THE EFFECT OF CEO TRANSFORMATIONAL LEADERSHIP AND ORGANIZATIONAL ETHICAL CULTURE ON CORPORATE SUSTAINABILITY PRACTICE OF FIRMS IN THAILAND

Abstract

Modern academics and practitioners view corporate sustainability as a new benchmark in the business world that companies should adopt. However, many companies are reluctant to practice corporate sustainability seriously due to the high costs that may not justify business goals. Thus, this research hopes to investigate the determinant of corporate sustainability practices and the benefits that firms can gain from such practices. A number of past studies have been conducted in relation to sustainability considerations. Nonetheless, many of these studies focused on a single dimension of sustainability, usually either the social dimension or environmental dimension. Similar and overlapping concepts such as CSR and environmental management have also been studied extensively, but there is a limited number of existing researches that focus on the concept of “sustainability”. To fill these gaps, the framework of the Triple Bottom Line is adopted as a basis in this study to conceptualize sustainability into three dimensions: environmental, social, and economic. This research studies the role of CEO transformational leadership and organizational ethical culture as a determinant of corporate sustainability practices of companies in Thailand. Particularly, the mediating effect of organizational ethical culture is examined on the relationship between CEO transformational leadership and corporate sustainability practices. Moreover, this research also analyzes the contribution of corporate sustainability practice on corporate reputation and firm performance. The Upper Echelons is employed as a key theory of this research to explain the role of top management on firm outcomes. The data were obtained from a total of 200 firms through online questionnaires surveys. Partial least squares structural equation modeling was used for the data analysis. The research has provided the following findings. First, the result confirms that CEO transformational leadership and organizational ethical culture positively and significantly determine all the three dimensions of corporate sustainability practices. Second, the result reveals that organizational ethical culture mediates the relationship between CEO transformational leadership and all three dimensions of corporate sustainability. Third, the result shows that all three dimensions of corporate sustainability positively and significantly determine corporate reputation. Fourth, corporate reputation positively and significantly determines firm performance. Lastly, corporate reputation is also found to mediate the linkage between all three dimensions of corporate sustainability practice and firm performance. The main managerial implication drawn from this research is that the top management should consider sustainability practices as part of key strategic initiatives of their firm. Corporate sustainability practices do not only help reducing the world’s sustainability problems but can also be perceived as an important driver of business performance. Furthermore, this research suggests that top management can promote the success of sustainability implementation by enhancing transformational leadership characteristics of the top management members and by facilitating an organizational culture that foster employees’ perception towards ethics and the importance of acting responsibly with firm’s stakeholders.