The Influence of Sustainable Leadership and Strategic Agility on

Business Sustainability

Yu Yin Lim and Ai Ping Teoh

Graduate School of Business, Universiti Sains Malaysia, Penang, Malaysia

Keywords: Sustainable Leadership, Strategic Agility, Business Sustainability, Public Listed Companies, Malaysia.

Abstract: In today’s dynamic business world, companies are moving toward business sustainability strategy and

regard it as a core company business. Based on dynamic capabilities theory and contingency theory, this

paper presents a conceptual model which suggests sustainable leadership is a crucial capability that

influence business sustainability while strategic agility plays a vital role in enhancing the impact towards

business sustainability among public listed companies in Malaysia. The conceptual model proposed in this

study enriches the literature in organizational performance, shifting from traditional profit-based

measurements to a holistic view of business sustainability. Practically, this study provides insights to the

regulators and managers that sustainable leadership is an important capability; and along with strategic

agility; influence business sustainability among Public Listed Companies in Malaysia.

1 INTRODUCTION

Most companies used to view sustainability as

essentially a ‘green’ issue such as reducing energy,

waste disposal costs or supporting some community-

based charitable activities; rather than regarding

sustainability as a core company business.

Nevertheless, this view is transforming rapidly in

response to disruptive forces in a dynamic business

world. Consequently, this urges all companies to be

more accountable and transparent in addressing all

stakeholders of the business towards attaining

business sustainability. In today’s competitive

business world, companies are moving toward

business sustainability strategy rather than growth

strategy (McKinsey, 2012). Business sustainability

reflects a company’s efforts to go beyond focusing

only on profitability, by also managing its

environmental, social, and broader economic impact

on the marketplace and society as a whole (Svensson

et al., 2016).

Attaining business sustainability requires

commitment from all stakeholders. In particular,

sustainable leadership plays a critical role in

ensuring business sustainability. Sustainable

Leadership entails adopting a long-term perspective

in decision-making; nurturing innovation aimed at

delivering value to customers; developing a skilled,

loyal and highly engaged workforce; and offering

quality products, services and solutions (Gerard et

al., 2017). It is evident that top management

emphasises sustainable leadership and agility;

moving from avoiding uncertainty to managing

uncertainty (Fadol et al., 2015) in their quest of

profit optimization. Moreover, companies conduct

their business activities while interacting with and

transforming their environment; hence eventually

impact their surroundings (Jerónimo Silvestre et al.,

2016).

As companies operate in the context of fast

changing business environment today, being

strategically agile is crucial for companies to sustain

the business performance. Strategic agility denotes

the ability of an organization to foresee, act and

respond proactively strategy-wise to internal

weaknesses or external opportunities and threats

which may confront an organization (Nkuda, 2017).

2 BUSINESS SUSTAINABILITY

AND PUBLIC LISTED

COMPANIES IN MALAYSIA

Companies have adopted various types of business

strategy frameworks to evaluate their business

performance in terms of financial results, customer

Lim, Y. and Ping, T.

The Inﬂuence of Sustainable Leadership and Strategic Agility on Business Sustainability.

DOI: 10.5220/0008489501390144

In Proceedings of the 7th International Conference on Entrepreneurship and Business Management (ICEBM Untar 2018), pages 139-144

ISBN: 978-989-758-363-6

139

focus, operational processes and people

development which is, often referred to the Balanced

Scorecard (Kaplan and Norton, 1992). Recently,

many companies have adopted the sustainability

framework to evaluate performance in terms of

financial, social and environmental dimensions

known as the Triple Bottom Line (TBL). Interest in

the TBL model has been growing rapidly across

publicly traded companies, as well as private and

non-profit organizations. Significant research has

been conducted on the TBL theory and the impacts

that the financial, social and environmental

components of the TBL have on publicly traded

companies (Schulz and Flanigan, 2016). The

adoption of a triple bottom line (TBL) approach

begins to shift in defining the business objectives

from maximising “shareholder profits” to

maximising “stakeholder value”. This new

perspective indicates that organizations broaden the

basis of performance evaluation from short-term

financial focus to include long-term economic,

social and environmental and economic aspects

(Padin et al., 2016), thereby introducing the concept

of business sustainability.

In Malaysia, Bursa Malaysia has demonstrated a

commitment to sustainability by asking Public

Listed Companies (PLCs) to disclose a narrative

statement of their material economic, environmental

and social risks and opportunities in their annual

reports. Compliance with the initiative may sound

easy to some companies, but it would in fact require

a lot of thinking, internal alignment and possible

organizational changes. The focus on materiality,

governance and management - as suggested by

Bursa Malaysia - encourages companies to bring

investor relations and sustainability teams together

and agree on how sustainability can support the

investments.

Business sustainability is crucial for PLCs in

Bursa Malaysia. It is timely to explore further

studies to investigate the role of sustainable

leadership which influences business sustainability

of PLCs in Bursa Malaysia. To strengthen the

resilience of PLCs in Bursa Malaysia and face future

competition, being agile strategically is crucial. This

will ensure their resources and capabilities are

developed and deployed continuously in order to

drive the performance momentum. From previous

empirical studies, strategic agility plays an important

role in hastening the transition to business

sustainability, and take the organization forward in

facing the challenge, as well as strengthening their

performance to face future competition.

This paper presents a conceptual model and

discusses the impact of sustainable leadership on

business sustainability. Furthermore, this paper

integrates the importance of strategic agility in

interacting with sustainable leadership towards

enhancing business sustainability among PLCs of an

emerging market, Malaysia.

3 THEORETICAL FOUNDATION

AND REVIEW OF

LITERATURE

This study based its theoretical foundation on the

dynamic capabilities theory and contingency theory.

Scholars explained dynamic capabilities as the

firm's ability to integrate, build, and reconfigure

internal and external competences to address rapidly

changing environments. Teece et al., (1997) stated

that dynamic capabilities can be disaggregated into

capacity to sense and shape opportunities and threats;

to seize opportunities; and to maintain

competitiveness through enhancing, combining,

protecting and when necessary, reconfiguring the

business enterprise’s intangible and tangible assets.

Helfat et al., (2007) highlighted the dynamic

capability is an organization’s ability to purposefully

create, extend or modify its resource basis. Hence, a

dynamic capability provides a firm foundation for

achieving a sustainable competitive advantage

(Zapata-cantu et al., 2016). In fact, dynamic

capabilities can be expressed by shared and decoded

knowledge that an organization could absorb

through constant and past occurrences (Souza et al.,

2017).

Souza et al., (2017) explored organizational

practices that indicate a dynamic capability which

include perspectives of Origin indicators of dynamic

capability such as tacit knowledge over experiences,

shared knowledge and codification knowledge;

Indicators of dynamic capabilities such as the ability

to converse with employees and customers, ability to

integrate employees and customers’ knowledge in

processes, products, services and business strategies

and entrepreneurial skills of the administrative top

and Indicators of eco-capabilities include

commitment of managers, directors and president for

environmental issues, flexible labour, shared sense

among members about the benefits of sustainable

activities, training within sustainability content,

introduction of processes compatible with

sustainable strategy, benchmarking of internal

strategies with competitors, performance and

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inventory evaluation, organizational climate and

provision of information to employees about the

implemented sustainable programs.

Contingency theory suggests that the best way to

organize depends on the nature of the environment

to which the organization must relate. According to

the theory, the environment in which the firm

operates must also be taken into account for

organizational success (Fazal et al., 2017).

Contingency theory of leadership was proposed by

the Austrian psychologist Fred Edward Fiedler in

1964 which emphasizes the importance of both the

leader's personality and the situation in which that

leader operates. There are two styles of leadership,

namely task-motivated and relationship-motivated

(Fiedler, 1964). A contingency factor is thus any

condition in any relevant environment to be

considered when designing an organization or one of

its elements and might determine which style of

leadership is best suited for that particular.

Contingency theory states that effective leadership

depends on the degree of fit between a leader’s

qualities and leadership style and what is demanded

by a specific situation (Amanchukwu et al., 2015).

Leaders inspire with their vision and shared

vision. They are persistent in their principles but

flexible in details; while crafting the strategy for the

future with stakeholders and setting the direction for

achieving growth and sustainability. This is even

more crucial in the context of Public Listed

Companies to have leaders whom deliver value to all

stakeholders. Leader with sustainable leadership

quality requires taking long-term perspective in

making decisions; fostering organized innovation

towards value; developing a skilled, devoted and

highly engaged workforce; and offering products,

services and solutions of high quality (Gerard et al.,

2017). In fact, sustainable leadership refers to any

ethical behaviour that has the purpose and effect of

serving groups of people and addressing communal

problems in significant ways (Bendell et al., 2017).

The seven principles of sustainable leadership

consist of creating and preserving sustainable

learning; securing success over time; sustaining the

leadership of others; addressing issues of social

justice; developing rather than depleting human and

material resources; developing environmental

diversity and capacity; undertaking activist

engagement with the environment (Amanchukwu et

al., 2015). On the other hand, Bendell et al., (2017)

combined their critique on both leadership and

sustainability, and proposed seven mains

“unsustainabilities” in mainstream leadership which

includes ignoring purpose or assuming the primary

purpose to be the benefit of an employer; assuming

or believing a senior role holder to be most salient to

organizational or social change; ignoring the

political and moral aspects of an exclusive focus on

enhancing the agency of senior role holders;

assuming that “leader” is a continuing quality of a

person rather than a label; assuming that the value of

an individual lies mostly in their confidence in their

distinctiveness; assuming that leadership

development is about learning more than about

unlearning; and believing that material progress is

always possible and best.

Sustainability requires mindsets that work with

the dynamic interplay between companies’

leadership and their context – the drivers, conditions,

events and stakeholder expectations that influence

and shape the sustainability journey (Metcalf and

Benn, 2013). Sustainable organizations can only

evolve on the basis of leadership that can deal with

increasing complexity and interdependence among

business stakeholders and direct its efforts to

meeting the future needs of these stakeholders

(Metcalf and Benn, 2013). By serving these needs,

business will create long-term sustainable “triple

value,” that is, value for the organization as well as

for the social and natural environment in which it

operates rather than merely creating short-term

singular value, primarily for shareholders (Tideman,

2016).

Haneberg (2011) defined agility as the efficiency

with which organizations respond to continuous

change by consistently adapting. Adaptation may be

unnoticeable at any one moment in time but the

snowballing effect results in changing the

organization to be more competitive in its

environment (Nold and Michel, 2016). According to

Michel (2013), organizational agility is the ability to

make countless small adaptations in response to non-

stop change that result in changing the fundamental

building blocks of the organization. In today’s

business environment, companies must be agile and

adaptable to respond in small increments that

ultimately change the leadership, systems, and

culture allowing the firm to survive and prosper in a

different environment (Nold and Michel, 2016).

Castanias and Helfat (2001) argue that, when the

skills of top management combine with other firm

resources and capabilities of the firm, together they

have the potential to generate value. Hence,

possessing valuable, rare, inimitable, and non-

substitutable resources is an essential state for value

creation. Furthermore, value is created when

resources are evaluated, manipulated, and deployed

properly within the firm’s environmental setting

The Inﬂuence of Sustainable Leadership and Strategic Agility on Business Sustainability

141

(Fadol et al., 2015).

Effective decision making as reflected in good

leadership is the unique capability of an agile

organization (Hamel, 2012). Essential abilities for

agile decision making include detecting primary

warning signs of fluctuations in the internal or

external environment, identifying and filtering

relevant information and reacting rapidly to make an

impact. Decisions are made by people and leaders

alike as they are responsible and want to contribute

to making the firm successful. Agile organizations

enable self-determination, self-control, self-initiative,

and responsibility instead of the traditional

command and control approaches that are strict,

rigid, and slow responding (Nold & Michel, 2016).

According to McKinsey (2012), truly agile

organizations learn to be both stable and dynamic.

Agility needs two things, namely dynamic capability,

the ability to move fast—speed, responsiveness or

adaptability; while agility requires stability, which

includes resilience, reliability, and efficiency.

Managing an organization successfully requires

overcoming the many challenges posed by the

business environment with their dynamic nature and

frequent changes.

When the business environment was relatively

steady, traditional quality tools and techniques were

enough for organizations to succeed. However, the

current dynamic business environment has driven a

need to re-examine the traditional business

performance concept to understand the increased

dynamics of volatility, uncertainty, complexity and

ambiguity of business environments (Saleh and

Watson, 2017).

As a preliminary argument for a structured

management solution, Saleh and Watson (2017)

proposed critical success factors that address the

dynamism which include dynamic capability,

leadership agility and organization agility. Dynamic

capability is the company’s ability to build, renew

and reconfigure its resource base that already exists

in the company in order to respond to the changes in

the external business environment (Teece et al.,

1997; Helfat et al., 2007, p. 4).

Leadership agility calls for the leader’s ability to

take decisions within a turbulent business

environment, where information is limited and there

is a need to continuously interpret changing

conditions, apply innovative solutions and even

recover from failures quickly (Saleh and Watson,

2017). Organization agility is the capability to be

flexible (Tallon, 2008; Sushil, 2012) and responsive

to unanticipated changes in the business

environment quickly.

4 PROPROSED CONCEPTUAL

MODEL

In today's turbulent business world, organizations

are striving towards attaining business sustainability

in order to stay relevant and competitive. Business

sustainability reflects a company’s efforts to go

beyond focusing only on profitability, by also

managing its environmental, social, and broader

economic impact on the marketplace and society as

a whole.

In order to attain business sustainability,

sustainable leadership has been a crucial factor as

leaders today are expected to be able to adopt a

long-term perspective in decision-making. Moreover,

in the context of business dynamism, the capability

of companies to be able to anticipate events that

impact the business; be able to act and respond

proactively at a strategic level is becoming vital as it

influences the impact of sustainable leadership

towards achieving business sustainability.

By synthesizing previous literature, a conceptual

model (Figure 1) is developed to indicate the

positive impact of sustainable leadership as the

independent variable on business sustainability as

the dependent variable. In addition, a moderating

variable, namely strategic agility is included in the

model as it positively influences the effect of

sustainable leadership on business sustainability.

Figure 1: Proposed Conceptual Model.

5 SIGNIFICANCES OF STUDY

AND CONCLUSION

This study enriches literature in the body of

knowledge by clarifying and highlighting the role of

business sustainability in the process of sustaining

business performance among public listed

Sustainable

Leadership

Business

Sustainability

Strategic Agility

ICEBM Untar 2018 - International Conference on Entrepreneurship and Business Management (ICEBM) Untar

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companies in Malaysia. This study highlights the

gaps in current research in the field related to

organizational performance by focusing on a more

holistic measurement of performance, i.e. business

sustainability. The measurements of business

sustainability conceptualised in this study

incorporate comprehensive perspectives of key

performance indicators identified in academic

literature and in practice, including the economic,

social and environmental aspects.

Furthermore, the conceptual model proposed in

this paper contributes to the existing theories of

dynamic capabilities and contingency. Specifically,

it relates sustainable leadership as a capability and

highlights the importance of strategic agility as the

moderator in which business sustainability is

contingent upon in a dynamic business environment.

This study is expected to be of great value from

the practical perspective as well. Specifically, this

study would give insights to the relevant government

and regulatory bodies on how they can form a

sustainable framework to enhance the growth of

PLCs listed on Bursa Malaysia. Moreover, this study

would be of value to the managers and owners of

PLCs in Bursa Malaysia in realising the importance

of sustainable leadership and the crucial role of

strategic agility.

From the global perspective, United Nations’

adoption of seventeen (17) sustainable development

goals (SDGs) by the United Nations in 2015 expect

that governments, ﬁrms and other organisations can

achieve progress on social and economic factors

while not degrading the environment (Bendell et al.,

2017). Sustainable development presents an

enormous opportunity—if business leaders can

understand economic, social, and environmental

challenges as future value drivers (BSDC, 2017).

Thus, it is timely for a truly sustainable leader to

accelerate inclusive growth and drive sustainability

at a greater speed and scale than it has to date.

Achieving the SDGs by transforming business

models in health, education, industry, agriculture

and energy, means not only to enable better business

results but also to contribute significantly for a better

world tomorrow.

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