Mismanagement of Sustainability: What Business Strategy Makes the Difference? Empirical Evidence from the USA
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This paper examines whether and to what extent the overall business strategy influences the firm’s mismanagement of sustainability. Specifically, an empirical measure for the mismanagement of sustainability is developed by exploiting the newly available materiality guidelines for US firms to define industry-specific material sustainability issues. Using this measure, this paper shows that mismanagement of sustainability can represent unethical business behavior when firms intentionally perform better on immaterial issues than on material issues by diverting stakeholders’ attention from the firm’s low overall sustainability performance. This paper assumes that the right business strategy can prevent such unethical actions. Based on Miles and Snow’s (Organizational strategy, structure and process, McGraw-Hill, New York, 1978) organizational theory, this paper distinguishes between Prospector and Defender business strategies. By employing multiple firm-level panel regressions, the findings suggest that Prospector-type firms are more likely to mismanage sustainability issues compared to Defender-type firms intentionally. The results give implications for researchers, regulators and standard setters, auditors, sustainability practitioners, and scholars.
KeywordsBusiness ethics Business strategy Corporate performance Corporate social responsibility Materiality Strategic management Sustainability
JEL ClassificationG3 L2 M1 M2 M3 M4
The author gratefully acknowledges the helpful comments and suggestions from the editors and two anonymous reviewers. Thanks also to the conference participants at the 2016 IESE 19th Symposium on Ethics 19th International Symposium on Ethics, Business and Society, 2017 Management Accounting Section (MAS) Midyear Meeting of the American Accounting Association (AAA) and the 2017 Annual Congress of the European Accounting Association (EAA). The paper’s development has started during a research stay as visiting scholar at the Boston University, Questrom School of Business, Boston, MA, USA, in 2015.
Compliance with Ethical Standards
Conflicts of interest
The author declares that she has no conflict of interest.
Research Involving Human Participants and/or Animals
This article does not contain any studies with human participants or animals performed by any of the authors.
No humans are involved.
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