Wednesday, April 12, 2017

United Failed to Inculcate Sustainability into their Culture

The event aboard United Flight 3411 on April 9th is not just a PR crisis, it represents the company's failure to inculcate sustainability into their corporate culture. Dr. David Dao was bloodied by security agents as he was violently removed from the flight to make room for company staff members.

It is worth noting that like most corporate giants United claims to take sustainability seriously. United's corporate responsibility report talks about the diversity of its employees and their code of ethics.

Through an initiative called "eco-skies" United claims they are "committed to operating sustainably and responsibly." They say that this includes every aspect of their operations. Their four-pillar commitment to the environment includes:

1. Fuel efficiency and carbon management
2. Sustainable travel products/services (and waste management)
3. Alternative fuels
4. Partners in sustainability

United has even received environmental awards. However, sustainability is about far more than just the environment. The practice of sustainability is fundamentally preoccupied with people.  The way that United treated Dr. Dao is antithetical to what sustainability stands for.

Widespread overbooking is commonplace. According to CNN, the department of Transportation said some 46,000 customers got bumped from flights in 2015. Also on CNN, New Jersey governor Chris Christie stated that there have been a large number of complaints leveled against United in his state.

A Guardian article titled, "The future of business lies in people, not profit" cites the Blueprint for Better Business which measures sustainable performance according to its ability to provide, "respect for human dignity". United has failed this sustainability test and they will pay a price, in fact, they already have. The immediate costs included a quarter of a billion dollar drop in United's stock price.

Shareholders are increasingly interested in sustainability. Recently shareholders put forward motions to make food giant Kraft-Heinz more sustainable. Firms are working to demonstrate their commitment to sustainability to garner investor interest and loyalty. As United demonstrates companies that fail are at risk of capital flight. There is also legal liability that causes reputational damage and exacts a staggering financial cost.

We have seen how corporate malfeasance and malpractice can be costly.  The combination of fines, shareholder reaction and reputational impacts are a serious threat. We have seen examples of this in the oil industry led by Exxon and BP. We have also seen how Volkswagen and other automakers have suffered from their mileage fraud.

After two failed attempts to address the problem, United CEO Oscar Munoz properly apologized on a morning talk show on April 12. However, it may be a case of too little too late.

The United debacle shows that there is a direct line connecting corporate conduct to the bottom line. If profit is overtly more important than people there can be a backlash that may undermine profitability. United Flight 3411 also underscores the need to understand and inculcate sustainability into the corporate culture. If such a culture were in place this incident would likely never have occurred.

As revealed by United, there are risks associated with failing to appreciate the scope of sustainability. Reports show that sustainability is a tremendous economic opportunity and other reports show that the failure to act will impose tremendous costs.  (To access dozens reports on the ROI of sustainability click here and for cost benefit analyses of sustainability click here).

Sustainability is far more than a buzzword used by PR departments. It encompasses a broad spectrum of responsibilities and companies that exclude any of the central tenants will be held accountable.

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