Sustainability & Social Management Control
“The influence of manager involvement in sustainability issues on
sustainability performance and the effects of firm size and
industry”
Mark Vermaning S2163470
Westersingel 1a, 9718CA Groningen, The Netherlands m.r.vermaning@student.rug.nl
Abstract
In the past couple of years, the attention for sustainability in business and scientific literature has increased, however research on this topic is still scarce. This study contributes to the literature by answering the call to expand the research on sustainability, as well as by providing a better understanding of the importance of the involvement of BU management for the sustainability performance. By using survey data from 39 business unit managers who work at different organizations in The Netherlands, 5 hypotheses will be tested. Additionally, interviews will be conducted to support the survey data with in-depth information. Through data analysis, a positive relationship between manager involvement in sustainability issues and the organization’s sustainability performance will be confirmed. However, the effects of the organizational contextual factors firm size and industry remain unclear.
Keywords: Corporate Sustainability, Management Control, Manager Involvement, Firm Size, Industry,
Sustainability Performance
Msc Business Administration: Organizational & Management Control Faculty of Economics and Business
University of Groningen
Supervisor: dr. H.J. van Elten Co-assessor: dr. W. Kaufmann
22-07-2016
1
T
ABLE OF
C
ONTENT
Introduction ... 2
Literature Review ... 5
Corporate Sustainability ... 5
Sustainability in Management Control ... 6
Manager involvement and Sustainability Performance ... 7
Firm size and sustainability performance ... 8
Firm size and manager involvement ... 9
The influence of the industry type ... 10
Methodology ... 13
Data Collection and Sample ... 13
Constructs ... 14
Data Analysis ... 14
Results ... 16
Descriptive statistics ... 16
Quality of the measurement model ... 17
Evaluation of the structural model ... 19
Mediation effects ... 24
Discussion and Conclusion ... 26
References ... 29
Appendix A ... 35
Appendix B ... 37
Appendix C ... 39
2
I
NTRODUCTION
The industrial development, and the new technologies that resulted from it, increased welfare in many ways. However, there are also negative effects and in the past couple of years the attention for sustainability has increased (Shrivastava, 1995; Henry & Journeault, 2010; Berry et al., 2009; Bebbington & Thomson, 2010). Pondeville et al. (2013) state that this attention is coming from the fact that (1) companies are more and more realizing that they are harming their environment, (2) from traditional interest groups that pressure the companies to be engaged in sustainability activities, and (3) from a demand in the market for sustainable products and production, which gives firms a commercial incentive. The attention is not only focused on the environment, but also the social aspects of sustainability are included (Wempe & Kaptein, 2002; Dyllick & Hockerts, 2002; Van Marrewijk 2003; Bebbington & Thomson, 2013). As a result of the increased focus on sustainability, corporate sustainability is a term that is not only important in organizations, but is now also becoming increasingly important in scientific literature, and more specifically, in the field of management and control (Berry et al. 2009).
Despite the increasing interest in sustainability accounting, literature on this topic is till scarce. Bebbington & Thomson (2013) demonstrate this issue by giving an overview of studies that, directly or indirectly, are related to the topic of sustainability accounting. This includes research on the use of sustainability information (Gallo, 2011), the influence of ‘eco-control’ on sustainable and economic performance (Henri & Journeault, 2010), and aligning performance management systems with and environmental strategy (Perego & Hartmann, 2009). Bebbington & Thomson (2013) show that a lot of information on sustainability is still missing and that more research is necessary. Therefore, they try to stimulate scholars to expand the research on the topic of sustainability accounting.
3 organizational stakeholders in the development of environmental proactivity and audits, because they can provide support and influence decision-making. Therefore, companies should also ensure the involvement and participation of managers and employees in the development and execution of sustainability accounting. Pondeville et al. (2013) suggest that it would be interesting for future research to build on their findings and investigate what the effects are on the sustainability performance because, even though the involvement of managers is very important in sustainability accounting, there is still little research available on this specific topic. Literature in other fields of science also indicates that the influence of management involvement in sustainability on the sustainability performance could be an interesting topic to investigate, because multiple studies find significant positive effects of involvement on the performance (Woolridge & Floyd, 1990; Chen et al., 1997; Wai-Kwong et al., 2001; Harrington, 2006; Jonas, 2010). Therefore, this paper will take the suggestion of Pondeville et al. (2013) and look at the effects of manager involvement in sustainability issues on the sustainability performance. To expand this research and make findings more
applicable into management practice, two organizational contextual factors will be added to the model in the form of firm size and industry type (Oldam & Cummings, 1996; Krumwiede, 1998; Harrington, 2006).
The aforementioned matters lead to the following research questions:
RQ1: “What is the influence of manager involvement in sustainability issues on the sustainability performance?”
RQ2: “What are the effects of firm size and industry type on management involvement in sustainability issues, and on the sustainability performance?”
By using survey data from 39 business unit managers who work at different organizations in The Netherlands, 5 hypotheses will be tested. Additionally, interviews will be conducted to support the survey data with in-depth information. Through data analysis, a positive
5
L
ITERATURE
R
EVIEW
To investigate the effect of the involvement of managers in sustainability issues and firm size
on the sustainability performance, this section begins with explaining what the most important concepts in this research are, starting with corporate sustainability, and lay out a theoretical foundation for the rest of the paper.
Corporate Sustainability
Corporate sustainability is a term that is not only important in organizations, but is now also becoming increasingly important in scientific literature and more specifically in the field of management and control (Berry et al. 2009). Van Marrewijk (2003) states that the term corporate sustainability has a lot of different definitions because it is a very broad term and has different meanings to different types of organizations. According to Henri & Journeault (2010), a concern for the environment plays a
very big role in corporate sustainability. They relate this concern to management and control with the term ‘eco-control’, which they define as the integration of environmental matters within MCS and the process by which managers ensure that economic and ecological resources are obtained and used effectively and efficiently in the accomplishment of the organizations objectives (Henri & Journeault, 2010;
Schaltegger & Burrit, 2000; Anthony, 1965). However, Bebbington & Thomson (2013) find in their analysis of sustainability articles, that a common problem is that most papers fail to capture the complete image of sustainability by only focusing on the environmental aspects. Bebbington & Thomson (2013) state that the social aspects of sustainability are a part that has to be included in research on this topic, because ecological concerns often have significant social (and economic) ramifications. Van Marrewijk (2003) also finds that corporate sustainability contains more than just environmental aspects and recommends to use a definition based on the theory of the ‘Tripple Bottom Line’ (Figure 1), which shows three main parts of corporate sustainability: profit, people, and planet, respectively representing economic aspects, social aspects and environmental aspects (Van Marrewijk, 2003; Wempe &
6 Kaptein, 2002; Dyllick & Hockerts, 2002). According to McWilliams & Siegel (2001), the most dominant theory in corporate sustainability is the Stakeholder Theory. The Stakeholder Theory implies that an organization has relationships with many different groups, and that these groups both affect and are affected by the actions of the firm (Freeman, 1984; McWilliams & Siegel, 2001). This theory drives the purpose of the firm, how they operate and what their responsibilities are (Freeman, 1984). In this paper, the lens of the Stakeholder Theory and the different sustainability definitions are combined, which leads to the following definition of corporate sustainability: “Meeting the economic, social and environmental needs
of a firm’s direct and indirect stakeholders, without compromising its ability to meet the economic, social and environmental needs of future stakeholders”(Dyllick & Hockerts,
2002).
Sustainability in Management Control
Berry et al. (2009) show in their article that corporate sustainability and sustainability accounting have become emerging trends in management control research. Management control theories are put into practice via management control systems (MCS). An often cited definition of MCS is “the formalized procedures and systems that use information to
maintain or alter patterns in an organizational activity” (Simons, 1987; Perego, 2005; Henri
2006). However, literature has shown that it is recommended to also include informal control systems when looking at management control theories (Henriques & Sadorsky, 1996; Hunt & Auster, 1990; Newman & Breeden,1992; Pondeville et al., 2013). Pondeville et al. (2013) use this theoretical approach to link MCS to sustainability and create the term Environmental Management Control Systems, divided into a formal system and an informal system. However, this demonstrates the aforementioned comment that sometimes the two other aspects in the Tripple Bottom Line, profit and people, are not included in sustainability literature. Therefore, this paper will combine and adjust the definitions of Simons (1987), Simons (1995), Perego (2005) and Pondeville et al. (2013) to form two separate concepts named formal sustainability management control systems and informal sustainability management control systems. Formal sustainability management controls systems can be defined as “a package of formal, information-based routines and procedures that managers
use to maintain or alter patterns in organizational activities, specifically concerning the sustainability aspects of organizational performance” (Pondeville et al., 2013; Perego, 2005;
7 aimed at improving the sustainability of an organization, and is the visible side of
sustainability MCS. Informal Sustainability Management Control Systems can be defined as
“a package of informal, behavior-based controls that are implemented to ensure the support and involvement of managers and employees in solving sustainability related problems”
(Capron & Quariel, 1998; Pondeville et al., 2013). The concept of informal sustainability control systems is the most important concept here, because it will form the basis for the measurement of manager involvement in sustainability issues in the rest of this paper. The definitions of management control systems used in this paper fit well in combination with sustainability, because they also follow the lens of the stakeholder theory by taking into account the different groups the organization deal with, in which the main focus is on the organizational stakeholders (McWilliams & Siegel, 2001).
Now that the concepts of corporate sustainability and sustainability management control systems have been explained, and a theoretical basis has been formed by the Stakeholder Theory, the relations in this paper will be elaborated in the form of hypotheses starting with the influence of manager involvement in sustainability issues on the sustainability
performance.
Manager involvement and Sustainability Performance
Different kinds of manager involvement have been researched in the past couple of years and most studies show a significant influence of manager involvement on the researched topic of that paper. Chen et al. (1997) show in their paper that that involvement of quality managers in various fields in the organization will improve quality performance. Additionally, Jonas (2006) shows that involvement of portfolio managers in different fields in the organization will lead to better portfolio management, when there are no conflicts of interest. Wai-Kwong et al. (2001) find that human resource managers’ and other managers’ involvement in strategy making leads to higher levels of performance. Woolridge & Foyd (1990) show that middle manager involvement in the formation of strategy leads to improved organizational
performance. Additionally, Nutt (1989) shows that for the two most desirable implementation tactics, manager involvement is very important. In “Intervention”, a high involvement tactic, the authority to make strategic changes is delegated to managers who understand the
8 managers specify the strategic needs of the firm but delegate the development of action
options to the organizational group (Nutt, 1989). This approach is appropriate when the implementation requires spreading specific knowledge across the firm, or ensuring
commitment of organizational stakeholders (Nutt, 1989). Both implementation tactics can be applied in sustainability activities. These different results prove that the involvement of managers can have a significant impact on results, and that this impact is almost always positive. Relating this to sustainability, researchers promote the idea that sustainability
performance is a key responsibility of managers and employees (Berry and Rondinelli, 1998). In proactive companies, teamwork offers an interesting way to solve sustainability issues and to assign tasks. It helps control the results in a less conventional way than formal controls do (Fryxell and Vryza, 1999). Following this line of thought, Pondevill et al. (2013) highlight the importance of organizational stakeholders (employees, managers and shareholders) for the development of a corporate environmental strategy and formal and informal MCS; they are the most important perceived source of stakeholder pressure and the only influence on the development of informal MCS. This result is consistent with the statements of Darnall et al. (2008) in terms of emphasizing the importance of management and employees in the
development of sustainability proactivity and audits. He states that managers and employees can provide important support for a proactive sustainability strategy and can help with and improve decision making in sustainability activities. As a consequence, these results also indicate a positive effect of manager involvement in sustainability issues on sustainability performance and the involvement of managers appears to be critical for the successful implementation of sustainability strategies, and therefore also for a good sustainability performance. Therefore, a positive relation is expected between manager involvement in sustainability activities and the sustainability performance. However, this relationship has not been investigated before. This research will try to improve the understanding of this
relationship by building on the following hypothesis:
H1: Manager involvement in sustainability issues positively influences the sustainability
performance.
Firm size and sustainability performance
9 across 18 industries (Blau, 1970; Pugh et al., 1969; Harrington, 2004; Harrington, 2006). A consequence of firm size that is often related to performance, is that larger firms have a larger market share and can achieve economies of scale, and thus have more market power and resources available (Andries & Czarnitzki, 2014; Bourgeois, 1980; Keats & Hitt, 1988). Relating this to sustainability, it is likely that larger firms are able to deploy more resources in their sustainability strategies and can use their larger market share and power to achieve the desired sustainability results. Additionally, as larger firms, based on the scale of their activities, usually have a bigger (negative) impact, they are held more responsible for their actions and the expectations regarding sustainability activities and performance are therefore higher (Udayasankar, 2008). This means that larger companies are more likely to have active sustainability strategies, which is expected to increase the sustainability performance.
However, based on the Stakeholder Theory, the sustainability performance is also partially relative to the expectations of the different stakeholders, and these expectations are, as mentioned, influenced by the firm size (Udayasankar, 2008). This means that small companies with few sustainability activities and medium companies with moderate
sustainability activities can still have a sustainability performance that is regarded as good, because the expectations are relatively low. This can reduce the effects of firm size and this should be taken into consideration when looking at the relationship between firm size and sustainability performance. Because the expectations of stakeholders are expected to only have a partial effect, firm size is still likely to have a positive effect on the sustainability performance. This leads to the following hypothesis:
H2: Firm size is positively related to the sustainability performance.
Firm size and manager involvement
There also might be a relationship between firms size and manager involvement in
sustainability issues. Small firms generally tend to be more informal in terms of operating and communicating than large firms, which would increase manager and employee involvement because they are not limited by strict rules and procedures. These rules and procedures can hinder manager involvement in large organizations (Watson, 1980; Andries & Czarnitzki, 2014). Small firms however, often also rely heavily on the knowledge of the CEO and top managers as well, which leaves less room for employee involvement (Watson, 1980).
10 involvement requires getting everyone from top management to frontline employees involved in strategy implementation, it is hypothesized that there will be a significant relationship between firm size and total organizational involvement. Greater involvement is projected to better utilize specific knowledge across the firm, satisfy vested interests, and ensure
commitment by a variety of organizational stakeholders (Harrington, 2006). The need to address these issues is likely to be magnified in larger organizations, and therefore, this situation indicates that larger firms will have a higher level of manager involvement. Furthermore, multiple research papers show that the resources that are more available in larger firms also allow for managers to be more involved (Andries & Czarnitzki, 2014; Bourgeois, 1980; Keats & Hitt, 1988; Gallo & Christensen, 2011; Harrington (2006).
Additionally, Long et al. (2002) and Gallo & Christensen (2011) say that even when a firm is larger and more formal, both the formal and the informal management control systems are often setup strongly in a way that it encourages support behavior, which will thus cancel out the negative effects of the rules and procedures in the company. Therefore, firm size is expected to have a positive effect on manager involvement in sustainability issues. The third hypothesis will be as follows:
H3: Firm size is positively related to manager involvement in sustainability issues.
The influence of the industry type
The influence of the industry type is a factor that has been used in different ways in scientific research covering the topic of sustainability. Some research papers use the industry type as a control variable (Lo & Sheu, 2007; López et al., 2007), some papers specifically focus on the influence of the industry on sustainability (Henriques & Sadorsky, 1996; Banerjee et al., 2003), and some researchers don’t include it in their research paper (Salzmann et al., 2005). Salzmann et al. (2005) also argue that there is a lack of studies on sustainability that includes the influence of the industry type. Because of this observation and because the chosen method of analysis used in this paper, which will be covered in the next chapter, does not work very well with control variables, the effects of the industry type will be included as an independent variable in this research.
11 less inclined to be involved these types of issues. In addition to this, Mauri & Michaels (1998) state based on the Chicago school (Stigler, 1968; Demsetz, 1973), that there are often
imitation effects within an industry. This can work both ways: firms that focus on
sustainability inspire others to do the same, but if there is a trend to not focus too much on sustainability, others will follow this path. Combining the statements above, it is clear that the influence of the industry type on manager involvement can have different effects per industry, dependent on the past and current trends in that industry type. Looking at the way different industry types are concerned with sustainability, Banerjee et al. (2003) show that when an industry is more likely to produce sustainability issues, the concern for sustainability by the organizations in these industries is likely to be higher. Banerjee et al. (2003) classify
industries as manufacturing, pharmaceuticals and utilities as high impact industries and other industries such as foods, consumer products and services as moderate impact industries. This means that in the higher impact industries, the involvement of the managers in sustainability issues is also expected to be higher. Additionally, the industry type is expected to have a similar effect on sustainability performance as in the case of the firm size. Higher impact industries receive more pressure from stakeholders on the topic of sustainability, and are therefore more likely to form an active sustainability plan that will increase the sustainability performance (Henriques & Sadorsky, 1996).
H4a: The impact level of the industry positively influences manager involvement in
sustainability issues.
12 The hypotheses are combined into the conceptual model displayed below:
13
M
ETHODOLOGY
This section will describe the methodology used in this research paper. First of all, the process of data collection and the sample are discussed. Secondly, the constructs that the data analysis will focus on after the data collection will be defined. Finally, the data analysis process is described.
Data Collection and Sample
The role of both informal management control systems and managers in sustainability issues has been researched to a certain extent. However, scientific literature is inconclusive about the influence of the involvement of managers on sustainability performance. Therefore, this research will test this relationship by following the process of ‘theory testing’ (Van Aken et al., 2012). . Theory testing is the application of existing theory in an empirical study as a means of grounding a specific set of a priori hypotheses (Colquitt & Zapata-Phelan, 2007; Van Aken et al., 2012). The main part of the data will be collected by using a survey to collect quantitative data that can demonstrate a generalizable relationship between the variables (Bryman, 1992). Furthermore, qualitative data will be collected by conducting a semi-structured interview with the manager after the survey has been completed. Semi-semi-structured interviews are a useful addition in this situation, because they are well suited for the
exploration of the perceptions and opinions of respondents regarding complex and sometimes sensitive issues and enable probing for more information and clarification of answers.
Secondly, the varied professional, educational and personal histories of the sample group precluded the use of a standardized interview schedule (Louise Barriball & While, 1994). The combination of quantitative and qualitative research allows for both a wide and an in-depth view of the relationships in the conceptual model, where the qualitative data gives additional info on the findings in the quantitative analysis. The different types of data complement each other and allow for a more complete view of the situation (Philipsen & Vernooy-Dassen, 2004). The survey that will be used in this study is a pre-made survey that is based on scientific literature and it is being used in other research papers as well. This ensures the quality of the data collection.
14 the CEO and the bottom managers, and have as much responsibility as possible within this range. Furthermore, the managers ideally must operate in a business unit, have at least 30 employees reporting to them and have full profit and loss responsibility.
Constructs
The constructs that will be measured in the survey are: 1) Involvement of the managers in sustainability issues, which will be measured with the involvement of BU management in the sustainability management process and the extent to which sustainability issues are discussed during formal and informal periodic meetings at BU level (Pondeville et al., 2013). 2) The sustainability performance, which will be measures with the achievement of BU goals concerning sustainability, satisfaction of internal and external customers concerning
sustainability, BU employee satisfaction concerning sustainability, compliance with standards and behavioral guidelines concerning sustainability and the problem-solving ability of the BU in achieving greater sustainability (Hitt & Middlemist, 1979; Hit et al., 1983; Van de Ven & Ferry, 1980; Kruis, 2008). 3) Firm size, which will be measured with the number of
employees in the organization (Harrington, 2006). 4) The impact level of the industry on society. Because of the use a survey and interviews the involvement of the manager and the sustainability performance can only be measured as they are perceived by the participating manager. The survey items that will be used are added in appendix B.
Data Analysis
15 described by Baron & Kenny (1986). Furthermore, a Sobel-test will be performed as a second test for mediation (McKinnon et al., 2002).
16
R
ESULTS
Descriptive statistics
After conducting the surveys, the sample features data of managers working at 39 different companies. Table 1 shows that on average the managers in the dataset have been working in the organization for 13,77 years and have been positioned in their current job for 5,64 years, in which there is a good variety of work experience. The managers operate in a business unit with on average 798,82 employees and in an organization with on average 15.489,69
employees. Based on the excess kurtosis and skewness of these variables, it can be said that there were some managers who operate in extremely big business units in comparison with the rest of the dataset. Table 2 shows that most managers work at either a manufacturing firm or a service providing firm. There is a nice mix of organizations operating in a high impact industry (16) and organizations which are operating in a low/medium impact industry (21) in the sample. Descriptive statistics for all items in the questionnaire can be seen in table 8 which will be added in Appendix A. Table 8 shows that there are 4 missing values for questions 5.1c and 5.1d, which could mean that not all managers have the knowledge to determine the satisfaction of internal and external customers of their BU concerning the sustainability of their products/services.
Question Mean Median Min. Max. Standard
Dev. Excess Kurt. Skewness Employees BU 798,82 85 1 10000 1942,29 13,29 3,48 Employees organization 15.489,69 1.900 100 112.000 28513,98 4,26 2,25 Time in current position 5,64 5 0 18 4,26 0,91 1,08 Time in organization 13,77 9 0 40 10,47 -0,35 0,91
17
Table 2: Industry type information
Quality of the measurement model
With the data gathered from the survey a path model can be created. To assess the quality of this model, a number of statistics will be used. First of all, the quality of the items in the questionnaire will be assessed by checking the contribution of the items to the constructs with a Factor Analysis. The PLS Algorithm will be applied with a weighing schema with a
maximum of 300 iterations and a stop criterion of 10-7, and the missing data will be replaced
by the mean. The constructs contain only reflective items, in which causality leads from the construct to its items. This means the items can be assessed by their outer loadings.
(Diamantopoulos & Siguaw, 2006; Hair et al., 2014). The outer loadings should average out at 0,70 or higher and any items that have an outer loading which is much lower will be excluded. Based on the measurement quality criteria, item 5.1d will be excluded from the perceived sustainability performance construct, because the outer loading for this item is low with a value of 0,474. After this exclusion all outer loadings have a good values. The outer loadings after the exclusion are displayed in Table 3.
Industry type n (sample) Impact value
Agriculture, forestry, and fishing 1 6
Mining 0 7
Construction 3 7
Manufactoring 9 7
Transportation, communication, electric, gas, and sanitary services
3 7
Wholesale trade 2 3
Retail trade 3 3
Finance, insurance, and real estate 4 3
Services 7 3
Public administration 0 3
Non-classfiable establishments 5 3
18
Table 3: Outer loadings
Table 4: Construct evaluation statistics
Latent Variable Items Outer Loadings
Manager Involvement in Sustainability 3.3d 0,922 3.3e 0,925 Sustainability Performance 5.1a 0,857 5.1b 0,747 5.1c 0,651 5.1e 0,852 5.1f 0,751 5.1g 0,885 5.1h 0,939 Firm Size 1.3 1,000
Industry Sustainability Impact 1.1 1,000
The internal consistency will now be assessed by testing if the items can be combined into its assigned construct. This can be tested by looking at the Cronbach’s alpha and the composite reliability. In PLS-SEM methods, the composite reliability is more important than the
Cronbach’s alpha (Hair et al., 2013). The results are displayed in Table 4. All values for Firm Size and Industry Sustainability Impact are 1,000, because these constructs have been
measures with one basic item. According to Santos (1999), a Cronbach’s Alpha higher than 0,70 shows a sufficient internal consistency, and this is the case for both dependent variables. A good composite reliability lies between 0,60 and 0,95, which also holds in this model.
Latent Variable Cronbach's
Alpha Composite Reliability AVE Manager Involvement in Sustainability 0,827 0,827 0,853 Sustainability Performance 0,912 0,930 0,660 Firm Size 1,000 1,000 1,000
Industry Sustainability Impact 1,000 1,000 1,000
19
Table 5: Pearson Correlations and Fornell-Larcker Criterion Analysis
Table 6: VIF-values
for each construct is displayed in table 4. The values should be higher than 0,5 which indicates that more than 50 percent of the variance of the survey items is explained by the construct (Hair et al., 2014). This holds for all constructs. According to Hair et al. (2014), the Fornell-Larcker criterion expects the square root of the average variance extracted to be higher than its highest correlation with any other construct. The statistics for these measures are displayed in table 5, and it shows that for all constructs the Fornell-Larcker Criterion holds.
Latent Variable Firm Size Industry
Sust. Impact Manager Inv. in Sust. Issues Sust. Performance Firm Size 1.000
Industry Sust. Impact 0.074 1.000
Manager Inv. in Sust. Issues 0.316 0.110 0.923
Sustainability Performance 0.166 0.127 0.674 0.778
Based on the various quality tests and statistics it can be concluded that the model has a sufficient reliability and validity.
Evaluation of the structural model
Now that the model has been determined to be of sufficient quality, the relations between the different constructs can be assessed and the hypotheses can be tested. The first step is to check for collinearity issues by examine if the VIF-values of the constructs are all below a value of 5 (Hair et al., 2014). The VIF-values are displayed in table 6, which shows that it holds for all constructs in this model and that therefore there is no increased risk for collinearity issues.
20 In the following section a bootstrap will be used to simulate a bigger sample size. For this bootstrap procedure a sample size of 5000 will be generated, in which missing values will be replaced by the mean and sign changes will be ignored. An overview of the statistics for the hypotheses is added to Appendix A as table 9. The results for every hypothesis will now be interpreted and explained separately, and information from the interviews will be used to provide an in-depth view of the situation.
H1: Manager involvement in sustainability issues positively influences the sustainability
performance.
For a standardized path coefficient to be significant at the 95 percent confidence interval the P-value should be a value of 0,05 or lower. The first hypothesis shows a positive path coefficient of 0,686 and a low standard deviation of 0,094. This leads to t-statistic of 7,276 and a P-value that is a lot smaller than the 0,05 that is necessary (0,000). Table 10 in
Appendix A displays the R2-values and the Q- values for the 2 dependent variables and shows
a R2 of 46,0% and a Q2 of 0,211 for Sustainability Performance. Hair et al. (2014) rate a R2
value of 25% as relatively weak, 50% as medium, and 75% as large and for the Q2 these
strength count for 0,02, 0,15 and 0,35. This means that both the R2 and the Q2 are of medium
strength. Next, also the f2 size effect is calculated, which shows the effect of removing one of
the constructs on the amount of variance in the construct that is explained by the variables.
The f2 can be calculated by using the formula (R2 included – R2 excluded) / (1 – R2 included),
in which R2 included is the normal R2 and R2 excluded is the R2 with a construct removed.
According to Hair et al. (2014), f2 size effect-values larger than 0,35 are significant. For H
1
the F2-value is 0,740, which means that also for both the P-value and the F2-value the relation
between manager involvement in sustainability issues and the sustainability performance is
significant, and that therefore H1 is accepted.
In addition to this, the interviews also show support for this relationship. For example, in the interview with a manager of company M the following statements are made:
“We are very active in managing the vitality of our employees and other sustainability activities.”
“We highly value sustainability. Doing something for society and mankind is a central theme
21 and
“In external audits we often hear that we are a leader in the field of sustainability.”
“Other companies see us as an example in managing sustainability activities.”
This shows that the involvement of managers in sustainability activities is very high, and that because the managers are so involved in this theme, it leads to the company being a leader in the field of sustainability.
Similarly, the interview with a manager of company E shows that when the managers are not very involved, the sustainability performance is likely to low.
“At this point in time, we are not very involved in sustainability issues”
“We only discuss sustainability activities when the legislation changes or a customer has a specific requirement”.
“Our customers our relatively satisfied, but in that our sustainability activities are only the minimum level that is necessary.
These statements strengthen the supported hypothesis and underline the relationship between manager involvement in sustainability issues and the sustainability performance.
H2: Firm size is positively related to the sustainability performance.
The standardized path coefficient for the relation between firm size and the sustainability performance is -0,055, which shows surprisingly a small negative effect. However, the standard deviation is 0,100, the t-statistic is 0,548, and the P-value is 0,298. This means that
the P-value is a lot higher than 0,05 and that the relationship is insignificant. The F2 is also
much lower than 0,35 with a value of 0,006. Therefore, H2 is not accepted.
In the interviews the managers mentioned that larger firms probably feel more pressure to have an active sustainability plan, and manager of company E stated that:
“As relatively small or medium sized company, we don’t really feel the pressure to be very
active in sustainability activities.”
Additionally, the manager of company K also stated that:
“The bigger an organization is, the more you have to take responsibility in the area of
22 However, the managers of the larger firms also mentioned different reasons of why their sustainability performance wasn’t necessarily very high.
Manager of company Z: “For now, a very active sustainability plan is not necessary to
advance in the market.”
And manager of company K: “As a company that is mainly focused on giving advice, we
don’t have the opportunities to have a high sustainability performance.”
The statements show that in some ways the theory leading up to H2 is not wrong. However,
the effect that firm size has on the sustainability performance is likely to be influenced by a lot of different factors, that can also cancel out the effect. The manager of company M mentioned that:
“…it is still a choice that companies can make; to be very active in sustainability or to not be very active.”
H3: Firm size is positively related to manager involvement in sustainability issues.
With a value of 0,309, the standardized path coefficient shows a positive effect between firm size and manager involvement in sustainability issues. The standard deviation is 0,167, and the t-statistic of 1,857 gives a P-value of 0,063. This means that the relation is not significant on a 95 percent confidence interval, however it is significant on a 90 percent confidence
interval. The F2-value of the hypothesis is 0,106, and is thus lower than the needed value of
0,35. Because the relationship is both insignificant on a 95 percent confidence interval and
insignificant in the F2-value, H
3 is not accepted.
The statements of the manager of company K show support of the insignificance:
“Our corporate group assigned a specific department to plan the sustainability strategy. We
can decide how to act on that, but most decisions have already been made.”
And manager of company Z: “We think we can do better in the area of sustainability, but our
corporate group does not think that that is necessary.”
This shows that the more formal setup of larger companies indeed hinders the sustainability
performance, and can possibly explain the insignificant relation in H3.
23 “As small / medium firm we also don’t have enough people to be very focused on
sustainability. For larger firms it is probably easier to assign people to these tasks.”
This does support the theory that larger firms have more resources available to increase the sustainability performance, and this could be one of the reasons why the relation is still positive and significant on a 90 percent confidence interval.
H4a: The impact level of the industry positively influences manager involvement in
sustainability issues.
The standardized path coefficient of H4a is 0,087, which is a small positive effect. With a
t-statistic of 0,559 and a P-value of 0,576, the relation between the level of negative impact of
the industry and the manager involvement in sustainability issues is not significant. The F2
-value also shows an insignificant relation with a -value of 0,008.
The interviews with the managers resulted in mix responses. None of the manager mentioned a very big pressure to perform well in the area of sustainability. The manager of company K, a service providing company, stated for example:
“We are not a leader in sustainability, also because of the type of industry we are in” But the manager of company E, a manufacturing firm, stated:
“We don’t feel a lot of pressure to perform well in sustainability. I think Chemical firms, for
example, feel a lot more pressure”.
This shows that the pressure to perform well in the area of sustainability, may not be as big in non-chemical firms as is suggested in theory, which might explain the insignificant relation between the industry impact and the sustainability performance.
H4b: The impact level of the industry positively influences sustainability performance.
The relation between the level of negative impact of the industry and the sustainability
performance shows similar values as in H4a. The standardized path coefficient is 0,055, the
standard deviation is 0,132 and the t-statistic is 0,468 which gives a P-value of 0,468.
Therefore, the relation is this hypothesis is insignificant. With a F2-value of 0,002 it is also
insignificant. This result seems comparable with H4a and the same reasons could apply. The
24
Table 7: P-values Mediation effects
There are two possibilities for a mediation effect to occur. The management involvement in sustainability issues construct can mediate the relation between firm size and the
sustainability performance, and it can mediate the relation between the impact of the industry type and the sustainability performance. In the first possible mediation effect the standardized path coefficient without the mediator is -0,050, and with the mediator it is 0,197. In the second possible mediation effect the standardized path coefficient without the mediator is 0,219, and with the mediator it is 0,054. This means that with the mediator the path
coefficient is less powerful, which could indicate that there is a mediation effect, because the mediator takes over some of its strength. To find a mediation effect, the following conditions must hold: First, the independent variable must affect the mediator in the first equation; second, the independent variable must be shown to affect the dependent variable in the second equation; and third, the mediator must affect the dependent variable in the third equation (Baron & Kenny, 1986). If these conditions all hold in the predicted direction, then the effect of the independent variable on the dependent variable must be less in the third equation than in the second. Perfect mediation holds if the independent variable has no effect when the mediator is controlled (Baron & Kenny, 1986). The first step is to reduce the standardized model to only the relevant constructs and run a bootstrap for every equation. The results are displayed in table X.
Relation P-values
Firm Size Manager Inv. In
Sust.
0,053
Firm Size Sustainability Perf. 0,440
Manager Inv. In Sust.
Sustainability Perf. 0,000
Industry Manager Inv. In
Sust.
0,434
Industry Sustainability Perf. 0,397
Derived from table X, it can be said that basically three of the five relations are not
26
D
ISCUSSION AND
C
ONCLUSION
This section will discuss the most interesting results of this study, the contributions to existing scientific literature, and the implications for business practice and society. Additionally, the study’s limitations will be addressed and suggestions will be made for future research. This study investigated the influence of manager involvement in sustainability issues on the sustainability performance, as well as the effects of the organizational contextual factors firm size and industry type. With this subject, this study answers to a call from Bebbington & Thomson (2013) to expand the research on sustainability, and also answers to a suggestion of Pondeville et al. (2013) to investigate what the influence is of organizational stakeholders, in this case the business unit manager, on the sustainability performance. In general, this study contributes to a better understanding of the importance of the role of BU management in sustainability.
The most important finding in this study is that the involvement of the business unit manager has a strong positive influence on the sustainability performance. This is in line with the findings of Pondeville et al. (2013) that managers are a very important factor in the sustainability plan of an organization, and it confirms the findings in the
involvement-literature that manager involvement can have a significant impact on performance (Woolridge & Foyd, 1990; Wai-Kwong et al., 2001; Jonas, 2006). The interviews also showed support for this result, because the most involved manager clearly had the best performance, as the
organization was described by external parties as “a leader in the field of sustainability”. Therefore, this study also agrees with Berry and Rondinelli (1998) and promotes the idea that sustainability performance should be a key responsibility of managers to increase the
involvement. With these findings, this study provides a clear answer to the first research question.
The second research question focuses on finding out what the effects are of the organizational context of firm size and the industry type. The tests that assessed these effects all showed an insignificant relationship on a 95 percent confidence interval. However, the relationship between firm size and manager involvement in sustainability issues is significant on a 90 percent confidence interval. The interviews give some clarification for this result by
27 supported (Andries & Czarnitzki, 2014). However, the interviews also contradict the effect suggested in the theory of Gallo & Christensen (2011), which suggests that even when a firm is larger and more formal, both the formal and the informal management control systems are often setup strongly in a way that it encourages support behavior and involvement. Instead, the two interviews at the larger firms support the theory of Watson (1980), which predicts that the rules and procedures that larger firms often have can hinder manager involvement. Both managers mentioned that they were hindered in their involvement by the rules of the
corporate group. For the relationship between firm size and sustainability performance the theory suggested that larger firms have a bigger negative impact and that therefore they are forced to have more active sustainability plans and a better sustainability performance
(Udayasankar, 2008). However, the interviewed managers at the larger firms did not feel that much pressure to have a high sustainability performance. The interviewed managers indicated that there were multiple different reasons why there performance was not as high as was suggested in the theory, which among others were the formal rules and procedures. The insignificant result in the influence of the industry type do not support the theory by Banerjee et al. (2003) that higher impact industries are forced to have a high sustainability
performance. It could be the case that the level of impact of the manufacturing industries for example, or the pressure that stems from it, are not as high as suggested by Banerjee et al. (2003). They place the manufacturing firms in the high impact category. However, two interviews pointed out that this does not have to be the case.
This study has several limitations. First of all, the study has been conducted with a sample size of n = 39, and even though the PLS-SEM analysis method works well with small sample sizes, this is still too small of a sample size to be able to generalize results. Second, the sample may be vulnerable to a self-selection bias, in which organizations that value sustainability higher than other organizations are more likely to respond to the survey and interview requests. Third, not all industries were evenly represented in the sample. There was an
29
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Table 8: Survey items statistics
A
PPENDIX
A
Question Mean Median Min. Max. Standard
Dev. Excess Kurt. Skewness Missing Values 1.1 - Industry Impact 4,919 3 3 7 1,978 -2,094 0,074 2 1.2 - Employees working in the BU 798,821 85 1 10000 1942,286 13,289 3,484 0 1.3 - Employees working in the organization 15.489,692 1.900 100 112.000 28513,984 4,255 2,249 0
1.4 - Time that the manager has been working in his/her current position
5,641 5 0 18 4,264 0,906 1,081 0
1.5 - Time that the manager has been working in his/her organization 13,769 9 0 40 10,472 -0,351 0,907 0 3.3d - Involvement of BU management in the sustainability process 4,359 4 1 7 1,747 -1,070 -0,010 0
3.3e - Discussions about sust. issues at BU level during formal and informal periodic meetings 4,436 5 1 7 1,892 -1,096 -0,429 0 5.1a - Achievement of BU goals concerning sustainability 4,632 5 1 7 1,629 0,185 -0,663 1
5.1b - Cooperation with other
BU on sustainability topics 4,359 4 1 7 1,790 -0,930 -0,318 0
5.1c - Satisfaction of internal customers of your BU concerning the sust. of your products/services
4,400 5 1 7 1,534 -0,367 -0,621 4
5.1d - Satisfaction of external customers of your BU
concerning the sust. of your products/services
4,743 5 1 7 1,137 1,899 -1,224 4
5.1e - BU employee satisfaction with the sustainability of your products/services
4,641 5 1 6 1,349 -0,883 -1,062 0
5.1f - Compliance with standards and behavioral guidelines concerning sustainability
5,308 6 1 7 1,604 -0,102 -0,839 0
5.1g - Problem-solving ability of the BU in achieving greater sustainability
4,538 5 1 7 1,566 -0,377 -0,678 0
5.1h - Overall BU
36
Table 9: Hypotheses statistics
Table 10: R2 and Q2 statistics
37
A
PPENDIX
B
Survey Questions
1.1 Please indicate the branch/industry that your business unit is in:
o Agriculture, forestry, and fishing o Mining
o Construction o Manufacturing
o Transportation, communications, electric, gas, and sanitary services o Wholesale trade
o Retail trade
o Finance, insurance, and real estate o Services
o Public administration
o Non-classifiable establishments
1.2 Including yourself, how many employees work for your business unit? Please include
temporary/interim employees who directly or indirectly report to you.
_________________________ business unit employees
1.3 How many employees work for your organization? Please include temporary/interim
employees who directly or indirectly report to your organization.
_________________________ organization employees
1.4 How long have you been working in your current position?
_________________________ number of years
1.5 How long have you been working for this organization?
_________________________ number of years
3.3 Now, we focus on the use of informal sustainability management information. Please indicate the extent to which the following information is used, with respect to your business unit.
to a small
extent to a large extent
d. BU management is really involved in the
sustainability management process. 1 2 3 4 5 6 7
e. Sustainability issues are discussed during formal and informal periodic meetings at BU
38
5.1 Perceived Sustainability Performance
How would you rate the sustainability performance of your business unit on the following aspects? Please feel free to write “don’t know” or “not applicable” after an item when appropriate.
very
poor factory satis- good very
a. Achievement of BU goals concerning
sustainability 1 2 3 4 5 6 7
c. Satisfaction of internal customers of your BU concerning the sustainability of your
products/services 1 2 3 4 5 6 7
d. Satisfaction of external customers of your BU concerning the sustainability of your
products/services 1 2 3 4 5 6 7
e. BU employee satisfaction with the
sustainability of your products/services 1 2 3 4 5 6 7
f. Compliance with standards and behavioural
guidelines concerning sustainability 1 2 3 4 5 6 7
g. Problem-solving ability of the BU in
achieving greater sustainability 1 2 3 4 5 6 7
39
A
PPENDIX
C
Interview Protocol
How is your company active in managing sustainability issues? o Environmental activities?
o Social activities?
o Can you give any examples?
How are the decisions regarding these sustainability issues made? Are managers very involved in the sustainability management?
Do managers also make suggestions?
What are some of the goals of the company regarding sustainability? What is your opinion on the sustainability performance of your BU?
o To what extend are the sustainability goals met?
o How do other parties such as customers think about the sustainability performance of the company?
o How does the sustainability performance of the BU compare to competitors or peers?
Related to the previous answers, what do you think is the influence of the size of the company on the involvement of the employees?
o Does the size of the company influence the importance of sustainability? o Does the size of the company influence the involvement of the employees?
40
A
PPENDIX
D
A short summary of the companies and interviews:
Company Z
Company Z is a big company with 3300 employees, which manufactures products that in itself improve sustainability. The managers are moderately involved with sustainability. They have tried a higher level of involvement in the past, but they were or are hindered by the corporate rules and objectives on sustainability. The manager states that “if we were to try and
set up an active sustainability project, I think others will follow us, however the corporate focus is currently not on this topic”. This shows that even though the firm is relatively big,
Company Z only has a moderate focus on sustainability.
Company K
Company K is another big company and has 3000 employees, The company is active in the finance and service industry. According to the manager, the company is influenced by the rules and objectives that are determined by the corporate organization. This lowers the level of involvement in sustainability issues to a certain degree. However, the manager does state that “the bigger you are as an organization, the more you have to take your responsibility in
the area of sustainability”. He also indicates that in the finance and services industry there is
limited amount of things you can achieve regarding sustainability.
Company M
Company M is a medium sized company that is active in the manufacturing industry. The company is very much focused on sustainability and the managers are also very involved in sustainability issues. This leads to a high sustainability performance. The manager does note that “this company has always been active on the topic of sustainability and that makes it
easier. Companies that are not focused on sustainability may not have the resources to become active”. Additionally, the manager states that the company is quite unique in its
41
Company E
Company E is a medium sized organization that is active in the manufacturing industry. This manager is not very involved in sustainability issues and states that “we are basically only
involved in the sustainability issues that are necessary for us, and we are not actively focusing on it. The only focus on sustainability comes from legislation or a specific demand of a
