How Institutional Practices (Formal and Informal) Interplay with Culture to Affect the Development of Corporate Sustainability Practices

 

 How Institutional Practices (Formal and Informal) Interplay with Culture to Affect the Development of Corporate Sustainability Practices

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Abstract

The paper analyzes how the interplay between institutional logics and cultural beliefs and practices influence sustainability initiatives in FAB Bank. The paper determines the influence of subculture and institutional logics on an organization’s readiness to develop and implement corporate social responsibility in the aforesaid organization. The study employs an inductive research methodology that involves conducting interviews, synthesizing existing materials addressing organizational policies and practices, and attending meetings to gain critical insights into the combined effects of formal and informal practices on organizational sustainability practices. Additionally, the researcher conducted an empirical study to determine the influence of institutional logics and culture on the readiness and willingness of stakeholders to develop and implement sustainability policies in the organization. The study was conducted in UAE, particularly in First Abu Dhabi (FAB) Bank, with a special focus on the influence of culture and organizational practices on sustainability. The researcher collected data through interviews, observations, emails, and a review of the organization’s existing policy documents. The results were discussed and analyzed to inform the underlying issues curtailing the implementation of sustainability initiatives in the organization. 

How Institutional Practices (Formal and Informal) Interplay with Culture to Affect the Development of Corporate Sustainability Practices

 

Business organizations must undertake firm-level strategic environmental actions to take corporate social responsibility into account. Corporate sustainability policies and practices have direct impacts on the social and environmental performance of an organization. Specifically, culture is an antecedent that greatly influences the adoption of sustainability. Certain cultural characteristics sin an organization often influence consumer and firm’s attitudes towards corporate social responsibility. Importantly, culture has both positive and negative influences on corporate social performance since it can be a concern or even contribute to charitable behaviors.

The interplay between subculture and institutional logic greatly determines an organization’s readiness to develop sound sustainability policies. Before, delving into the understanding of the influence of institutional practices and culture on organizational sustainability, it is imperative to explore both concepts. Generally, culture is a heterogeneous term used to characterize human behavior in organizational contexts. Culture entails a set of beliefs, assumptions, values, and perspectives that collectively create a broad system that is definitive of specific values and overreaching toolkits. Both the cognitive components and methodological and theoretical aspects of culture collectively influence how an organization develops its sustainability policies. Subcultures also determine how an organization develops its sustainability policies due to the specific values, behaviors, patterns, practices, and artifacts associated with them (Kok et al., 2019).

Additionally, institutional logic plays a fundamental role in understanding why and how business organizations can develop sound sustainability policies and practices. For example, some organizations can take rules for granted and fail to develop and implement sound policies and principles for ensuring corporate social responsibility to achieve productive value. Therefore, institutional logic can provide formal and informal blueprints for understanding the social world and interpreting its impacts on social situations. In this regard, institutional logic depicts the levels of employee understanding of their roles, skills, competencies, existing protocols, practices, and performance criteria. All these aspects provide the bottom-line for understanding the functionality of different groups and how they pursue their goals and promote organizational interests while ensuring social justice and environmental conservation. In this regard, formal and informal practices influence employees’ personal commitment to minimizing the amounts of ecological footprints, reducing waste, and ensuring fair employment terms (Kok et al., 2019).

Notwithstanding the foregoing, institutional logic influences corporate sustainability in numerous ways and causes confusion and impediments to organizational operationalization and policy implementation. Formal and informal institutional practices often influence the amounts of resources that business organizations dedicate to corporate social responsibility initiatives (Kunapatarawong & Martínez-Ros, 2013). Such practices can either create or constrain incentives that are necessary for motivating firms to behave in a particular way. Formal corporate practices, such as compliance with government legislation, and informal practices like community standards and customer expectations also influence organizational behavior. For example, government policies create institutional environments that create incentives for business organizations to comply with corporate social responsibility as a means of justifying their legitimacy (Kunapatarawong & Martínez-Ros, 2013). This implies that institutional practices can contribute to different levels of returns on corporate social responsibility initiatives. Institutional policies shape employees’ behaviors and require them to develop socially responsible attitudes. Such attitudes define the overall CSR initiatives of the organization as well as their willingness to play vital roles in undertaking CSR initiatives.

The interplay of institutional practices and culture leads to institutional logic that ultimately determines organizational behavior and the development of corporate sustainability initiatives. For example, the relationships between sustainability principles and existing cultural norms determine the extent to which an organization will adopt sustainability. Therefore, employees’ understanding of the subcultural differences can influence the sustainability issues and either facilitate or inhibit how various business organizations respond to or create ambiguity surrounding sustainability policies. Ideally, cultural beliefs and formal and informal institutional pressures determine how employees accept or disapprove of sustainability actions and policies in their organizations. For instance, certain formal pressures emanate from the local, national, and global institutional environments that necessitate the implementation of sustainability policies and encourage the adoption of sustainable development initiatives (Kok et al., 2019). Similarly, cultural beliefs influence institutional logics that promotes the implementation of sustainability policies to ensure that firms become socially responsible; hence, promoting a transformation process that advocates for socioeconomic ideals that prioritize sustainability.

Methods

The study leveraged a methodology that involves an inductive approach to analyzing the interplays of institutional practices (formal and informal) and culture in encouraging or discouraging the development of corporate sustainability practices. The inductive approach was appropriate because it combined aspects of existing theory and formal and informal insights that define organizational culture as well as an institutional logic. The inductive research approach provides critical insights into how organizational culture and institutional logics shape the willingness to develop and implement social responsibility initiatives. The research focused on determining the interplay between institutional logics and subcultures, and how they collectively influence the development of sustainability policies (Kok et al., 2019). The researcher conducted a longitudinal empirical study for 48 months, with a special focus on a strong ethnographic character to obtain a firm grip on the different aspects of life in organizations. The research involved rigorous fieldwork that enabled the researcher to identify the specific activities, interpretations, and context-specific cues for understanding the influence of institutional practices and culture on sustainability. Specifically, the longitudinal empirical study involved the research setting, access, approach, data collection, and analysis (Kok et al., 2019).

The Research Setting

The study setting is the UAE’s First Abu Dhabi Bank (FAB), which is a large commercial bank in the country, and it is open to promoting and accelerating the growth of sustainability opportunities and dealing with emerging challenges promptly. Following the 2008 financial crisis, FAB reported on survival and reorganization to incorporate sustainability in its development initiatives, focusing primarily on four key pillars, including responsible banking, responsible employment, positive social impact, and governance, integrity, and risks management (First Abu Dhabi Bank (FAB), 2022). FAB recognizes that sustainability is an important topic that must be on top of the agenda to ensure sustainable banking and implement appropriate risk management policies. FAB recognizes the need for financial firms to develop a sustainability risk framework to ensure the proper and efficient implementation of sustainability risk policies that guide operational procedures and sector-specific policies. Cross-culture institutional policies promote the adoption of sustainable practices to ensure that employees and clients are highly engaged in sustainable transactions and activities.

Accessing the Field and the Roles of the Researcher

The researcher conducted an in-depth study of the FAB bank between November 2017 and June 2022. Access to this research was based on the previous ties with the FAB Bank. It was easy to access the site because the researcher was a former employee from 2013 to 2016. Prior relationship with the organization facilitated access to vital data and information. The researcher was curious not to let personal bias, world-views, and personal assumptions interfere with the research process, especially during data collection, interpretation, and results analysis.

Data Collection

The researcher collected data through observations, emails, interviews, and a review of relevant policy documents derived from the organization’s database from 2012 November up to 2015 January. The dataset obtained provided in-depth contextual information on how institutional practices and culture influence the development and implementation of sustainability policies. The author visited the FAB Bank at least 3 days a week for the entire study period to gather information by observing meetings between individuals from different departments and noting down their issues on sustainability policy development and implementation (Kok et al., 2019). The researcher reviewed draft versions of the sustainability policies and proposed sustainability standards that the FAB Bank intended to implement.

Further, the researcher engaged in numerous discussions with various stakeholders to determine the scope of sustainability policies and standards. The researcher attended a total of 32 formal meetings and gained critical insights into the effects of formal practices on sustainability policy development and implementation to promote sustainable development in the United Arabs Emirates. He also listened to the presentations of different stakeholders, such as senior managers from different organizational units to synthesize theoretical underpinnings about the available opportunities for promoting sustainability while concurrently upholding human rights (Kok et al., 2019). The researcher made important notes on the personal lived experiences of various stakeholders who attended the discussions.

Additionally, the researcher interviewed 12 employees at the FAB Bank, with four of them being from the organization’s risk and policy teams, and they provided critical insights into this research because they were directly involved in the policy development initiatives within the organization. The researcher also interviewed many key respondents severally throughout the data collection process. Between 2017 and 2022, the researcher conducted 32 interviews with employees aligned to the sustainable development aspects of management as well as several other respondents at the senior management level (Kok et al., 2019). Each interview session took approximately between 30 minutes and 2 hours whole all the observations amounted to approximately 452 hours.

The researcher conducted the interviews in both formal and informal settings, with the former being recorded following planned meetings in private rooms that prioritized a private atmosphere. Importantly, the researcher wrote down keywords and transcribed the conversations. The researcher also attended informal meetings and undertook spontaneous interviews and recorded important information, hence, ultimately obtaining comprehensive data with in-depth resources on multiple versions regarding FAB Bank’s sustainability policies and its annual sustainability reports since 2013. The researcher also obtained in-depth information from other various sources, including emails between stakeholders from different departments, internal newsletters, employee magazines, and news articles (Kok et al., 2019). The researcher also visited the bank’s website, blogs, and Facebook pages to obtain information on the institution’s sustainability. Lastly, the researcher interviewed the Chief Executive Officer (CEO).

Results

The results showed that few top executives with political connections have negative cognitions about the development and implementation of environmental sustainability policies. Institutional leadership creates formal regulatory privileges that prioritize power legitimization and whether certain policies will be implemented. In this regard, the interviews and observations revealed that political connections among the top leadership directly influenced firm-level practices and behavior. For example, managers and directors may thwart organizational efforts to implement sustainability policies. This applies to politically-connected private organizations that often enjoy significant tax benefits. Ideally, political connections can negatively impact firm-level sustainability practices and behaviors; hence, creating a negative culture associated with the lack of managerial environmental cognitions (Eiadat & Fernández-Castro, 2022). However, a section of managers also advocated for environmental consciousness and they developed positive cognitions about the environment. Executive leadership influences normative institutions and inspires proactive environmental sustainability policies.

Again, normative connections are linked to CSR practices. The other key finding is that various stakeholders from different departments within the organization held different perspectives on sustainability practices, including access to quality information, quality materials, transaction costs, and environmental sustainability (Eiadat & Fernández-Castro, 2022). The results depict that business connections are very important in implementing corporate social responsibility initiatives and they determine how business organizations implement environmentally friendly strategies. Ideally, formal and informal regulatory policies have direct impacts on the environmental climate and firm-level strategic environmental actions can have significant negative impacts on the bank’s sustainability (Eiadat & Fernández-Castro, 2022). The results show that certain formal and informal regulatory requirements can affect firm-level environmental climate and the ability to develop and implement sustainability policies as part of the organization’s firm-level strategic environmental actions.

Discussion

The results show that there are significant disagreements between the bank’s sustainability department and the business departments, and the duo cannot agree on the specific sustainability performance standards to implement in the organization. The interplay between subcultures and institutional logics greatly influence the policy development process. Upon critical analysis of the past documents, the researcher found that the sustainability departments undertook consultations to review sustainable development policies. However, during the meeting, stakeholders from the business department provided different points of view. The implications of the different points informed the existing organizational subcultures that influence sustainability and the perceptions of various stakeholders on the policy.

The main problem involved the incompatibility of value-based and rule-based cultures and how they impacted the bank’s everyday practices. For example, the sustainability department insisted on developing a sustainability gene and reinforcing it in the bank’s DNA to ensure that FAB infuses the whole business organization and its workforce with sustainability values (Kok et al., 2019). Although the two departments agreed that sustainability issues must not be considered as a tick-box exercise, they still held diverging opinions on how to read the policies according to rule-based culture (Miska et al., 2018). The business department viewed sustainability policies as merely theoretical documents that stand far from the current business dealings. The distance between policy and practice remained a problematic issue since the sustainable development policy proposals were guided by a rule-based culture. For instance, the business department argued that the existing organizational policies must be treated as a law rather than being interpreted on how practice should be. However, the sustainability department provided a softer view of the need for sustainability policy development and implementation, claiming that they are what society expects.

The sustainability logic depicts that the ability of the bank to develop and implement sustainability policies requires a critical look into the organization’s environment. However, the business department considers sustainability as how policies will impact the bank and its markets. Therefore, although the sustainability department promotes the development of environmentally-friendly corporate practices, the business department considers the ideals unrealistic and far from the business bottom-up strategies. The interplay of institutional logics and culture reveal that FAB’s sustainability agenda is not pegged on the business itself, the banking industry, or the idea that the organization is unsustainable. The fact remains that the organization is running risks that it is unwilling to define. The business development team considers sustainability from the perspective of a business case and risk management, claiming that partnerships with other big companies are a part of promoting sustainability since they collectively solve big problems (Kok et al., 2019). From the foregoing, there are traditional organizational and cultural values that consider sustainability from two different points of view. For example, subculture influences the sustainability perspective and the business aspects of the sustainability logic. The conflicting points of view make it quite difficult to develop and implement effective sustainability policies in the organization.

From the perspective of market logic, most of the respondents argued that they highly prioritize sustainability policies and that they should be implemented in the organization. Conversely, they also claimed that the core logic of the banking institution is to make money, and that sustainability must not be based on the organization’s financial goals or transaction deals. Therefore, the FAB bank interpreted the market logic differently, citing that sustainability must not be considered as a “goat-woollen socks” but rather an initiative that can help the organization make more money (Kok et al., 2019, p. 1516). Institutional practices and culture must focus on balancing people, the planet, and profit.

Generally, it is evident that the relationship between subcultures and institutional logics greatly influences FAB Bank’s sustainability policy development and implementation. The organization’s sustainability department maintains that an ideal business culture must promote sustainability practices. In analyzing the sustainability policy development within the FAB Bank, it is worth noting that there are subcultures that influence institutional logics and the employees’ awareness of the best sustainability practices (Kok et al., 2019). In this regard, the interplay between institutional practices and culture depicts the extent to which employees understand sustainability issues, although the influence of institutional logics has been significantly undermined.

In conclusion, cultural beliefs and institutional logics influence a firm’s awareness of sustainability and whether or not it will develop and implement sustainability policies. The interplay between culture and formal and informal institutional practices determines, in most cases, how sound institutional logics promote readiness to develop and implement sustainable policies. Additionally, such logics can promote the implementation of corporate social responsibility initiatives that facilitate value addition since most employees will know their skills, competencies, and roles in the organization. The interplay of institutional logics and culture can sometimes negatively affect the organization and compromise its operationalization as well as sustainability policy implementation efforts.

 

References

Eiadat, Y. H. & Fernández-Castro, A. M. (2022). Do formal and informal institutions matter for firm-level strategic environmental actions? A multi-level perspective from Jordan. Journal of Environmental Planning and Management, 65(3), 461-489. Taylor & Francis Group. https://doi.org/10.1080/09640568.2021.1887826

First Abu Dhabi Bank (FAB). (2022). The future belongs to us all: Sustainable business builds a better tomorrow. First Abu Dhabi Bank. https://www.bankfab.com/en-ae/about-fab/sustainability

Kok, A. M., De Bakker, F. G. A., & Groenewegen, P. (2019). Sustainability Struggles: Conflicting Cultures and Incompatible Logics. Business & Society, 58(8), 1496–1532. SAGE. https://journals.sagepub.com/doi/pdf/10.1177/0007650317703644

Kunapatarawong, R. & Martínez-Ros, E. (2013). Influences of institutional pressures on corporate social responsibility attitude and corporate social responsibility outcomes. Working Paper 13-03: Business Economic Series (01). https://core.ac.uk/download/pdf/29403836.pdf

Miska, C., Szőcs, I., & Schiffinger, M. (2018). Culture’s effects on corporate sustainability practices: A multi-domain and multi-level view. Journal of World Business, 53(2018), 263–279. https://doi.org/10.1016/j.jwb.2017.12.001

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