1 2 3 4 5 6 7 8 9 10 11 12 13 14 1. CSP 1 2. FSMCS .480** 1 3. ISMCS .579** .611** 1 4. Sustainability motives * FSMCS .617** .566** .620** 1 5. Legitimacy motives * FSMCS .439* .499** .345* .708** 1 6. Profitability motives * FSMCS .275 .367* .221 .434* .770** 1
7. Sustainability motives * ISMCS .651** .592** .634** .945** .673** .431* 1
8. Legitimacy motives * ISMCS .425* .428* .367* .665** .979** .761** .655** 1
9. Profitability motives* ISMCS .247 .239 .229 .397* .713** .967** .404* .744** 1
10. Sustainability motives .697** .599** .706** .910** .626** .395* .928** .616** .378* 1
11. Legitimacy motives .546** .491* .472** .596** .864** .675** .600** .891** .664** .707** 1
12. Profitability motives .365* .329 .339 .393* .705** .924** .411* .740** .946** .472** .795** 1
13. Organization employees .167 .173 .163 .331 .346* .178 .171 .256 .094 .188 .209 .099 1
14. Years in current position .404* .356* .239 .233 .388* .313 .257 .390* .294 .230 .371* .307 .237
** P < 0.01 * P < 0.05
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Analyses
This section provides the analyses that tests the aforementioned hypotheses, as can be found in figure 1 and 2. To test the influence that management control systems have on corporate sustainability performance and the influence that the proposed interaction effects have on these relationships, a multiple regression analysis will be conducted containing the variable FSMCS (which can be found in table 10) and another multiple regression analysis will be conducted with the variable ISMCS (which can be found in table 11). For both analyses, Ordinary Least Square (OLS) regression was performed, using IBM SPSS Statistics 23, and only the full model is displayed.
Furthermore, in both models, the main effects of the motives are included, as recommended by Echambadi et al. (2006). Similarly, Irwin & McClelland (2001) mention that ‘if a component of the product is eliminated, the test of the product is confounded with the main effect of that component independent variable on the dependent variable’ (p. 105). This means that, for example, the result of the cross-product ‘sustainability motives * FSMCS’ would be uninterpretable when either the variable FSMCS or the variable sustainability motives is not included in the model: a significant relation of a cross-product could be explained by the effect which an excluded main effect would have on CSP. Therefore, the main effects of the motives can also be found in table 10, 11 and 12, even though there are no specific hypotheses linked to these main effects.
Multicollinearity
As mentioned previously, multicollinearity was already detected in the Pearson correlation table (table 9), since the interaction effects were highly correlated with other variables. Multicollinearity ‘exists when there is a strong correlation between two or more predictors’ (Field, 2013, p. 324). In table 9, the interaction effects showed multiple correlations which are higher than .8, and thus are strongly correlated to other variables. ‘When multicollinearity is a problem, ordinary least squares multiple linear regression can give nonsensical results for the estimated parameter magnitude, sign or standard error’ (Slinker & Glantz, 1985, p. 11).
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analysis. This, it tells us how much the variance has been inflated by the lack of independence’ (p. 684).
As can be seen in table 10 and 11, there are many VIF values which are greater than 10. Knowing that a VIF value of 10 indicated multicollinearity, and multicollinearity gives ‘nonsensical results’, these tables are partially uninterpretable.
Slinker & Glantz (1985) mention that the ‘in the event that analyzing data containing harmful multicollinearities is unavoidable, the simplest solution to the problem of multicollinearity is to delete on collinear variable’ (Slinker & Glantz, 1985, p. 11). Therefore, another model will be proposed without the interaction effects. This analysis can be found in table 12.
Formal sustainability management control systems
In table 10, the output of the regression analysis with the independent variable ‘formal sustainability management control systems’ (FSMCS) can be found. It tests the model as previously proposed in figure 1.
The model is significant (F= 3.436, p < .01), meaning that the variables which are included in the model significantly help to explain corporate sustainability performance. As Field (2013) mention about the F statistic: ‘the F-ratio is a measure of how much the model has improved the prediction of the outcome compared to the level of inaccuracy of the model. (…) This F tests the null hypothesis that R2 is zero (i.e., there is no improvement in the sum of squared error due to
fitting the model)’ (p. 302-303). This is also confirmed by the R Square of .573, meaning that 57.3% of corporate sustainability performance can be explained by the included variables. As mentioned previously, inclusion of the interaction effects in the analysis causes multicollinearity issues (which can be seen in the right column with the VIF values). This means that hypothesis 3a, 4a and 5a cannot be tested in this study.
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Hypothesis B Std. Error T Sig. VIF
Organization employees .000 .000 -0.46 .963 1.353
Years in current position .055 .032 1.752 .093* 1.299
FSMCS H1 .022 .133 .168 .868 2.102
Sustainability motives .084 .699 .120 .906 34.445
Legitimacy motives .686 1.139 .602 .553 81.067
Profitability motives -.165 .875 -.189 .852 74.705
Sustainability motives * FSMCS H3a .139 .205 .679 .504 35.974
Legitimacy motives * FSMCS H4a -.203 .305 -.665 .513 72.006
Profitability motives * FSMCS H5a .051 .285 .178 .861 68.390
R Square .573 F statistic 3.436 *** * p < .1 ** p < .05 *** p <.01
Table 10 - Regression analysis Formal Sustainability Management Control Systems
Informal sustainability management control systems
The output of the regression analysis with the independent variable ‘informal sustainability management control systems’ (ISMCS) is displayed in table 11, which tests the hypotheses that can be found in figure 2.
The model is significant (F = 4.053, p < 0.0), meaning that the including variables significantly help to predict CSP. This is further elucidated by the R Square of .613; the variables which are included in table 11 explain 61.3% of CSP.
Similarly to the analysis of FSMCS, the VIF values that exceed the value of 10 also makes it impossible to make inference about hypothesis 3b, 4b and 5b.
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Hypothesis B Std. Error T Sig. VIF
Organization employees .000 .000 .270 .790 1.219
Years in current position .048 .030 1.591 .125 1.306
ISMCS H2 .060 .138 .431 .671 2.318 Sustainability motives -2.67 .666 -.401 .692 34.452 Legitimacy motives .582 1.033 .563 .579 73.599 Profitability motives .308 .905 .340 .737 88.295 Sustainability motives * ISMCS H3b .200 .158 1.262 .220 27.044
Legitimacy motives * ISMCS H4b -.154 .217 -.712 .483 48.212
Profitability motives * ISMCS H5b -.088 .235 -.372 .713 70.486 R Square .613 F statistic 4.053 *** * p < .1 ** p < .05 *** p <.01
Table 11 – Regression analysis Informal Sustainability Management Control Systems
Additional analysis Formal- and Informal sustainability management control
As already mentioned in the beginning of the analysis, additional analysis is performed which excludes the interaction effects. The result of this analysis can be found in table 12.
This model is significant (F = 4.543, p < .01), with a R Square of .560; 56% of CSP is explained by the variables which are presented in table 12. In this analysis, there is no concern for multicollinearity since there are no VIF values which exceed the threshold of 10.
Concerning FSMCS, there is a similar result as found in table 10; there is no support found for hypothesis 1 since there is no significant result. This also holds for ISMCS: there is no significant result, which means that there is no support found for hypothesis 2, which confirms the result which was found in table 11.
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Hypothesis B Std. Error T Sig. VIF
Organization employees .000 .000 -.155 .878 1.098
Years in current position .052 .031 1.687 .104 1.286
FSMCS H1 -.024 .123 -.192 .849 1.897 ISMCS H2 .108 .141 .765 .451 2.294 Sustainability motives .466 .214 2.171 .040** 3.412 Legitimacy motives .068 .270 .252 .803 4.788 Profitability motives -.045 .168 -.269 .790 2.910 R Square .560 F statistic 4.543 *** * p < .1 ** p < .05 *** p <.01
Table 12 – Regression analysis Formal Sustainability Management Control Systems and Informal Sustainability Management Control Systems
Conclusion of results
In table 10, 11 and 12, it becomes clear that the variables which are included variables explain a considerable amount of the variance of CSP. The first analysis (as can be found in table 10), including FSMCS, the main effects of the motives, the interaction effects, and the control variables, explains 57.3% of the variance of CSP. The second analysis including ISMCS the main effects of the motives, the interaction effects, and the control variables, explains an even larger amount of the variance of CSP: 61.3%. Unfortunately, both models suffered from multicollinearity issues, and therefore the effect of the interaction effects are not interpretable. The third analysis, which was performed in order to test a model without multicollinearity issues, which includes FSMCS, ISMCS, the main effects of the motives and the control variables, explains 56% of the variance of CSP.
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Discussion and conclusion
This study was constructed in response to the research gap detected by Arjaliès & Mundy (2013): to make the connection between corporate sustainability and management control systems. The other research gap that was addressed in the introduction was the role that motivation could play, based on research from Brønn & Vidaver-Cohen (2009). A survey was filled out by 33 business unit manager to test the hypotheses that can be found in figure 1 and 2. The hypotheses were based on existing literature about management control systems and motivation.
Firstly, concerning formal sustainability management control systems, Fryxell and Vryza (1999) already found that formal environmental control had a positive influence on environmental performance and Epstein & Roy (2001) suggested that all the benefits of a sustainability strategy cannot be achieved until sustainability controls are used. Therefore, it was hypothesized that the use of FSMCS would lead to higher outcomes for corporate sustainability performance. However, the analyses (see table 10 and table 12) did not yield any significant result for the hypothesized positive relation between FSMCS and CSP.
A potential cause could be the interplay between FSMCS and ISMCS, as mentioned by Riccaboni & Leone (2009): measurement and formal elements are not enough, since their effectiveness may be influenced by informal controls. The two elements of MCS should be consistent, working together in order to motivate the decision-maker in operating in a sustainable way’ (p. 132). Since FSMCS and ISMCS are only studied as two separate systems, the interplay between these two systems can be of interest in future research. In a similar vein, Gond et al. (2012) argued that sustainability control systems ‘can only contribute to an effective integration of sustainability within strategy only when they inform MCSs and are not used as ‘autonomous strategic tools’’ (p. 3). Therefore, also the interplay between sustainability management control systems and more conventional management control systems can be studied in future research. Secondly, it was also expected that informal management control systems would have an positive influence on CSP. This is largely based on the study of Pondeville, Swaen & De Rongé (2013), who found that informal control helps to involve management and employees. However, the analysis did not yield a significant result concerning the relationship between ISMCS and CSP. This can be attributed to the same argument as for the insignificant relation between FSMCS and CSP; the interplay between ISMCS and FSMCS which was not incorporated in this study.
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that when people can identify with certain values (in the case of this study: values which are related to sustainability), it will be easier to act accordingly. Previous literature linked this theory to the environmental dimension of sustainability (see: Green-Demers, Pelletier & Ménard, 1997; Pelletier & Sharp, 2008; Graves et al., 2013) and found that autonomous motivation is positively related to pro-environmental behavior. In this study, the potential of motives having a moderating effect on the relation between management control systems and CSP was tested. This is based on the assumption that management control systems will be used more extensively (which, as hypothesized, will lead to higher outcomes of CSP) when there is a stronger motive to act sustainable, as is the case for sustainability motives (when sustainability is related to the values of a BU manager/organization) and legitimacy motives (when a BU manager/organization is influenced by the sustainability values of stakeholders). The motives which were found by Brønn & Vidaver-Cohen (2009) were used to test for this potential moderating effect: profitability motives, legitimacy motives and social motives. Cross-products were created with FSMCS and ISMCS. However, due to multicollinearity issues, the hypotheses linked to these cross-products (hypothesis 3a, 3b, 4a, 4b, 5a and 5b) could not be tested.
Lastly, it was found in the first analysis (see table 10) that years in current position has a positive influence on CSP. Years in current position was used to control for experience and was based on the argument that when a business unit manager has more experience with his/her current position, there will be more knowledge acquired about sustainability practices and therefore will lead to higher outcomes of CSP. However, this assumption was not theoretically grounded. Therefore, the effect that experience has on CSP is suggested to be investigated in future research.
The research question of this study was:
To what extent do sustainability management controls, and sustainability motives affect BU’s sustainability performance?
No support was found for the claim that BU’s sustainability performance is affected by sustainability management controls, since there was no support found for the relation between FSMCS and CSP and the relation between ISMCS and CSP. The extent that sustainability motives affect the relation between the sustainability management controls and BU’s sustainability performance could not be tested in this study, and therefore this part of the research question remains unanswered.
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(Epstein & Roy, 2001; Fryxell & Vryza, 1999). However, this study challenged this assumption since no significant relation was found ( T = .168, significance = .868). As mentioned previously, this could be due to the fact that the interplay between FSMCS and ISMCS was not researched, and could have an influence on the effectiveness of the control systems (Riccaboni & Leone, 2009). Secondly, experience (as measured by the variable ‘years in current position’) displayed a significant relation to CSP in the first analysis, as can be found in table 10. Since the relation between the experience of a business unit manager is not addressed in the current literature of sustainability performance, this is a contribution to the literature. Future research is needed to explore the relation between experience and CSP, since it was merely included as a control variable in this study. Thirdly, a contribution was made by verifying the social motives found by Brønn & Vidaver-Cohen (2009). The questions as constructed by Brønn & Vidaver-Cohen (2009) were implemented in the survey, and factor analysis confirmed the three social initiatives as Brønn & Vidaver-Cohen (2009) found.
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