The predictive value of strategic orientation for ESG performance over time

Pages123-142
DOIhttps://doi.org/10.1108/CG-03-2019-0105
Date21 January 2020
Published date21 January 2020
AuthorNicolas Chevrollier,Jianhong Zhang,Thijs van Leeuwen,André Nijhof
Subject MatterStrategy
The predictive value of strategic
orientation for ESG performance over time
Nicolas Chevrollier, Jianhong Zhang, Thijs van Leeuwen and André Nijhof
Abstract
Purpose Despite the scholarlyattention for the integration of sustainabilitywithin business strategy and
processes, little is known about how strategic orientations of companies influence this integration.
Drawing on stewardship theory, this paper aims to analyse the influence of strategic orientation of
companies on their environmental, social and corporate governance (ESG) performance and the
moderatingeffect of three different politicalmodels of economy (Rhine, British and American).
Design/methodology/approach This paper creates a measurement for strategic orientations by
using a coding scheme with a five-category evaluation matrix. The main empirical analysis is done by
a fixed-effect model with a panel data set covering 179 publicly traded companies over the 2009-2016
period.
Findings The conclusions of this paper presentthat consistent over time a stronger orientation on
stewardship positively associates with higher ESG performance. Additionally, the political model of
economy significantly alters the relationship indicating the effect of strategic orientation on ESG
performance. The relationship is significantly strongerin the Rhine model and significantly weaker in the
Britishmodel, when both compared to the American model.
Originality/value The implications of this paper are vital to understanding corporate strategic
orientation and its relationshipto actual corporate behaviour and long-term performance. Implementing
the elements of focus, motivation, commitment, support and communication linked to a stewardship
orientationis fundamental to achieve higher levels of sustainabilityperformance.
Keywords Competitive strategy, Sustainable development, Social responsibility,
Corporate social responsibility, Political economy
Paper type Research paper
1. Introduction
Within the context of increased focus on sustainability implementation and investments
(Mun
˜oz-Torres et al., 2004), the distinction between sustainable companies and their less
sustainable counterparts has become relevant for a greater number of managers and
investors. Both progressive and mainstream investors seek opportunities for long-term
investments in companies genuinely committed to environmental, social and governance
(ESG) issues (Guyatt, 2005;Mun
˜oz-Torres et al., 2004). As Engert et al. (2016) state, this
genuine commitment requires a matching strategic orientation to ensure that ESG factors
become integrated into theoverall business strategy and processes.
The strategic orientation of a company can be seen from both the instrumental (or agency)
perspective and the stewardship perspective (Aguinis and Glavas, 2012;Hernandez,2012;
McCuddy and Pirie, 2007;Nijhof and Jeurissen, 2010). From the instrumental perspective,
sustainability is seen as one of the available business cases and as a way of gaining a
competitive advantage. The stewardship orientation in contrast, sees the implementation of
sustainability from a normative and long-term point of view (Hernandez, 2012). A company
engages in ESG developments because it is simply the right thing to do. As these two
perspectives differ significantly on several aspects (Nijhof and Jeurissen, 2012), this study
Nicolas Chevrollier,
Jianhong Zhang,
Thijs van Leeuwen and
Andre
´Nijhof are all based
at Nyenrode Business
Universiteit, Breukelen,
The Netherlands.
Received 25 March 2019
Revised 16 July 2019
Accepted 30 August 2019
Ethical approval: This paper
does not contain any studies
with human participants or
animals performed by anyof
the authors.
DOI 10.1108/CG-03-2019-0105 VOL. 20 NO. 1 2020, pp. 123-142, ©Emerald Publishing Limited, ISSN 1472-0701 jCORPORATE GOVERNANCE jPAGE 123
investigates whether the strategic orientation of a company could explain the difference in
ESG performance.
Furthermore, as the meta study of Aguinis and Glavas (2012) shows several factors serve
as a moderator in the relationship between corporate sustainability predictors and their
outcome. Especially the power and legitimacy of stakeholders (Aguinis and Glavas, 2012)
and the presence of a legal framework supportingthis (Lambooy and Argyrou, 2014), have
been theorised to alter the described relationship. These altering factors could be placed
within the framework that Albert (1992) describes as the political model of economy. This
political model of economy focusseson different forms of capitalism that are used in various
geopolitical areas, and offers an explanation on whether an economy is more shareholder-
or stakeholder oriented (Albert, 1992). The political model of economy could strengthen or
weaken the effect of the strategic orientation of a company on its ESG performance.
Consequently, this article focusses on the impact of corporate strategic orientation and
examines its effect on ESG performance over time. In addition, the research also
investigates the moderating effect of the political model of economy on the relationship
between strategic orientation and ESG performance. In other words, to what extent is the
strategic orientation of a company influencing ESG performance, and to what extent is this
relationship moderated by the politicalmodel of economy?
Section 2 contains a description of the main concepts of this study based on existing
literature. Next, the method used for the empirical study is clarified in Section 3 followed by
the presentation and discussion of the results on Sections4 and 5. Finally, Section 6 finishes
with the main conclusions, limitations and recommendations for future research, as well as
managerial practice.
2. How strategic orientation impacts sustainability performance
2.1 Strategic orientation
As elaborated by Hynes (2009) and Brower and Rowe (2017), the strategic orientation of a
company is the conceptionof a company on how to conduct business in the long run based
on deeply rooted values and beliefs. Dependingon the context of a specific study, literature
distinguishes between different types of strategic orientations. For example, strategic
orientations to the renewal of organisations (Agarwal and Helfat, 2009) and strategic
orientations to competition and market leadership (Treacy and Wiersma, 1997).
Furthermore, Yin and Jamali (2016) argue that social issues are becoming of strategic
importance for companies not only for their fiduciary performance but also in terms of
reputation, customer relationship and license to operate. Consequently, in this paper, the
chosen context is the relationship between strategic orientations concerning the interface
between business and society and its influence on organisations’ sustainability
performance. With that lens, Nijhof and Jeurissen (2010) propose to differentiate between
an instrumental orientationand a stewardship orientation.
From an instrumental orientation, sustainability is seen as a business case and a way of
gaining a competitive advantage. Sustainability is merely a way of differentiating the
company and its operations from the competition (Nijhof and Jeurissen, 2010). A
clarification of the instrumentalorientation can be found in instrumental and agency theories
(Garriga and Mele
´, 2004). Garriga and Mele
´(2004) state that a company is a tool to create
prosperity and its sole responsibility towards society is the creation of wealth (instrumental
theory). The latter, agency theory, posits that it is the responsibility of management (the
agent) to serve the shareholders (principles) by maximizing shareholder value, an
obligation that is controlled by monitoringand rewarding behaviours (Jensen and Meckling,
1976). In this sense, management would be obliged to incorporate ESG factors into their
corporate strategy, simply because it positively affects the value of the stock (Pirie and
McCuddy, 2007). From both instrumental theory and agency theory,the corporation is seen
PAGE 124 jCORPORATE GOVERNANCE jVOL. 20 NO. 1 2020

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