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Talk the Talk or Walk the Walk? An Examination of Sustainability Accounting Implementation

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Abstract

This study examines how ambiguity in corporate objectives affects managers’ choice between opposing sustainability and short-term profit goals. We test this question with an experiment in which we vary whether environmental sustainability is included explicitly (vs implicitly) as a strategic objective that is used for managers’ performance evaluations. Findings show that managers increase (decrease) biodegradable production and correspondingly decrease (increase) short-term profit when environmental sustainability performance is explicitly (implicitly) incorporated within the company’s strategic objectives. Also, managers in the implicit incorporation group are more likely to decrease (increase) their biodegradable production when they learn that their counterparts within the firm have chosen to decrease (increase) biodegradable production in other product lines. Further, managers in the explicit incorporation group have greater trust in senior management, and that trust mediates the negative relationship between incorporation ambiguity and the level of biodegradable production. The theoretical and practical implications of this study are discussed.

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Notes

  1. Kaplan and Norton (1992, 1996) first developed and promoted the balanced scorecard (BSC) to link a company’s long-term strategy with its short-term action, thereby addressing a deficiency in traditional management accounting systems. Conventional BSC contains a balanced set of financial and non-financial (customer, internal business processes, and organizational learning and growth activities) performance measures for monitoring progress toward a company’s strategic objectives. As the use of non-financial measures is considered more forward-looking and hence more useful to a company in sustaining long-term competitive advantages (Kaplan and Atkinson 1998), the strategic performance management approach of BSC by Kaplan and Norton (1996) incorporates the role of non-financial measures. The BSC has thus been used as a strategic management system that uses a multidimensional set of financial and nonfinancial performance metrics (Epstein and Buhovac 2014).

  2. In our experiment, environmental sustainability performance was either implicitly incorporated in all of the firm’s strategic objectives (i.e. not explicitly stated), or explicitly stated as a separate strategic objective.

  3. Prior to administering the survey with Qualtrics, we conducted a pilot study on a separate group of 36 senior business undergraduates from a U.S. state university. Based on the feedback obtained, we made some minor wording modifications to the survey instrument.

  4. Qualtrics panel service has been extensively and successfully used in recent business academic research, enabling researchers to obtain focused and externally valid samples (Brandon et al. 2014). Its limitations, however, include potential threats to internal validity due to the lack of laboratory control, likelihood of non-probability sampling due to a higher non-response bias, as well as accountability and effort considerations (Brandon et al. 2014).

  5. The types of incentives received may vary and are based on the length of a survey, their specific panelist profile and target acquisition difficulty. The incentives received may include cash, airline miles, gift cards, redeemable points, sweepstakes entrance and vouchers. Not all of the participants have the same compensation preference. Some choose to receive gift cards, others prefer flier miles or the cash-out option. Also, their compensation withdrawal can come at different stages. So, while some may prefer a small gift card after completing each survey, others may choose to take numerous surveys before redeeming a larger gift card/flier miles/sweepstakes, etc.

  6. The firm’s identity was kept fictitious so as to prevent participant responses from being driven by one’s preconceived notion of any particular company that may in turn affect the eventual judgments. As a realism check, all respondents were also asked to respond, on a 0 (very unrealistic) to 10 (very realistic) scale, to the following question at the end of the task: “How realistic do you feel this work task is compared to a real-world business decision-making situation?” Results show a mean (SD) response of 7.362 (1.577), with no significant difference between the experimental conditions (p > 0.100).

  7. All respondents were asked to respond, on a 0 (strongly disagree) to 10 (strongly agree) scale, to the following statement: “I am generally familiar with the concepts of the balanced scorecard.” Results showed a mean (SD) response of 7.803 (1.507), with no significant difference between the experimental conditions (p > 0.100).

  8. Prior research has examined either incorporating corporate sustainability objectives within the traditional four perspectives, or implementing sustainability within a newly created fifth perspective. The reasons cited for establishing a fifth BSC perspective for sustainability include viewing such objective as a core strategy of the organization, using such separate perspective as a tool to focus management’s attention and communication on the sustainability issues and objectives (Kaplan and Wisner 2009), when the company has high-profile sustainability issues (Bieker and Gminder 2001), as well as when there is a high resource allocation level to such objectives (see Butler et al. 2011; Epstein and Rejc 2005). Extending this stream of research, our operationalization of implicit versus explicit environmental sustainability incorporation examines its effects on employees’ perceptions.

  9. Order of presentation for questions A and B were random and equally divided. Results remain qualitatively unchanged for each condition (p > 0.100).

  10. MPlus software is a latent variable modeling program that can perform analyses such as factor analysis, structural equation modeling, path analysis, etc., and can model both categorical and continuous latent variables. In this study, MPlus software is used to analyze the overall path model.

  11. Order of presentation for these two statements were random and equally divided. Results remain qualitatively unchanged for each condition (p > 0.100).

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Author information

Authors and Affiliations

  1. Department of Accounting, College of Business Administration, University of Northern Iowa, Cedar Falls, IA, 50614, USA

    W. Eric Lee

  2. Department of Accounting, College of Business Administration, Kansas State University, Manhattan, KS, 66506, USA

    Amy M. Hageman

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  1. W. Eric Lee
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  2. Amy M. Hageman
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Correspondence to Amy M. Hageman.

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Conflict of Interest

W. Eric Lee declares that he has no conflict of interest. Amy M. Hageman declares that she has no conflict of interest.

Ethical approval

All procedures performed in studies involving human participants were in accordance with the ethical standards of the institutional and/or national research committee and with the 1964 Helsinki declaration and its later amendments or comparable ethical standards.

Informed consent

Informed consent was obtained from all individual participants included in the study.

Appendices

Appendix A: Experimental Case

You are to assume the role of a product line manager in ScratchWorks Enterprises, a US-based manufacturer and distributor of consumable goods.

Product Line: ScratchWorks Enterprises has many product lines. You are in charge of one of the product lines, XG. Currently, this product line comprises of two product types for sale to retail customers: The first type is sustainable (biodegradable) XG-59. Although the selling price per unit of this product type is higher, the raw materials used in manufacturing are also more expensive due to their lower availability. Overall, you can make a net profit of $0.02 by selling each unit of XG-59. The second type is conventional (plastic) XG-60. Although the selling price per unit of this product type is lower, the raw materials used in manufacturing are also cheaper and more commonly available. Overall, you can make a net profit of $0.05 by selling each unit of XG-60.

Assume (in each monthly production work period): All other costs are linear regardless of the decision to produce more, equal or less of one product type over the other; constant selling price per unit regardless of the sales volume; and all units produced for either product type can be sold.

Dilemma: Even though the plastic products bring in more profit, you have been advised by various activist groups in regard to the environmental harm and discarding hazards posed by plastic. Looking forward, the firm’s senior management has also expressed the intention to boost the company’s environmental image in the long run by integrating environmental sustainability performance within the firm’s strategic objectives. A boost in the company’s environmental image, accompanied by a greater demand for its biodegradable products, will likely increase the long-term profit potential of biodegradable products.

Task: Currently, the product line you are managing is allocated a total production capacity of 10,000 units in each work period. You have been appointed by the firm’s senior management to decide on the proportion of biodegradable (XG-59) versus plastic (XG-60) products you will like to produce, with a total possible capacity of 10,000 units, in each work period.

Appendix B: Experimental Manipulation

See Tables 6 and 7.

Table 6 Implicit Incorporation
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Table 7 Explicit incorporation
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Lee, W.E., Hageman, A.M. Talk the Talk or Walk the Walk? An Examination of Sustainability Accounting Implementation. J Bus Ethics 152, 725–739 (2018). https://doi.org/10.1007/s10551-016-3282-8

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