Fear of missing the mark can subvert ambitious targets
This is part 3 of a 6-part series revealing findings from SustainAbility’s recent report, "Targeting Value," which focuses on how to maximize impact through corporate sustainability goal setting. Part 1 explores the idea of maximizing the impact of corporate goals and Part 2 discusses what companies are missing about water goals.
The No. 1 reason companies do not set ambitious goals is the possibility that they might fail to achieve them.
We heard this in our survey of and interviews with corporate sustainability practitioners from a range of industries during the research for SustainAbility's recently published report, "Targeting Value." The graph below illustrates that 50 percent of survey respondents cited not knowing if or how a goal would be achieved as one of the top barriers to not setting a goal in the first place.
And the anticipated negative repercussions of failing to meet a target is also part of the reason that companies that do set ambitious goals — especially more substantive or longer-term ones — remain reluctant to make them public, according to our research.
Given that reaching a goal often depends on factors outside company control, trepidation is understandable. For example:
- Companies face uncertainty over future external conditions or changes in the business, such as acquisitions or divestitures, that will affect operations.
- Many companies set targets that rely on outside parties for achievement.
- The speed at which an enabling technology develops can affect the feasibility of achieving a goal.
All of these factors pose risk and cause anxiety around falling short of a goal. The associated anxiety mainly stems from possible stakeholder reactions. Will the media publish negative articles on the company? Will the company lose investors? Will employee retention be affected? Will the risk of lawsuits increase? If stakeholders do change their perception of the company, what effect will it have on the company’s bottom line?
Reassuringly, our research did not find concrete examples of negative financial impacts that stemmed from companies failing to achieve sustainability goals. Still, interviewees sounded concerns about potential reputational risk stemming from the perception of failure. Ultimately, whether a company is at risk of reputational damage from failing a goal depends on numerous factors, including:
- The level of ambition of the goal
- The issue area
- Brand sensitivity to scrutiny and each company’s comfort with transparency and disclosure on specific issues and goals
Through our research, the SustainAbility team came across some examples of companies that failed to meet public goals and what happened as a result. Here are two.
For EMC, transparency about failure led to credibility
In 2009, EMC established a long-term, science-based target for greenhouse gas (GHG) reduction. Encouraged by NGOs that also wanted near-term targets, and an executive concerned that GHG reduction goals were too abstract for employees to translate easily into personal action, the company also set a goal to reduce energy use per employee.
While the intent of employee empowerment was well served, actually meeting that goal turned out to be challenging.
EMC's primary operational emissions were Scope 2, but the major driver of its electricity use was not related to employee behavior; it was connected with its labs, and lab consumption was driven by the breadth of the technology company’s product portfolio.
By the close of the target year 2013, although EMC had reduced energy use per employee, it had failed to reach its public goal. As the company had been reporting its sustainability goals and successes in the annual 10-K filing for several years, EMC reported the miss in its 2013 10-K (reportedly the first company to do so) and in its annual sustainability report. (Marketing, however, balked at highlighting the shortcoming in the press release announcing the report’s publication.)
In the end, there was still significant value to the company from every aspect of the experience, according to a case study about this situation written in partnership with Kathrin Winkler, former EMC CSO, and shared at SustainAbility’s Engaging Stakeholders Network Workshop in October.
For one thing, the goal encouraged a significant reduction in energy use in the face of a growing business. The failure to achieve it served as a demonstration of the importance of assigning responsibility to pursue goals to those who have the ability to control or influence the outcome.
Most important, EMC's choice to be open and transparent about the missed goal generated a positive response from external stakeholders, which was communicated directly to the CEO, members of the board of directors and a number of key executives during the next stakeholder forum. This, in turn, had two positive impacts: It strengthened EMC's credibility in the eyes of the stakeholders, furthering even more candid and constructive conversation; and it helped to create an appetite for, or at least greater acceptance of, the even more aspirational goals set by EMC the following year.
Dow Chemical shows how to manage when performance affects a goal
In 2008, Mark Weick, director of sustainability programs at the Dow Chemical Company, was faced with a tough decision about an energy goal that he knew the company would not be able to achieve. At that time, budgets were constrained due to the recession as well as the debt load that Dow was carrying after the purchase of the specialty chemical company Rohm & Haas.
This financial context significantly affected the company's ability to achieve one of its energy efficiency goals related to energy used per pound of product created. The fall in Dow's sales during the recession led to a dramatic increase in energy intensity, due to the nature of producing lower volumes of product. What's more, the debt reduced the access to investments necessary to achieve the goal.
These two challenges led Weick to re-evaluate some of Dow's 2015 sustainability targets that had been set in 2006, including the energy intensity target. He was left with two options: to adjust the goal to a less ambitious and possibly attainable level or to keep the goal and accept the failure.
Weick chose to keep the energy efficiency goal. "We kept the goal because it expressed ambition and kept us accountable," he told SustainAbility for a case study published by WDI Publishing, a division of the William Davidson Institute (WDI) at the University of Michigan. He elaborated, "We've decided that we want to be out there on the edge leading even if that means we might miss some things."
In other words, it was important to the culture of Dow’s sustainability program that the company keep the goal. "Dow is OK with setting audacious goals that we don't know how to achieve, releasing the creativity of the organization and stretching ourselves because it creates more benefit than incremental goals," Weick said.
How to communicate about missed or revised goals
SustainAbility's research revealed that companies that were transparent about missing or revising a goal, candidly revealing the reasons why and what would be done going forward, rarely experienced negative repercussions externally. Not only did transparency not bring harm, in some cases, as in the case studies above, there were positive outcomes.
In an interview with SustainAbility, Rowland Hill, sustainability and reporting manager at Marks & Spencer, pointed out, "If you're pitching genuinely ambitious targets, you'll probably fail more and more. Part of me thinks that just comes with the territory if you want to tackle new challenges."
Communicating effectively about these situations to external stakeholders is key. Revising a goal is acceptable as long as it is done logically and transparently, especially if the goal is long-term in nature. Revisions must acknowledge the gap that still exists between where the company is and where it needs to be. They must also acknowledge the underlying reason for the revision, whether it is related to external factors, internal dynamics or both.
"Multi-year goals have to be balanced with the fact that circumstances change over time," Weick said. "So you want to keep commitments but also hold them loosely so that you can make necessary modifications. Revisions need to be made in a manner that is credible, accountable and responsive to major global trends."
Similar practice should be followed for missed goals. Brave disclosure about the reasons for the miss and what will be done differently going forward likely will be received with appreciation from external stakeholders.
Communicating context and any theory of change upfront may help stakeholders better understand why the company wasn't able to achieve a goal. Again, this may depend on the level of ambition, issue area or the company's existing reputation, but transparency can mitigate the reputational risks of failing to hit (or revising) a goal and can build credibility and trust with key stakeholders.