ACADEMIA Letters

Toward Build a New Theory : Sustainable Institutional

Performance Theory
Mohamed Abdulrahim, Misurata University

This dialogue is intended for discuss “the ability of organizational culture and corporate gov-
ernance to explain companies’ motivations to adopt sustainable performance” and formulating
its results in the form of new theoretical assumptions that can be verified in the future research.

The role that theory is expected to play

The Role of Sustainable Institutional Performance theory in explaining companies motivations
for involvement in sustainability practices: (internal factors VS external factors and voluntary
engagement in sustainability practices versus mandatory engagement). There are three main
activities involved in the process of theory building:

1. Conceiving a theory (abduction)

Sustainability practices are primarily voluntary in nature and subsequently provide an area
for theoretical research into motivational aspects of corporate engagement in sustainability
practices. The main focus of prior theories has been whether corporate sustainable perfor-
mance constitutes a discharge of accountability or are part of a process of legitimation (Van
der Laan, 2009). Prior theories, however, ignores the emergence of an alternate style of sus-
tainable performance, the ‘solicited’ performance (Evana, 2017, Van der Laan, 2009). In-
creasingly companies are requested to engage in sustainability practices and interactions with
society in various forms (Lenssen et al., 2011). Thus, it necessary to understand economic fac-
tor, corporate governance mechanisms and cultural context to reach sustainable performance

Academia Letters, July 2021 ©2021 by the author — Open Access — Distributed under CC BY 4.0

Corresponding Author: Mohamed Abdulrahim, m.abdulrahim@misuratau.edu.ly

Citation: Abdulrahim, M. (2021). Toward Build a New Theory : Sustainable Institutional Performance Theory.
Academia Letters, Article 2390.

1
(Stiglitz, 2002). In addition, it is apparent today that sustainability in many companies is mov-
ing towards full integration with strategic management and organizational culture (Engert and
Baumgartner, 2016).

2. Constructing the theory (logical deduction)

Sustainability Leaders, or Champions, Drive the Cultural and Structural Changes Necessary
to Implement Sustainability Until sustainability is institutionalized in organizations and within
the mindsets of stakeholders, “visionary CEOs” will push the sustainability agenda throughout
organizations and stakeholder networks. As sustainability becomes more embedded in the
organizational structure and culture, the role of the CEO in “converting” the organization to
sustainability diminishes (Stubbs and Cocklin, 2008).
This shift from voluntary involvement to solicited involvement can be viewed as a natural
consequence of the increasing pressures on corporations to be ‘responsible’ by directing its
culture towards sustainable performance, particularly in light of intensified worldwide atten-
tion on unethical corporate behavior and corporate collapse. These contemporary variants of
sustainability performance are worthy of scrutiny when considering these ‘solicited’ sustain-
able performance potentially reduce a corporation’s power in defining the scope and nature
of sustainability practices. As well as the Firm-Level perspective Organizations can make
significant progress towards achieving sustainability through their own internal capabilities,
but ultimately organizations can only be sustainable when the whole system of which they
are part is sustainable(Jennings and Zandbergen, 1995). Changes to the socioeconomic sys-
tem, both structural (such as redesigning transportation systems and taxation systems) and
cultural (such as attitudes to consumption and, economic growth and wellbeing), are required
to facilitate firm-level and system-level sustainability.
The theories commonly offered as an explanation for managerial motivation to disclose
social information have the same anticipated outcome (organizational legitimacy). However,
the level of organizational legitimacy enjoyed by corporations is not static, and the terrain sur-
rounding organizational legitimacy is also highly contested. It is also well documented that
both organizations and stakeholders manoeuvre within this contested terrain and generally the
weapon of choice is Organizational Culture. This situation makes the motives, incentives and
evaluation of the Performance an issue of concern. It also creates the imperative for acknowl-
edging the distinction between company instigated level of sustainability performance and
solicited sustainable performance and the inherent biases involved in such these issues. The
notion of solicited sustainable performance is based on the premise that the performance will
be in some way characterized differently from the traditional corporation offered voluntary

Academia Letters, July 2021 ©2021 by the author — Open Access — Distributed under CC BY 4.0

Corresponding Author: Mohamed Abdulrahim, m.abdulrahim@misuratau.edu.ly

Citation: Abdulrahim, M. (2021). Toward Build a New Theory : Sustainable Institutional Performance Theory.
Academia Letters, Article 2390.

2
sustainable performance. If traditional sustainable performance is adequate, the phenomenon
of solicited sustainable performance would not exist(Van der Laan, 2009).
Moreover, the concept of culture as a system of socially transmitted behavior patterns that
serve to relate human communities to their ecological settings finds a close parallel in the
contingency theory. Thus, culture is often treated as an undefined, inherent characteristic of
any organization, and as yet another contingency factor, with a varying and little-understood
impact on the functioning of organizations (Child, 1981, Allaire and Firsirotu, 1984, Meyer,
1986, Mitchell, 2017). Thus, contingency theory can be applied to investigate how companies
change their performance as a result of the prevailing culture and how they respond strategi-
cally.
For Stakeholder Theory, internal and external parties are “demanding more transparency
and accountability and are increasingly making good corporate governance part of ensuring
sustainability performance criteria”(Welford, 2007). (Senarathne, 2018) suggests that organi-
zational culture plays a vital role in shareholder risk management under corporate governance.
Regulation, social, cultural, and cognitive factors as drivers suggest that not all factors are
in the interest of stakeholders. However, factors such as regulation, pressure from political
groups and communities are of interest to stakeholders. Organizational culture and strategic
factors come mainly from within the organizations to fulfil altruistic aims for social ideals
rather than originating from stakeholders. Thus, the stakeholder and contingency theory side
by side could be applied to investigate how companies change their performance as a result
of the prevailing culture and how they respond strategically to stakeholder pressure.
Presently this ‘field’ of sustainability performance is a research site relatively unexplored.
Extant research acknowledges the Importance of sustainable performance issues, cultural and
managerial motivations to social, environmental and economic performance. To date, re-
search on this privileged engagement between the demanders of sustainable performance and
the managerial and cultural motives for companies has not been published. All attempts to
link sustainability disclosure to accountability and legitimacy motivation to sustainability per-
formance has focused on the company instigated. Empirical research findings will, at the very
least, provide a critique or reveal underlying assumptions of extant theories of managerial
and cultural motivation to sustainable performance. And, at the very most, this critique will
lead to reorienting or redefining legitimacy, contingency and stakeholder theory in this con-
text. It is also possible this research could offer alternative theories from beyond the realm of
organizational literature that provides a better explanation for the empirical findings.
Stakeholder theory, contingency theory and legitimacy theory are multi-faceted, interre-
lated theoretical perspectives that embody the assumptions that are acknowledged by a sus-
tainable economy perspective. Thus, this discussion will explore whether the prevailing orga-

Academia Letters, July 2021 ©2021 by the author — Open Access — Distributed under CC BY 4.0

Corresponding Author: Mohamed Abdulrahim, m.abdulrahim@misuratau.edu.ly

Citation: Abdulrahim, M. (2021). Toward Build a New Theory : Sustainable Institutional Performance Theory.
Academia Letters, Article 2390.

3
nizational culture has an impact on sustainability performance for organizations. In looking
to enhance companies’ transparency and accountability, this discussion will focus on identi-
fying factors that may influence the sustainability performance, and whether organizational
culture and corporate governance are relevant for social, environmental activities that have an
impact on the company’s sustainable performance.

Academia Letters, July 2021 ©2021 by the author — Open Access — Distributed under CC BY 4.0

Corresponding Author: Mohamed Abdulrahim, m.abdulrahim@misuratau.edu.ly

Citation: Abdulrahim, M. (2021). Toward Build a New Theory : Sustainable Institutional Performance Theory.
Academia Letters, Article 2390.

4
 Therefore, the objectives of this discussion are to verify the ability of organizational cul-
ture and corporate governance to explain companies’ motivations to adopt sustainable perfor-
mance. By developing and broadening the scope of what is termed sustainable performance,
and introducing an emerging form of sustainability performance, ’solicited’ sustainable per-
formance, the question of whether ’voluntary’ sustainable performance is an exercise in ac-
countability to stakeholders or part of a process of legitimation may be best answered by the
type and level of sustainable performance. Of course, seeking explanations for managerial and
cultural motivation to sustainable performance is a study in human behavior, institutional cul-
ture and no one theory can ever completely explain definitively decision making processes as
theories are abstractions of reality and particular theories cannot completely account for or de-
scribe particular behavior. So, whilst contingency theory, legitimacy theory and stakeholder
theory may ‘compete’ to explain the managerial and cultural motivation for voluntary sustain-
able performance, they may all plausibly explain the phenomenon. However, by identifying
the two quite distinct styles of sustainable performance, voluntary or solicited, the theoretical
perspectives offered and commonly critiqued may provide better explanatory power if they
were tailored to the type of organizational culture.

3. Justifying or evaluating the theory (induction)

The proposed theory under development, which is derived from the intermarriage of three sim-
ilar theories and framework complements of them, and derived from the broader sustainable
economy perspective, are commonly offered as explanations of motivations for sustainabil-
ity performance, after verifying its assumptions validity, according to the results of previous
studies related to its content (Abdulrahim et al., 2020a, Abdulrahim et al., 2020c, Abdulrahim
et al., 2020b).
Where stakeholder theory offers an explanation of accountability to stakeholders. Le-
gitimacy theory, on the other hand, suggests voluntary disclosures are part of a process of
legitimation. While contingency theory of performance measurement relies on the assertion
that there is no common sustainable performance measurement, which applies in the same
manner to all companies under the same circumstances. Indeed, the specific characteristics
of the organization and its efficiency are influenced by particular organizational and contex-
tual factors. Hence, variables relating to the external environment, ownership structure, size,
culture and strategy affect the control system.
This theory argues that these theoretical perspectives may provide greater insights into
(voluntary or solicited) motivations for involvement in the sustainability practices if they are
linked more explicitly to the organizational culture type and corporate governance codes under

Academia Letters, July 2021 ©2021 by the author — Open Access — Distributed under CC BY 4.0

Corresponding Author: Mohamed Abdulrahim, m.abdulrahim@misuratau.edu.ly

Citation: Abdulrahim, M. (2021). Toward Build a New Theory : Sustainable Institutional Performance Theory.
Academia Letters, Article 2390.

5
examination.
There are therefore four aspects of sustainable performance have been adopted by this
proposed theory, which needs to be recognized and analyzed, namely:

1. Societal influence, which we define as a measure of the impact that society makes upon
the corporation in terms of the social contract and stakeholder influence; (Stakeholders
Theory)

2. Environmental impact, which we define as the effect of the actions of the corporation
upon its geophysical environment (Legitimacy Theory)

3. Institutional Culture and governance which we define as the relationship between the
corporation and its internal stakeholders, particularly employees, and all aspects of that
relationship “Criteria of meeting stakeholder needs are long term sustainable perfor-
mance indicators” (Contingency Theory and Stakeholders Theory) and

4. finance, which we define in terms of an adequate return for the level of risk undertaken.
(Ullman Framework)

Academia Letters, July 2021 ©2021 by the author — Open Access — Distributed under CC BY 4.0

Corresponding Author: Mohamed Abdulrahim, m.abdulrahim@misuratau.edu.ly

Citation: Abdulrahim, M. (2021). Toward Build a New Theory : Sustainable Institutional Performance Theory.
Academia Letters, Article 2390.

6
Academia Letters, July 2021 ©2021 by the author — Open Access — Distributed under CC BY 4.0

Corresponding Author: Mohamed Abdulrahim, m.abdulrahim@misuratau.edu.ly

Citation: Abdulrahim, M. (2021). Toward Build a New Theory : Sustainable Institutional Performance Theory.
Academia Letters, Article 2390.

7
4. The Theory Assumptions
From the above discussion and as is clear from Figures 1 and 2, we can formulate the following
assumptions:

Main assumption:
Appropriate organizational culture and good corporate governance will address the issue of
the extent to what the organization adopt all aspects of sustainable performance within an
active strategic posture.

Sub assumption (1):

Appropriate organizational culture and good corporate governance will address the issue of
the extent to what the organization adopt the societal impact aspect of sustainability within an
active strategic posture.

Sub assumption (2):

Appropriate organizational culture and good corporate governance will address the issue of
the extent to what the organization adopt the environmental impact aspect of sustainability
within an active strategic posture.

Sub assumption (3):

Appropriate organizational culture and good corporate governance will address the issue of
the extent to what the organization adopt the finance aspect of sustainability within an active
strategic posture.

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Academia Letters, July 2021 ©2021 by the author — Open Access — Distributed under CC BY 4.0

Corresponding Author: Mohamed Abdulrahim, m.abdulrahim@misuratau.edu.ly

Citation: Abdulrahim, M. (2021). Toward Build a New Theory : Sustainable Institutional Performance Theory.
Academia Letters, Article 2390.

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Academia Letters, Article 2390.

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Academia Letters, July 2021 ©2021 by the author — Open Access — Distributed under CC BY 4.0

Corresponding Author: Mohamed Abdulrahim, m.abdulrahim@misuratau.edu.ly

Citation: Abdulrahim, M. (2021). Toward Build a New Theory : Sustainable Institutional Performance Theory.
Academia Letters, Article 2390.

10