Dear students for this assignment please watch the video and  browse the details about PepsiCo 

https://www.pepsico.com/news/press-release/pepsico-reports-significant-strides-in-pursuit-of-performance-with-purpose-2025-07112018

to understand the concept of ‘performance with purpose’

Students must not contact the organization directly. The case must be based on material available in the public domain. 

also am attaching the recommended reading

LaTrobe University, BUS5SMM Assessment Task 3 – tasks and rubric

Page 1 of 5 3 February 2020

BUS5SMM Assessment Task 3: Marketing Case Research and Analysis – Marketing Mix, Sustainability and Competitive Advantage

Assessment Task 3: Overview

• Assessment task 3 is worth 30% of the subject total mark.

• It aims for the learner to

o Examine the concept of ‘Performance with Purpose’ introduced by PepsiCo former CEO, Indra Nooyi.

o Examine leadership theories applicable to Nooyi’s leadership style.

o Use the ‘Performance with Purpose’ case to critique Fast-Moving Consumer Goods (FMCG) companies which are using

sustainable positioning as a greenwash strategy.

• You will need to

o Watch the video about Indra Nooyi on LMS under Assessment 3 – Management Case Research and Analysis

o Browse the internet for the case of ‘Performance with Purpose’:

https://www.pepsico.com/sustainability/performance-with-purpose

o Read the suggested references in the Assessment Task 3 Resources folder on LMS.

• Students must not contact the organisation directly. The case must be based on material available in the public domain.

• This is an individual report.

• The report should demonstrate your ability to present a well written and well-structured report

• You should submit using the Moodle (LMS) submission link for this assignment.

https://www.pepsico.com/sustainability/performance-with-purpose

La Trobe University, BUS5SMM Assessment Task 3 – tasks and rubric

Page 2 of 5 3 February 2020

Assessment Task 3 tasks and proposed structure

Coversheet (1%)

Provide title of the report, student full name and student number, subject code and title, and name of teacher

Table of contents (2%)

Report contents (headings/sub-headings) and their page numbers

Introduction (2%)

Purpose of this report, scope, and structure

Task 1: How will you use the leadership theories to analyse the importance of sustainable decisions as ‘Performance with

Purpose’? (15%)

This should include

• A brief history of Indra Nooyi’s personal experience which led to the concept of ‘Performance with Purpose’ (5%).

• A brief discussion on the concept of ‘Performance with Purpose’ and its relevance to sustainability (5%).

• A discussion on leadership theories which are relevant to Indra Nooyi’s leadership style (5%).

Task 2: Using ‘Performance with Purpose’ as a case, critique the management decisions of any three Fast-Moving Consumer

Goods (FMCG) companies which are using sustainable positioning as a greenwashing strategy (30%).

This should include

• Explaining the concept of greenwashing (3%)

• Choosing three Fast-Moving Consumer Goods (FMCG) companies and explaining how they practice greenwashing (9% for

each company – total 27%).

La Trobe University, BUS5SMM Assessment Task 3 – tasks and rubric

Page 3 of 5 3 February 2020

Task 3: Describe the examples of environmental and social impacts created in the three FMCG companies (15%).

Explain the environmental and social impact of the greenwashing of each of the three companies (5% each).

Task 4: Provide some short-term and long-term management recommendations for these companies (15%)

Provide recommendations on how these companies should respond to claims that they have been involved in greenwashing.

Scholarly pursuit: presentation, grammar, and spelling (10%)

● Demonstrate your ability to present a well written and well-structured report

● Report should be free from grammar and

typing errors.

● Use headings and sub-headings where appropriate and number them, e.g. 1. Introduction, 2. Company background, etc.

● Write approximately 1,500 words (maximum 1,750 words).

● Use Calibri 12 point font, 1.5 line spacing.

● Start a new paragraph when a new or different point/topic/issue is to be discussed. Avoid using very large paragraphs.

● Include relevant tables, graphs, and figures (whichever is applicable).

● Use colours and images where appropriate; make your report look interesting.

References (10%)

• Use Harvard referencing.

• 10 references are expected. Use at least five academic references (peer reviewed journal articles, conference papers,

textbook, etc).

• Use recent company / industry reports.

• Do not use Wikipedia as a reference. Rather, you may use academically acceptable references used by Wikipedia.

• List the references used at the end of the report. The reference list is not included in the word count.

• All references in the list should be cited in the text.

• Include an in-text citation when you refer to, summarize, paraphrase, or quote from another source.

La Trobe University, BUS5SMM Assessment Task 3 – tasks and rubric

Page 4 of 5 3 February 2020

Rubric Assessment Task 3: Individual Marketing Case Research and Analysis

Criteria Scale

High Distinction Distinction Credit Pass Inadequate

Introductory pages:
Cover sheet (1%)

Table of Contents
(2%)
Introduction (2%)

The submission has

demonstrated perfect
identification of all the required
items of each section

The submission has
demonstrated competence in
identifying the required items
of each section

The submission has
demonstrated a developing
approach in identifying the
required items of each
section

The submission has met the

minimum requirement in
identifying the required items
of each section

The submission has not met

the minimum requirement in
identifying the required items
of each section

Explanation of the
action concept and

synthesis it
with theories
(20%)

The submission demonstrated a
perfect identification of the

leadership theories in relation to
‘Performance with Purpose’.

The submission
competently identifies the

leadership theories in relation to
‘Performance with Purpose’.

The submission demonstrated
a developing identification of

the leadership theories in
relation to ‘Performance with
Purpose’.

The submission has met the
baseline requirements for

identifying the leadership
theories in relation to
‘Performance with Purpose’.

The submission has not met
the baseline requirements for

identifying the leadership
theories in relation to
‘Performance with Purpose’.

Demonstration of

the body of
knowledge and
ability to extend it
to review

(30%)

The submission is a perfect

demonstration of the body of
knowledge exceeding the
requirement in commenting
the management decisions of

three FMCG companies which are
using

sustainable positioning as a
greenwash strategy.

The submission has

demonstrated a competent
demonstration of the body of
knowledge in commenting the
management decisions of three

FMCG

companies which are using
sustainable positioning as a
greenwash strategy.

The submission has

demonstrated a developing
approach to the body of
knowledge in commenting the
management decisions of three

FMCG companies which are
using sustainable positioning as
a greenwash strategy.

The submission has met the

requirement in demonstrating
the body of knowledge in
commenting the management
decisions of three FMCG

companies which are using
sustainable positioning as a
greenwash strategy.

The submission has not met

the requirement, nor has it
commented the management
decisions of three FMCG
companies which are using

sustainable positioning as a
greenwash strategy.

Identify the
sustainable impacts
(15%)

The submission has
demonstrated perfect
identification of the
social impacts created by the

three FMCG

companies.

The submission has
demonstrated competence
in identifying the social impacts
created by the three FMCG

companies.

The submission has
demonstrated a developing
approach in identifying the
social impacts created by the

three

FMCG companies.

The submission has met the
minimum requirement to
identify the social impacts
created by the three FMCG

companies.

The submission has not met
the minimum requirement to
identify the social impacts
created by the three FMCG

companies.

Ability to make
recommendations
(15%)

The submission has perfectly
proposed some
recommendations for the three
FMCG companies.

The submission has
competently met the
requirement to propose some
recommendations for the three

FMCG companies.

The submission has
demonstrated a developing
approach in proposing some
recommendations for the three

FMCG companies.

The submission has met the
minimum requirement to
propose some recommendations
for the three FMCG companies.

The submission has not met
the minimum requirement to
propose some
recommendations for the three

FMCG companies.

Ability to present a
well written and
well-structured

report (5%)

An excellent constructed and
presented assignment. Free of
spelling, grammatical,

punctuation and typing errors.

Well written and presented
assignment. Minor spelling,
grammatical, punctuation and

typing errors.

Reasonably written and
presented assignment. Some
spelling, grammatical,

punctuation and typing errors.

A coherent assignment but needs
to address numerous errors in
presentation including spelling,

punctuation and grammar.

Poorly written and presented
assignment. Major spelling,
grammatical, punctuation and

typing errors.

Use of credible
references and able
to reference

correctly (10%)

Excellent reference list which
contains a wide range of sources.
Presently correctly.

Good reference list which
contains an adequate range of
sources. Odd error in style

Reasonable reference list but
needed more sources. Some
referencing errors.

Reference list is limited and
needs wider range of sources. A
number of errors.

Major errors in referencing

La Trobe University, BUS5SMM Assessment Task 3 – tasks and rubric

Page 5 of 5 3 February 2020

The Drivers of

Greenwashing

Magali A. Delmas
Vanessa Cuerel Burbano

More and more firms are engaging in greenwashing, misleading consumers about their environmental performan

ce

or the environmental benefits of a product or service. The skyrocketing incidence of greenwashing can have
profound negative effects on consumer and investor confidence in green products. Mitigating greenwashing is
particularly challenging in a context of limited and uncertain regulation. This article examines the external (both
institutional and market), organizational and individual drivers of greenwashing and offers recommendations
for managers, policymakers, and NGOs to decrease its prevalence. (Keywords: Corporate Social Responsibility,
Environmental Policy, Green Marketing, Greenwashing)

T he consumer and capital markets for green products, services, and firmshave been expanding rapidly in the last decade. The consumer marketfor green products and services was estimated at $230 billion in 2009and predicted to grow to $845 billion by 2015.1 At the start of 2010,
professionally managed assets utilizing socially responsible investing strategies, of
which environmental performance is a major component, were valued at $3.07 tril-
lion in the U.S., an increase of more than 380 percent from $639 billion in 1995.2

More companies are now communicating about the greenness of their products
and practices in order to reap the benefits of these expanding green markets. Green
advertising has increased almost tenfold in the last 20 years and nearly tripled since
2006.3 As of 2009, more than 75 percent of S&P 500 companies had website sections
dedicated to disclosing their environmental and social policies and performance.4 At
the same time, more and more firms are engaging in greenwashing, misleading con-
sumers about firm environmental performance or the environmental benefits of a
product or service. Over 95 percent of products surveyed by TerraChoice in 2008/
2009 committed at least one of the TerraChoice “Seven Sins of Greenwashing.”5

The skyrocketing incidence of greenwashing can have profound negative
effects on consumer confidence in green products, eroding the consumer market
for green products and services.6 Likewise, greenwashing can negatively affect

64 UNIVERSITY OF CALIFORNIA, BERKELEY VOL. 54, NO. 1 FALL 2011 CMR.BERKELEY.EDU

investor confidence in environmentally friendly firms, eroding the socially respon-
sible investing capital market. Greenwashing also entails some risks when con-
sumers, non-government organizations (NGOs), or government entities question
firms’ claims. For example, Green Mountain Power Corporation was targeted by
several environmental groups for allegedly using polluting combustion technologies

for their renewable energy sources, which they
marketed as “green energy.”7 Likewise, corpora-
tions have faced lawsuits for engaging in environ-
mental false advertising. For example, Honda
settled a class action suit for false and misleading
statements regarding the fuel efficiency of a hybrid
vehicle.8 Why, then, do firms engage in green-
washing despite these risks? The current state of
lax and uncertain regulation is a key driver of
greenwashing.

A handful of authors have begun to make headway in defining the phenom-
enon of greenwashing,9 empirically demonstrating the incidence of greenwashing,10

describing its effects on consumers11 and on firms,12 and making suggestions as to
how to address it.13 Although some explanation of firm greenwashing has been
put forth,14 a comprehensive analysis of its determinants is lacking, and as a result
there are few tools available to managers or policymakers seeking to mitigate green-
washing. We aim to fill this void by developing a framework that examines the insti-
tutional, organizational, and individual drivers of greenwashing and then use this
framework to develop recommendations for how to decrease firm greenwashing.

We define greenwashing as the intersection of two firm behaviors: poor
environmental performance and positive communication about environmental
performance. Since the drivers of firm environmental performance are well
understood,15 we treat it as fixed and focus on firm communication about envi-
ronmental performance. That is, we describe the drivers that lead firms with poor
environmental performance (“brown” firms) to communicate positively about
their environmental performance. Given the shorter time frame required for a
firm to alter communications about its environmental performance than for a firm
to change it, our analytical focus on the drivers that lead brown firms to commu-
nicate positively about environmental performance while holding firm perfor-
mance constant is not only useful for analytical tractability, but is also true to
shorter-term strategic decisions of managers in these firms.

To identify the drivers of greenwashing, we draw from existing work in
management, strategy, sociology, and psychology that has studied and established
factors that can influence firm and individual behavior under various circum-
stances. Our framework organizes the drivers of greenwashing into three levels:
external, organizational, and individual. External drivers include pressures from
both non-market actors (regulators and NGOs) and market actors (consumers,
investors, and competitors). The current regulatory environment is the key driver
of greenwashing. Regulation of greenwashing is extremely limited in the U.S.
and enforcement of such regulation is highly uncertain. In addition, variation in
regulation across countries and complexity regarding appropriate jurisdiction of

Magali A. Delmas is a professor of
management at the UCLA Institute of the
Environment and Sustainability and the
Anderson School of Management.

Vanessa Cuerel Burbano is a Ph.D. student
in Strategy and Policy at the UCLA
Anderson School of Management.

The Drivers of Greenwashing

CALIFORNIA MANAGEMENT REVIEW VOL. 54, NO. 1 FALL 2011 CMR.BERKELEY.EDU 65

cross-country practices contribute to a particularly uncertain regulatory environ-
ment for multinational corporations. The regulatory context is a critical direct driver
of greenwashing due to the limited punitive consequences. The external market
drivers of greenwashing include consumer and investor demand for green products,
services, and firms. Organizational-level drivers include firm incentive structure and
ethical climate, effectiveness of intra-firm communication, and organizational iner-
tia. Such organizational-level drivers can become more pronounced in a lax regula-
tory context as firms face little incentive to put structures and processes in place to
alter organizational tendencies. Individual-level drivers include narrow decision
framing, hyperbolic intertemporal discounting and optimistic bias. These cognitive
tendencies become more salient and have a greater effect on individual decision
making under conditions of uncertainty and limited or imperfect information, to
which the current regulatory environment contributes.

We provide recommendations for managers, policymakers, and NGOs to
decrease the incidence and severity of greenwashing in practice. More stringent,
enforced regulation of greenwashing would serve as the most direct means to reduce
it. However, given that effective implementation of more stringent regulation would
be challenging due to a lack of clarity about what constitutes green behavior and con-
fusion surrounding the correct use of green adjectives such as “biodegradable” and
“all-natural,” and it could even have the unintended consequence of decreasing
firms’ use of otherwise helpful green claims. Given these challenges, it is unlikely that
there will be significant regulatory change in the near future. However, there are
important ways that managers, policymakers, and NGOs can work towards decreas-
ing the incidence of greenwashing in the current regulatory context. These include
increasing the transparency of environmental performance, increasing knowledge
about greenwashing, and effectively aligning intra-firm structures, processes, and
incentives. Indeed, we consider the roles of managers and NGOs to be critical to
reduce greenwashing in the current regulatory context.

What Is Greenwashing?

Greenwashing is the act of misleading consumers regarding the environ-
mental practices of a company (firm-level greenwashing) or the environmental
benefits of a product or service (product-level greenwashing).16 An example of
firm-level greenwashing is General Electric’s “Ecomagination” campaign, which
advertised the company’s work in the environmental arena while it simulta-
neously lobbied to fight new clean air EPA requirements. An example of product-
level greenwashing is that of LG Electronics and its mis-certified Energy Star
refrigerators. Energy Star, a government-backed third party eco-label indicating
that a product meets a set of energy efficiency guidelines, certified many of LG
Electronics’ refrigerator models. It was discovered, however, that ten of the certi-
fied LG refrigerator models had listed erroneous energy usage measurements on
their labels and did not actually meet the efficiency standards required to earn the
certification.17 More work has been done to categorize and quantify product-
level than firm-level greenwashing. For example, Gillespie identifies “ten signs
of greenwash,” ranging from “fluffy language” (words or terms with no clear

The Drivers of Greenwashing

66 UNIVERSITY OF CALIFORNIA, BERKELEY VOL. 54, NO. 1 FALL 2011 CMR.BERKELEY.EDU

meaning such as “eco-friendly”) to “outright lying” (totally fabricated claims or
data).18 The TerraChoice Group categorizes product-level greenwashing into
“seven sins.” These sins range from the “sin of the hidden tradeoff” (committed
by suggesting a product is green based on an unreasonably narrow set of attri-
butes without attention to other environmental issues) to the “sin of fibbing”
(which is committed by making false environmental claims).19 The other sins
are the sin of no proof, sin of vagueness, sin of irrelevance, sin of lesser of two
evils, and sin of worshiping false labels.

A greenwashing firm engages in two behaviors simultaneously: poor environ-
mental performance and positive communication about its environmental perfor-
mance. A firm’s environmental performance can be considered to fall along a
spectrum. For simplicity, we can bucket firms into one of two environmental perfor-
mance categories: poor environmental performers (called “brown” firms) or good
environmental performers (called “green” firms). Noting that it would be counter-
productive for a firm to actively communicate negatively about its bad environmen-
tal performance, and that brown firms will thus choose to either remain silent about
their bad environmental performance or try to represent their bad environmental
performance in a positive light, we can consider firms as falling along a communica-
tion spectrum ranging from no communication on one end to increasing degrees of
positive communication on the other end. Firms that positively communicate about
their environmental performance, throughmarketing and public relations (PR) cam-
paigns for example, can be described as “vocal” firms while those that do not com-
municate about their environmental performance can be described as “silent”
firms. Thus, firms with good environmental performance that positively communi-
cate about their environmental performance can be described as “vocal green firms”
(quadrant II in Figure 1 below) while those that do not communicate about their
environmental performance can be described as “silent green firms” (quadrant IV).
Among brown firms, we describe those not communicating about their

FIGURE 1. A Typology of Firms based on Environmental Performance and

Communication

Bad Good
Environmental Performance

Silent Green Firms

Vocal Green FirmsGreenwashing Firms

Silent Brown Firms

I II

III IV

Po
si

tiv
e

C
om

m
un

ic
at

io
n

N
o

C
om
m
un
ic
at
io
n
C
om
m
un
ic
at

io
n

ab
ou

t
E

nv
ir

on
m

en
ta

l
P

er
fo

rm
an

ce
The Drivers of Greenwashing

CALIFORNIA MANAGEMENT REVIEW VOL. 54, NO. 1 FALL 2011 CMR.BERKELEY.EDU 67

environmental performance as “silent brown firms” (quadrant III). Brown firms that
positively communicate about their environmental performance are the firms of
interest in this discussion, namely, “greenwashing firms” (quadrant I).

There are two paths by which a non-greenwashing firm can become a green-
washing firm (and vice versa). First, a vocal firm can alter its environmental perfor-
mance. That is, it can move from quadrant II to quadrant I in Figure 1. Second, a
brown firm can alter communication about its environmental performance. That
is, it can move from quadrant III to quadrant I in Figure 1.

The Drivers of Greenwashing

To simplify our discussion, we treat firm environmental performance as fixed
and focus on firm communication about environmental performance. That is, we
focus on the determinants of the vertical axis of Figure 1, on which the literature is
sparse, and leave out of our analysis determinants of the horizontal axis of Figure 1,
on which the management literature is rich. We thus describe the drivers that lead
brown firms to communicate positively about their environmental performance (see Figure 2).

Our framework draws from institutional theory, which emphasizes the
importance of regulatory, normative, and cognitive factors in shaping firms’ decisions
to adopt specific organizational practices.20 The regulatory context is a critical
external institutional driver of firm greenwashing. Institutional factors alone cannot

FIGURE 2. Drivers of Greenwashing

Market External Drivers

Consumer
Demand

Investor
Demand

Competitive
Pressure

Nonmarket External
Drivers:

Regulatory/

Monitoring

Context

Lax and Uncertain
Regulatory

Environment

Activist, NGO,
Media

Monitoring
Greenwashing

Organizational Drivers

Firm
Characteristics

Incentive Structure
and Culture

Effectiveness of
Intra-Firm

Communication

Organizational
Inertia

Individual Psychological Drivers

Optimistic Bias
Narrow
Decision
Framing

Hyperbolic
Intertemporal
Discounting

The Drivers of Greenwashing

68 UNIVERSITY OF CALIFORNIA, BERKELEY VOL. 54, NO. 1 FALL 2011 CMR.BERKELEY.EDU

explain differing strategies among firms, however.21 Market external factors are
important drivers of greenwashing. Key firm characteristics, incentive structure
and ethical climate, effectiveness of intra-firm communication, and organizational
inertia play important roles in moderating a firm’s reaction to external drivers. In
addition, individual-level psychological and cognitive factors influence managers’
decision-making processes and thus influence how external drivers translate into
motivation for action. The regulatory context indirectly affects the other drivers of
greenwashing by affecting the availability and reliability of information about firm
greenwashing and environmental performance accessed by consumers, investors,
and managers themselves, and by contributing to an environment of uncertainty
surrounding implications for engaging in greenwashing.

Non-Market External Drivers: The Regulatory and Monitoring Context

Lax and Uncertain Regulatory Environment

Regulation of greenwashing in the U.S. is extremely limited, and enforce-
ment of such regulation is highly uncertain from the perspective of firms. The
only portion of a firm’s greenwashing activities that is subject to federal regulation
is product or service advertising that falls under Section 5 of the FTC Act. The U.S.
Federal Trade Commission (FTC) is empowered to apply Section 5 of the FTC Act
to environmental marketing claims by prohibiting unfair or deceptive acts or prac-
tices. If the FTC finds that an advertiser violated Section 5, it can issue a cease and
desist order to the violator, and if the violator does not stop the practice, the FTC
may issue a fine of up to $10,000 or up to one year in prison.22 The FTC Act also
establishes criminal liability if the violation is committed with the intent to
defraud or mislead. The FTC has indeed investigated and charged companies for
environmental claims under Section 5 of the FTC Act, but these charges have
been few and far between. According to the FTC website, such environmental
cases totaled 37 from 1990 to 2000, zero from 2000 to 2009, and five in 2009.23

Thus, despite the existence of this regulation, enforcement has been limited.

Furthermore, from the perspective of firms, it is uncertain whether their
environmental claims are likely to result in an FTC charge. Some FTC cases have
been relatively straightforward, such as that against PerfectData Corp in 1993,
which challenged “ozone friendly” and “contains no ozone depleting CFCs”
claims for an aerosol cleaning product containing ozone depleting chemicals.
Other FTC cases have been less straightforward, however. For example, the FTC
charged Kmart in 2009 for making false and unsubstantiated claims that its Amer-
ican Fare brand disposable plates were biodegradable. Although the plates may
have been biodegradable in compost, the FTC alleged that the defendants’ pro-
ducts are typically disposed in landfills, incinerators, or recycling facilities, where
it is impossible for waste to biodegrade within a reasonably short period of time.
The FTC has acquiesced that, by these standards, even a piece of produce might
not be biodegradable in a landfill within a reasonably short period of time.24 This
case points to the uncertainty that firms face regarding the applicability of Section
5 to their environmental claims. As definitions of green terms such as “biodegrad-
able” and “all-natural” remain unclear, firms will continue to face uncertainty
regarding whether the FTC would construe their environmental claims as

The Drivers of Greenwashing

CALIFORNIA MANAGEMENT REVIEW VOL. 54, NO. 1 FALL 2011 CMR.BERKELEY.EDU 69

deceptive acts. At the state level, some states such as California have attempted to
promulgate their own environmental advertising claims regulations, but states
have not put forth regulation more stringent than that of the FTC. Given the lim-
ited history of FTC charges, firms likely perceive the risk of being punished by the
FTC for engaging in greenwashing practices as low probability on average; as
such, the current U.S. regulatory context does little to deter greenwashing.

U.S. multinational firms operating in countries outside the U.S. are also sub-
ject to the regulations of the host countries in which they operate. In some countries,
including most developing countries, there is no regulation of environmental claims;
for countries with such regulation, regulatory standards vary depending on the
country. International equivalents of the U.S. FTC include the Advertising Standards
Authority (ASA) in the UK, the Australian Competition and Consumer Commission
(ACCC), and the Canadian Standards Association (CSA). The CSA and Canadian
Competition Bureau released “Environmental Claims: A Guide for Industry and
Advertisers” in 2008, which requires companies to provide support for their environ-
mental claims and discourages the use of vague claims such as “green.” Misleading
advertising by a corporation is punishable by fines, product seizure, and imprison-
ment. In the UK, the Department for Environment, Food and Rural Affairs (DEFRA)
issued guidelines similar to those of the FTC and CSA, and which also take into
account the international standard of environment claims, the ISO 14021. The ISO
14201 is an international standard developed by the International Organization for
Standardization, which specifies requirements for self-declared environmental
claims. It lists terms commonly used in environmental claims, gives qualifiers for
their use, and describes a general evaluation and verification methodology. Adher-
ence to these standards is voluntary, although a handful of countries such as Austra-
lia, France, and Norway have backed the ISO 14201 with enforceable fines and
penalties. Indeed, the variation in regulation across countries and complexity regard-
ing which practices are legally subject to which countries’ regulation contributes to a
highly uncertain context of greenwashing regulation for multinational corporations.

In addition, the U.S. government does not currently mandate corporate
disclosure of environmental practices, with a few exceptions such as toxic
releases. Mandatory disclosure of environmental practices and third-party audit-
ing of such information would make it more difficult for brown firms to get away
with greenwashing, even if greenwashing practices themselves were not regu-
lated, since consumers, investors, and NGOs would be able to compare a firm’s
communications with reliable information about the firm’s environmental prac-
tices. The current state of voluntary disclosure of environmental information by
firms does little, however, to deter greenwashing.

Activist, NGO, and Media Pressure

Given the limited formal regulation of greenwashing, uncertainty about
enforcement in the U.S., and lack of international consistency of such regulation,
activist groups and NGOs—along with and through the media—currently play a
critical role as informal monitors of firm greenwashing. By campaigning against
and spreading information about incidents of greenwashing, these organizations
work towards holding brown firms accountable.

The Drivers of Greenwashing

70 UNIVERSITY OF CALIFORNIA, BERKELEY VOL. 54, NO. 1 FALL 2011 CMR.BERKELEY.EDU

Greenpeace’s “stopgreenwash” site includes articles about greenwashing
firms and SourceWatch’s site maintains a list of greenwashing case studies. Sites
such as goodguide.com and EWG’s Skin Deep Cosmetics Database provide
information on product-level environmental characteristics that consumers can
access to inform their purchasing decisions.

Activist and NGO-led campaigns against greenwashing firms can have a
much wider reach than informational websites. For example, the Coastal Alliance
for Aquaculture Reform of Vancouver, British Columbia, successfully used a cam-
paign strategy to reduce ocean pollution from salmon farms that used floating nets.
The Alliance targeted a retailer (Safeway) that sold farmed salmon because of the
company’s proclaimed policy of being a good environmentalist and corporate citi-
zen.25 The group took out a large advertisement in the New York Times featuring
dead seals and salmon feces under the heading “Ingredients for Extinction,” playing
on Safeway’s “Ingredients for Life” advertising campaign. The case of Safeway
demonstrates that a firm’s active communication about green or socially responsi-
ble practices can lead to more intense activist, NGO, and media attention. Another
example is the boycott led by activists and NGOs against Green Mountain for mar-
keting energy sources that used polluting combustion technologies as “green
energy.”26 Activists’ and NGOs’ access to consumers and the public has increased
through use of Twitter and Facebook, YouTube campaign videos, and other internet-
based platforms. These platforms have significantly decreased the costs and time
required to share information. Green activists and environmentally oriented
nonprofits on the lookout for greenwashing thus have an easy, inexpensive means
to spread information about and campaign against greenwashing incidents.

Activists, NGOs, and the media provide a threat of public exposure for
greenwashing, which likely deters some brown firms from positively communi-
cating about their environmental performance. As consumers, the public, and
investors become more interested in environmental issues, environmental activist
groups become more powerful and can exert more influence and pressure on
companies. Members of the media are also more likely to report on issues of
greenwashing as these stories become more likely to capture reader interest.
The increased interest in environmental issues has thus strengthened the role that
activist groups and the media can play in punishing firms for greenwashing or in
deterring firms from greenwashing in the first place. However, given the limited
formal regulation and enforcement of greenwashing, NGOs and the media can
only bring about reputational damage to greenwashing firms. The threat of expo-
sure would have much more of a deterrent impact on greenwashing if there were
legal ramifications for being “caught” and exposed. This would require more strin-
gent and enforced formal regulation of greenwashing.

Market External Drivers: Consumer, Investor, and
Competitor-Induced Incentives

In addition to the “nonmarket” external context, market external drivers
(including consumer demand, investor demand, and competitive pressure) are
critical to understanding why some brown firms choose to greenwash. Brown
firms face pressure from both consumers and investors to appear to be

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environmentally friendly and thus face incentives to communicate positively
about their environmental performance, particularly as there are few legal or reg-
ulatory ramifications for doing so. All else being equal, the greater the perceived
consumer and investor pressure for environmentally friendly firms, the more
likely a brown firm is to greenwash.27

The competitive landscape is also a critical part of the market environment
in which a brown firm faces the decision of whether to communicate positively
about its environmental performance. Organizations tend to model themselves
after similar organizations in their industry that they perceive to be more legiti-
mate or successful, and research has shown that this applies to the adoption of
green practices.28 This suggests that some firms might be communicating about
supposed green practices for fear of falling behind their rivals who have already
begun to do so. For example, UBS adopted a more progressive policy on climate
change after an internal report was compiled demonstrating that the company
lagged behind its competitors in publically committing to help mitigate global
warming.29 Thus, as positive communication about green practices becomes more
and more common within an industry or group of competitors, a brown firm in
that industry or competitive group is more likely to positively communicate about
its environmental practices and greenwash.

Limited greenwashing regulation and uncertain enforcement of this regu-
lation influences and interacts with the market external-level drivers, specifically
consumer and investor demand. Consumers cannot be confident that, if a brown
firm were to falsely communicate about its environmental practices, it would be
caught and punished for doing so. As noted, if greenwashing practices continue
to go unchecked by regulation, it is possible that green consumers will become
increasingly cynical about green claims, eroding the market for green products
and services. Similar to the case of consumers, it is challenging for investors and
funds following Socially Responsible Investing (SRI) or environmental assessment
strategies to correctly assess firms on these dimensions when there is a lack of
verifiable information available to them.30 Just as rampant, unchecked greenwash-
ing could erode the consumer market for green practices and services in the future,
and it could also erode the capital market for socially responsible investing.

Organizational-Level Drivers

While external drivers combine to create an environment that incenti-
vizes brown firms to greenwash, they are not interpreted within a vacuum.
Organizational-level drivers—including firm characteristics, incentive structure
and ethical climate, effectiveness of intra-firm communication, and organiza-
tional inertia—mediate and influence the way that firms respond to the external
drivers.

Firm Characteristics

Firm-level characteristics (such as size, industry, profitability, lifecycle
stage, and particular resources and competencies) undoubtedly influence the
overall strategies available to a firm, the costs and benefits associated with any
particular action, and the degree to which a firm experiences external pressures.

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The expected benefits to brown firms of positively communicating about
environmental performance include increased access to green consumers and
investors. Such potential benefits vary with basic firm characteristics. Consumer
products firms likely face greater levels of consumer pressure to appear to be
environmentally friendly than service firms or firms in non-consumer products
industries. Likewise, large, publically traded firms tend to be the focus of analysis
by the SRI community; as such, these firms likely face greater levels of investor
pressure than smaller, private firms.

The expected costs to brown firms of positively communicating about
environmental performance—that is, the likelihood and costs associated with
being caught for greenwashing—also vary with basic firm characteristics. Consu-
mer products firms are most subject to product-level regulation under Section 5
of the FTC act. Consumer products firms are also most likely to be targets of cam-
paigns seeking to garner public outrage due to greenwashing, although the
increasing use of social media sites and viral ad campaigns to garner support for
a wide range of issues has increased the potential for such scrutiny to be applied
to a wider range of firms. Larger firms with well-known brands are more likely
to be subjected to activist and media scrutiny because they are more likely to gar-
ner public attention.31 Also more likely to be targeted by activists and NGOs are
firms belonging to industries that are renowned for poor environmental perfor-
mance, such as the oil and utilities industries. Indeed, oil and utilities companies
commonly top lists such as Greenpeace’s Top Greenwashers list. More-profitable
firms with higher margins are better able to withstand bottom-line shocks from
reputational damage for being “caught” by NGOs for greenwashing than less-
profitable firms with lower margins. They can also more easily incur fines by
the FTC for deceptive environmental product claims, as well as litigation costs of
being sued for such claims.

Incentive Structure and Ethical Climate

In addition, it has been shown that firm incentive structure and ethical cli-
mate can be determinants of firm ethical behavior.32 Unethical behavior has been
described as behavior that has a harmful effect on others and is either illegal or
morally unacceptable in the larger community.33 As such, we can draw from
existing literature on incentives and ethical climate as drivers of unethical behav-
ior to further inform our understanding of why a brown firm might engage in
greenwashing.

It has been demonstrated that incentives that reward managers for attain-
ment of arbitrary financial goals often results in unethical behavior.34 Such incen-
tives have been purported to explain General Electric’s defrauding of the
government on a missile-warhead contract in 1985.35 Likewise, incentives to reward
on-time performance and punish late performance have been claimed to directly
contribute to unethical behavior by Eastern Airlines in 1990 that resulted in indict-
ments for falsification of maintenance records.36 Incentives to reach arbitrary mar-
keting or PR quotas, particularly quotas for communications that portray the firm
in an environmentally friendly or socially responsible light, would increase the like-
lihood that a brown firm would greenwash. Indeed, such incentives could drive

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managers to take short cuts in validating the truth to their communicationsmessages
or cause managers to “look the other way” if they have reason to question the valid-
ity of certain communications messages.

Somewhat related to incentive structure is ethical climate. Organizational
behavior scholars describe a firm’s ethical climate as composed of organizational
members’ shared perceptions and beliefs that certain ethical reasoning or behav-
iors are expected norms for decision making.37 The ethical climate of an organi-
zation can be categorized as consisting of one of three basic types of moral
judgment: in an egoistic climate, company norms support the satisfaction of self-
interest; in a benevolent climate, company norms support maximization of overall
well-being; and in a principled climate, company norms support following abstract
principles independent of situational outcomes such as external legal mandates or
internal codes of ethics.38 Unethical behavior has been shown to occur more
frequently in organizations or organizational subunits in which egoistic (rather
than benevolent or principled) ethical climates dominate.39 Although the theory
contends that predominant ethical climates tend to be intractable and difficult to
change, studies nevertheless point to the effectiveness of implementing ethical
codes and other explicit firm standards of conduct to reduce unethical behavior,
even within dominantly egoistic climates.

As greenwashing is an example of unethical behavior, it is more likely to
occur among brown firms with egoistic, rather than benevolent or principled,
ethical climates. Firms with ethics codes and explicit firm standards of conduct
in place are less likely to greenwash. To the extent that such codes or standards
explicitly include directives about the importance of truthful communication
and representation of firm behavior, they would diminish the likelihood of green-
washing by a brown firm.

Organizational Inertia

Management literature has increasingly recognized organizational inertia
as a factor that influences and explains firm behavior.40 Organizational inertia is
the strong persistence of existing form and function that underlies and hampers
strategic change. Organizational inertia is more likely to be prevalent in larger,
older firms than in smaller, newer firms.41 Thus, organizational inertia could
explain a lag naturally occurring between a manager’s declaration of green intent
and implementation of this intent, or between a CEO’s declaration of commit-
ment to greening the company and the rest of the company’s alteration of struc-
ture and processes to truly green the company.42 This disconnect could be
particularly prevalent in firms that are transitioning between CEOs or during
mergers and acquisitions. For example, BP’s chief executive, Bob Dudley, may
have engaged in greenwashing partly due to organizational inertia. He was
criticized by the media for doing “little but talk about improving safety since he
took the reins” of BP after taking over for Tony Hayward in the wake of the
Macondo well explosion.43 It is possible that, despite his intent to change processes
and procedures to improve BP’s safety, such changes took longer than anticipated
to implement due to organizational inertia.

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Effectiveness of Intra-Firm Communication

Another relevant internal firm characteristic is effectiveness of intra-firm
communication. Internal transfers of knowledge within a firm are often sticky
or difficult to achieve, and suboptimal internal transfer of knowledge can help
to explain firm behavior such as less innovation.44 Suboptimal transfers of knowl-
edge within a firm could also help explain inadvertent greenwashing by brown
firms, suggesting that firms with ineffective communication between marketing/
PR departments and product development, production, or packaging departments
are more likely to greenwash, all else being equal. For example, a marketing or
PR department could overstate the greenness of a product due to a miscommunica-
tion or lack of communication with a product development department, packaging
department, or suppliers of a product’s components.

Organization scholars have analyzed factors that inhibit knowledge sharing
among subunits such as the lack of direct relationships and extensive communica-
tion between people from different subunits. In the product innovation literature
focused on knowledge dissemination, it is argued that close and frequent interac-
tion between R&D and other functions leads to project effectiveness.45 Applying
this concept to the context of greenwashing, we can hypothesize that a lack of fre-
quent and close interactions between intra-firm divisions such as marketing and
product development can act as an important driver of greenwashing.

Effectiveness of intra-firm communication, as well as firm incentive structure
and ethical climate, are also affected by the regulatory context. In a lax regulatory
context, there is little incentive for firms to ensure that organizational characteristics
such as incentive structures and ethical climate are aligned to minimize greenwash-
ing, or to put processes in place to improve effectiveness of intra-firm communication
in order to decrease the likelihood that firms will greenwash.

Individual-Level Psychological Drivers

Leaders and individuals play an important role in explaining firm behavior.
The psychology, behavioral decision theory, and behavioral economics literature
contends that tendencies such as narrow decision framing, hyperbolic intertemporal
discounting, and optimistic bias become more salient and have a greater effect on
individual decision making under conditions of uncertainty and limited or imper-
fect information, often referred to as bounded rationality.46 The current regulatory
environment contributes to the conditions of bounded rationality. Indeed, the
uncertain enforcement of firm greenwashing regulation as well as a lack of stan-
dardization in relevant host country regulation contribute to uncertainty about
the negative consequences of greenwashing. In addition, employees, managers,
and firm leaders have limited tools and information to evaluate firm greenwashing
activities (although some progress has been made in establishing criteria with which
to evaluate product and service advertising greenwashing—e.g., TerraChoice’s
Seven Sins of Greenwashing47 framework). As managers in a brown firm deciding
whether to communicate positively about environmental performance are making
this decision in a context of uncertainty and imperfect information, we can infer
that these managers are likely to exhibit these psychological tendencies. The

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regulatory context is therefore an indirect driver of firm greenwashing in that it
exacerbates the individual-level drivers of greenwashing, namely, narrow decision
framing, hyperbolic intertemporal discounting, and optimistic bias.

Narrow decision framing, sometimes called narrowing bracketing, is the
tendency to make decisions in isolation.48 An example of narrow bracketing is
the statistical fact that consumption does not adjust downward when people
receive bad news about future income shocks such as losing their job.49 Decision
makers within a firm may decide today to communicate about the greenness of a
product or firm without adequately considering what is required to implement
this in the future, resulting in greenwashing down the road. Or a decision maker
or firm leader may focus on the short-term gains from greenwashing without ade-
quately weighing the long-term potential negative effects on loss of reputation. To
mitigate this tendency, psychology and behavioral scholars note that maintenance
of a broader decision frame can be influenced by how performance is evaluated.50

The tendency toward narrow decision framing can thus be moderated with an
appropriately aligned incentive structure.

Another cognitive tendency that could lead to greenwashing is hyperbolic
intertemporal discounting. Psychologists have concluded that discount functions
are hyperbolic; that is, characterized by a relatively high discount rate (impatient)
over short horizons and a relatively low discount rate (patient) over long hori-
zons.51 This function has been used in psychological studies of temptation, self-
control, and procrastination, and it has been applied to analyze consumption
and savings decisions. Hyperbolic discounting generates what is often referred to
as dynamic inconsistency, or preference reversals. Hyperbolic consumers, for
example, exhibit a gap between their long-run goals and their short-run behavior.
They will not achieve their desired level of “target savings” because short-run
preferences for instantaneous gratification undermine efforts to implement
patient long-run plans. In the context of cognitive factors that could lead to firm
greenwashing, when a decision as to whether to communicate about firm envi-
ronmental performance is being made today, a manager or firm leader could
choose to communicate actively about the environmental sustainability and social
responsibility of the firm with an intention to bear the costs to implement green
practices in the future. When the future becomes today, so to speak, the decision
maker once again acts impatiently and chooses to greenwash.

Optimistic bias, the tendency for individuals to over-estimate the likelihood
of positive events and under-estimate the likelihood of negative events, may also
contribute to greenwashing. Optimistic bias arises in part because forecasts of
future outcomes are often anchored on plans and scenarios of success rather than
on past results.52 Pervasive optimistic biases can take three main forms: unrealis-
tically positive self-evaluation, unrealistic optimism about future events and plans,
and an illusion of control.53 A survey of new entrepreneurs about their chances of
success and the chances of success for enterprises similar to theirs demonstrates
this bias: 80% perceived their chances of success as 70% or better, and 1/3
described their chances of success as 100%. These chances of success were uncor-
related to objective predictors of success such as college education, prior supervi-
sory experience, and initial capital. Yet the mean chance of success they attributed

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to a business like theirs was 59%.54 Decision makers may over-estimate the
likelihood of the positive results of greenwashing, namely, gaining green market
share and attracting capital from SRI investors, and under-estimate the likelihood
of negative events resulting from greenwashing such as being caught by the FTC,
facing consumer litigation, or receiving negative media or NGO scrutiny. This
could increase the likelihood that a decision maker within a brown firm would
choose to communicate positively about firm environmental performance and
thereby greenwash.

Managerial and Policy Recommendations

Greenwashing regulation currently applies only to miscommunication about
product or service environmental performance; there is no regulation for miscom-
municating about firm environmental performance. Regulation of firm-level green-
washing would certainly increase punitive consequences and deter brown firms
from positively communicating about their firm’s environmental performance. In
practice, however, difficulty in measuring and assessing the degree of firm-level
greenwashing makes this a daunting regulatory challenge.

From Figure 1, we observe that there are two paths to decrease greenwash-
ing. One is for vocal firms to improve firm environmental performance. That is,
firms could move from quadrant I to quadrant II in Figure 1 (from greenwashing
firms to vocal green firms). The second path is for brown firms to stop positively
communicating about environmental performance. That is, firms could move
from quadrant I to quadrant III in Figure 1 (from greenwashing firms to silent
brown firms). Managers, policymakers, and NGOs can enable and incentivize
brown firms to stop communicating positively about environmental performance,
namely, they can decrease the incidence of greenwashing by improving the trans-
parency of firm environmental performance, by facilitating and improving knowl-
edge about greenwashing, and by effectively aligning intra-firm structures,
processes, and incentives. Such a multi-stakeholder approach could be effective
in reducing greenwashing in the current regulatory context. Our recommenda-
tions are summarized in Table 1.

Increase Transparency of Environmental Performance

Increased transparency about firm environmental performance would
decrease brown firms’ incentives to engage in greenwashing, even in the current
regulatory context. It has also been demonstrated that firms themselves benefit
from increased transparency about environmental performance in the form of less
unsystematic stock market risk.55 Such transparency could be achieved through
both mandated and voluntary corporate disclosure of firm-level environmental
performance, and policymakers, NGOs, and managers should play central roles
in such an endeavor.

Mandate Disclosure of Environmental Performance

There are successful examples of mandatory environmental information
disclosure policies in the U.S., including the Emergency Planning and Community

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TABLE 1. Recommendations to Decrease Positive Communication by Brown Firms
(continued on next page)

Recommendations Implementation by Stakeholders

Increase Transparency
of Environmental
Performance

Mandated
Disclosure

Policymakers

§ Mandate annual disclosure of firm level
environmental performance metrics

§ Mandate disclosure of product environmental
characteristics

§ Verify reporting or collaborate with NGOs to do so

NGOs

§ Aggregate and diffuse environmental performance
information

Voluntarily
Disclosure

Policymakers and NGOs

§ Extend/create new ecolabels for a broader range of
product characteristics, while standardizing/collaborating
to reduce consumer confusion

Managers

§ Voluntarily disclose firm and product
environmental performance

§ Share best practices, collaborate with other firms,
NGOs, government

Facilitate and Improve
Knowledge about
Greenwashing

Gather and Share
Information about
Greenwashing
Incidents

NGOs

§ Continue to leverage internet-based venues to reach
broad audiences to call out greenwashing firms

§ Collaborate amongst NGOs to reduce consumer
confusion re sites and blogs providing info re
greenwashing

Reduce
Regulatory
Uncertainty

Policymakers

§ FTC to explicitly communicate types of actions that
will be considered to violate Section 5 of the FTC Act

§ Research consumer understanding of green
terminology to inform Green Guides

NGOs

§ Facilitate adoption of uniform international standards
for advertising and environmental disclosure regulation

Effectively Align Intra-firm
Structures, Processes and
Incentives

Improve
Information
Related to
Environmental
Communication
Decisions

Managers

§ Increase centralization of decisions regarding environ-
mental communication

§ Institute standards and requirements for internal gathering
and sharing of information on environmental performance
indicators with Communications and PR divisions

§ Share information among firms regarding best practices

§ Carefully assess flexibility and speed with which firm
can implement change

§ Keep in mind tendency to over-estimate likelihood of
positive events and act impatiently in the short-term

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Right-to-Know Act of 1986, a federal policy that mandated disclosure of toxic
release inventory information. State policies such as those of California that
require new vehicles to be labeled with a global warming score and that require
electric utility companies to disclose their fuel mix and pollution discharge statis-
tics to consumers are also examples of mandatory environmental information dis-
closure policies.56 Such mandatory disclosure policies have facilitated the
monitoring of environmental performance indicators by NGOs and interested
consumers and investors, and they have also succeeded in changing firms’ inter-
nal reporting mechanisms.57 Mandated disclosure of a broader range of indicators
of firm environmental performance and management practices would help
decrease the incidence of greenwashing. Indeed, mandatory annual environmen-
tal reporting similar to those of numerous European countries including Australia,
France, Spain and the Netherlands would significantly improve environmental
performance transparency in the United States. Studies have found that introduc-
tion of mandatory environmental performance reporting in Australia in 1998 sig-
nificantly improved reporting.58 Likewise, mandatory disclosure of product-level
environmental performance indicators similar to that of the product-level nutri-
tional content mandated by the FDA would improve the availability and reliability
of product-level environmental information for consumers and NGOs looking to
hold firms accountable for their environmental communications at the product
level; as well as force managers to be aware of the environmental “content” of their
products. Mandated disclosure without monitoring the truthfulness of reporting
could lead to incentives for firms to lie about or exaggerate their environmental
performance. As such, verification or occasional auditing of reporting would be a
necessary complement to mandated corporate disclosure. To the extent that the
verification process itself were made transparent, consumers and the public would
have greater confidence in the reported information.

In an environment of mandatory corporate disclosure of environmental per-
formance information, NGOs can play an important role as information aggregators

TABLE 1. Recommendations to Decrease Positive Communication by Brown Firms
(continued from previous page)

Recommendations Implementation by Stakeholders

Provide Ethical
Leadership and
Training

Managers

§ Provide ethics courses and training to inform employees
of the risks of greenwashing and how to avoid it

§ CEO to emphasize ethical behavior and honest
communication

Align Employee
Incentives

Managers

§ Eliminate perverse incentives, e.g., environmental
communication counts

§ Reward employees for identification of greenwashing
claims

§ Punish employees involved in contributing to
greenwashing

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and disseminators. Likewise, NGOs can use the disclosed information to identify
the good and bad environmental performers and share this information with the
public, thus pressuring poor environmental performers to improve their environ-
mental performance. Scorecard.goodguide.com is an example of a website that
aggregates information on toxic chemical releases and enables interested indivi-
duals to easily discover the worst polluters by region. By making this information
easily accessible by the public, the site helps hold firms accountable for their toxic
chemical release performance.

Promote Voluntary Disclosure of Environmental Performance

In areas where disclosure of environmental performance is not mandatory—
namely, all product-level environmental performance metrics and most firm-level
environmental performance metrics—NGOs, some government entities, and man-
agers can play an important role in promoting voluntary disclosure of environmental
performance information. Voluntary product-level environmental performance
information has been and should continue to be facilitated by NGO and govern-
ment-sponsored ecolabels, while managers can facilitate disclosure of voluntary pro-
duct and firm-level environmental performance information by their firms. As
voluntary disclosure of environmental performance gains momentum, more firms
will be incentivized to voluntarily disclose information about environmental
performance.

NGO-sponsored ecolabels such as Green Seal and government-sponsored
eco-labels such as the Department of Energy’s Energy Star label and the USDA
Organic label play an important role in informing consumers about products that
meet certain environmental standards.59 An extension of such ecolabels (or crea-
tion of new third-party ecolabels applied to a broader range of products and pro-
duct characteristics) would provide consumers with more verified, reliable
product-level environmental information. Whenever possible, policymakers and
NGOs should work together to centralize and standardize ecolabeling processes
in order to increase the credibility of eco-labels and reduce consumer confusion
from the proliferation of different ecolabels. With limited consumer understand-
ing about the differences between such labels, firms have the incentive to stamp
products with their own supposed ecolabels or with logos similar to existing
third-party ecolabels. SC Johnson, for example, settled class action lawsuits that
challenged its Greenlist logo, a propriety image the company put on its products
that met internal standards for less-harmful products.60 This is a form of green-
washing referred to as “the sin of worshiping false labels” by TerraChoice. Stan-
dardizing and streamlining the ecolabels would improve consumer recognition
and understanding and thus reduce the incentive for firms with a brown product
to positively communicate about the environmental characteristics of the product
by using proprietary or knock-off ecolabels. The Design for the Environment eco-
label is an example of government entities and NGOs working together, as the
program is run by the Department of Energy but is implemented with input and
collaboration from a number of NGOS, including the Sierra Club and NSF.61

Managers in non-greenwashing firms can voluntarily and transparently
disclose information about environmental performance. Research has shown that

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transparency about environmental performance can be beneficial to firms by
enhancing stakeholders’ perceptions of such firms, even when liabilities are dis-
closed.62 A prime example of this is the case of Patagonia and its Footprint
Chronicles, an online portal where consumers can trace the impact of Patagonia
products along each step of the supply chain. In full disclosure, Patagonia shares
“the bad,” “the good,” and “what they think” (an environmental cost-benefit
analysis and information about how they will improve). As Patagonia’s founder
puts it: “we put the bad things up front and admit our shortcomings.”63 Despite
deepening global recession, Patagonia sales reached $315 million in 2008, the year
the Footprint Chronicles launched (up from $270 million the year before).64 In
2009, Yvon Chouinard was named one of US News and World Report’s “America’s
Best Leaders.”65

Managers can also share best practices and collaborate with other firms,
NGOs, and government entities to share information about internal structures, pro-
cesses, and incentive systems that enable them to monitor and improve their firm’s
environmental performance and ensure that they do not greenwash. The collab-
oration between Wal-Mart and Patagonia to create the Sustainable Apparel Coali-
tion with the goal of working together to develop an industry-wide supply chain
index that measures water and energy use, greenhouse gas emissions, and waste
is an example of collaboration and sharing of best practices among firms. The coali-
tion has expanded and now includes such entities as Levi Strauss & Co., Li & Fung,
Marks & Spencer, Nordstrom, Otto Group, and REI as well as the Environmental
Protection Agency. This coalition is thus also a prime example of collaboration
between firms and government agencies to improve environmental performance
and decrease greenwashing along the supply chain. The collaboration between
the Environmental Defense Fund and Wal-Mart to reduce greenhouse gas emis-
sions and identify other opportunities for environmental performance improve-
ments is another example of how firms can partner with NGOs to assess and
improve their environmental focus. In addition, firms should collaborate with
objective third parties to certify the environmental characteristics of their products.
The use of third-party certified ecolabels sponsored by government entities or
NGOs is an example of this. The extension of collaborations between firms, NGOs,
and government entities to include sharing of best practices and standards-setting
with respect to communication about environmental performance, not just environ-
mental performance, would further decrease the incidence of greenwashing.

Facilitate and Improve Knowledge about Greenwashing

In the current regulatory context, the FTC sheds light on some cases of
greenwashing, but many incidents of greenwashing go unpunished by the FTC.
Increased and more coordinated sharing of information about cases of greenwash-
ing helps to punish firms for engaging in the practice and deters some brown firms
from communicating positively about environmental performance due to fear of
reputational damage. NGOs continue to play a critical role as monitors and infor-
mation providers given the current lax regulatory context. Policymakers and
NGOs are key to reducing information uncertainty and improving firm under-
standing about the punitive consequences of greenwashing.

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Gather and Share Information about Incidents of Greenwashing

NGOs have been stepping up to play the roles of monitors and information
providers given the context of limited regulatory oversight of firm environmental
performance and communication. TerraChoice has made important forays in
informing consumers about the high incidence of product greenwashing and in help-
ing consumers identify product greenwashing through its Sins of Greenwashing
reports. NGOs should continue to make such information available to consumers,
and should also work to help consumers identify firm-level greenwashing behavior
(in addition to product-level greenwashing behavior). NGOs should continue to
use internet-based venues such as viral videos and social media sites to reach a broad
public audience and to place pressure on greenwashing firms. Although the informa-
tion being provided by NGOs fills an important void, NGOs should be aware that the
proliferation of NGO-sponsored websites and blogs could contribute to consumer
confusion. Thus, NGOs should increase collaboration among themselves in order to
reduce consumer confusion in differentiating between and interpreting the various
NGO-sponsored sites and blogs providing information about environmental perfor-
mance. NGOs could also increase collaboration with socially responsible investors
to identify the environmental performance information of interest to this stakeholder
group. This would enable an NGO or group of NGOs to gather and provide this infor-
mation to the socially responsible investor community, helping to address the lack of
verifiable information available to socially responsible investors and mediate one of
the drivers incentivizing brown firms to positively communicate about their environ-
mental performance.

Reduce Regulatory Uncertainty

More explicit communication by the FTC about the types of greenwash-
ing actions that will be pursued as a violation of Section 5 would help decrease
regulatory uncertainty. The FTC’s Green Guides currently provide guidance for
firms regarding environmental marketing claims, including examples of good
green product and service advertisements and qualifying claims to include in
advertisements, and it is a step in the right direction. The FTC should continue
to conduct research and hold workshops to inform its understanding about con-
sumer interpretation and understanding of green terminology used in environ-
mental advertising, and it could collaborate with NGOs in these types of
workshops. The UK Department for Environment, Food and Rural Affairs
(DEFRA)’s Green Claims Guidance report was based partly on research it com-
missioned to understand how consumers interpret green phrases.66 NGOs could
also play a role in facilitating adoption of uniform international standards for
disclosure and advertising regulation, which would help reduce the regulatory
uncertainty faced by multinational corporations.

Effectively Align Intra-firm Structures, Processes, and Incentives

Managers can take steps to counteract the organizational and individual-
level drivers that can lead to greenwashing. They can alter firm structures, insti-
tute processes and procedures, and provide incentives and training to address

The Drivers of Greenwashing

82 UNIVERSITY OF CALIFORNIA, BERKELEY VOL. 54, NO. 1 FALL 2011 CMR.BERKELEY.EDU

these drivers. Furthermore, managers can be cognizant of the tendency for
individual-level psychological tendencies to cloud optimal decision making,
particularly when information is limited and repercussions are uncertain, and keep
in mind that organizational inertia can make change slow to implement.

Improve Information Related to Environmental Communication Decisions

Increased centralization of decisions related to environmental communica-
tion would reduce the potential for greenwashing resulting from ineffective
intra-firm communication. For example, increasing the sustainability officer or
department’s oversight to other divisions and geographic offices would reduce
the likelihood that a lack of communication between, for example, marketing, pro-
duct development, and supply chain management divisions within and across
countries results in greenwashing. The institution of standards and requirements
for internal gathering and sharing of information on environmental performance
indicators from product design and manufacturing divisions with communications
and PR departments and between country offices would also improve the effective-
ness of intra-firm communication and decrease the likelihood of greenwashing.
Adoption of ISO 14001, the G3.1 Guidelines (a core element of the Global Report-
ing Initiative’s Sustainability Reporting Framework) or other such established stan-
dards would also facilitate sharing of relevant information. Likewise, managers
could look to leading firms for best practices regarding institution of internal infor-
mation gathering and sharing processes. When planning to implement such proce-
dural and structural changes, managers should keep in mind the tendency of
organizations to exhibit organizational inertia and should thus carefully assess the
flexibility and speed with which their organization can change to achieve desired
goals. A series of incremental changes within existing structures and processes
may be more feasible to implement effectively in the short term than a radical
structural or procedural change. Likewise, when engaging in strategic analysis
and planning of firm environmental performance and communication goals, man-
agers should keep in mind the cognitive tendency to over-estimate the likelihood of
positive events and to act impatiently in the short term.

Provide Ethical Leadership and Training for Employees

Managers could seek to mold their firm’s ethical climate by implementing
ethics courses or training that is specifically designed to inform employees about
the risks to the firm of greenwashing. Likewise, managers could institute ethical
codes and explicit firm standards to diminish the likelihood of unethical behavior.
Encouraging a culture of open communication and collaboration between
employees and divisions would also facilitate effective intra-firm communication.
The role of the CEO and firm leaders in setting the ethical climate and culture of
the firm is particularly important. For example, in 2008, the CEO of Wal-Mart,
Lee Scott, told an audience, “We’re not green,” setting the stage for a degree of
modesty in the retailer’s communication about environmental performance and
recognition that it needed to improve.67 The company has since made improve-
ments to its environmental footprint, but has not over-communicated about these

The Drivers of Greenwashing

CALIFORNIA MANAGEMENT REVIEW VOL. 54, NO. 1 FALL 2011 CMR.BERKELEY.EDU 83

improvements. The retailer’s Frito-Lay SunChips campaign about the solar power
behind its chip plant has been described as “proud, but not overly boastful about
saving the world.”68

Align Employee Incentives

The adjustment and alignment of employee incentives is an important
means to reducing the likelihood of greenwashing. Perverse incentives to eliminate
would include, for example, rewarding marketing department employees for incor-
poration of environmental messages into communications by counting the number
or reach of such marketing products without regard to the accuracy of such claims.
Managers could also reward employees for identification of greenwashing claims or
punish employees during their performance reviews for playing a role in a green-
washing incident. This would encourage employees to decrease the tendency to
make decisions in isolation that could result in greenwashing.

Conclusion

The prevalence of greenwashing has skyrocketed in recent years; more
and more firms have been combining poor environmental performance with
positive communication about environmental performance. Greenwashing can
have profound negative effects on consumer and investor confidence in green
products and environmentally responsible firms, making these stakeholders
reluctant to reward companies for environmentally friendly performance. This,
in turn, increases the incentives for firms to engage in environmentally detri-
mental behavior, which has been shown to create negative externalities and
thus negatively affect social welfare. For managers, regulators, and NGOs who
seek to implement policies or take actions to decrease the incidence of green-
washing, it is critical to understand the factors that drive greenwashing in the
first place in order to determine how best to counteract them. A simple frame-
work that organizes drivers into external-level drivers (the regulatory and mon-
itoring context, as well as market drivers), organizational-level drivers, and
individual-level drivers sheds light on why many brown firms choose to green-
wash (Figure 2).

Limited and imperfect information about firm environmental performance,
as well as uncertainty about regulatory punishment for greenwashing, contribute
to greenwashing. Indeed, cognitive tendencies such as narrow decision framing,
hyperbolic intertemporal discounting, and optimistic bias are heighted as indivi-
duals make decisions based on increasingly limited or imperfect information,
and as uncertainty increases. Regulators and NGOs can thus take actions to
improve the availability of information and decrease uncertainty about punish-
ment for engaging in greenwashing to moderate these cognitive tendencies. At
the same time, managers can adjust incentives and take steps to counter these
individual-level cognitive tendencies as well as the organizational-level drivers
of greenwashing. Our recommendations emphasize that a multi-stakeholder
approach including managers, policymakers, and NGOs could be effective to
reduce greenwashing in the current regulatory context by improving the

The Drivers of Greenwashing

84 UNIVERSITY OF CALIFORNIA, BERKELEY VOL. 54, NO. 1 FALL 2011 CMR.BERKELEY.EDU

transparency of firm environmental performance, by facilitating and improving
knowledge about greenwashing, and by effectively aligning intra-firm structures,
processes and incentives.

Notes

1. Heidi Tolliver-Nigro, “Green Market to Grow 267 Percent by 2015,” Matter Network, June 29,
2009, available at ,
accessed May 7, 2011.

2. Social Investment Forum Foundation, “2010 Report of Socially Responsible Investing Trends
in the United States, Executive Summary,” available at , accessed May 7, 2011.

3. TerraChoice Group, Inc., “The Seven Sins of Greenwashing,” 2009, available at , accessed May 7, 2011.

4. Igor Alves. “Green Spin Everywhere: How Greenwashing Reveals the Limits of the CSR Para-
digm,” Journal of Global Change and Governance, 2/1 (Winter/Spring 2009).

5. TerraChoice Group, Inc., op. cit.
6. Nancy Furlow, “Greenwashing in the New Millennium,” Journal of Applied Business and Eco-

nomics, 10/6 (2009): 22-25.
7. See , accessed May 7, 2011.
8. Eric Lane, “Consumer Protection in the Eco-Mark Era: A Preliminary Survey and Assessment

of Anti-Greenwashing Activity and Eco-Mark Enforcement,” The John Marshall Review of Intel-
lectual Property Law, 9/3 (2010): 742-773.

9. William S. Laufer, “Social Accountability and Corporate Greenwashing,” Journal of Business
Ethics, 43/3 (March 2003): 253-261; Ed Gillespie, “Stemming the Tide of Greenwash,” Consu-
mer Policy Review, 18/3 (May/June 2008): 79-83.

10. Michael Polonsky, Judith Bailey, Helen Baker, Christopher Basche, Carl Jepson, and Lenore
Neath, “Communicating Environmental Information: Are Marketing Claims on Packaging
Misleading?” Journal of Business Ethics, 17/3 (February1998): 281-294.

11. Furlow, op. cit.; Lane, op. cit.
12. Furlow, op. cit.
13. David Gibson, “Awash in Green: A Critical Perspective on Environmental Advertising,” Tulane

Environmental Law Journal, 22/2 (2009): 423-440; Jacob Vos, “Actions Speak Louder than
Words: Greenwashing in Corporate America,” Notre Dame J.L. Ethics & Public Policy, 23/2
(2009): 673-697; Thomas P. Lyon and John W. Maxwell, “Greenwash: Corporate Environ-
mental Disclosure under Threat of Audit,” Journal of Economics and Management Strategy, 20/1
(March 2011): 3-41.

14. Catherine Ramus and Ivan Montiel, “When Are Corporate Environmental Policies a Form of
Greenwashing?” Business and Society, 44/4 (December 2005): 377-414.

15. See, for example, Juan Alberto Aragón-Correa, “Strategic Proactivity and Firm Approach to
the Natural Environment,” Academy of Management Journal, 41/5 (October 1998): 556-567;
Magali Delmas and Michael Toffel, “Organizational Responses to Environmental Demands:
Opening the Black Box,” Strategic Management Journal, 29/10 (October 2008): 1027-1055.

16. TerraChoice Group, Inc. [op. cit.] defines greenwashing as “the act of misleading consumers
regarding the environmental practices of a company or the environmental benefits of a pro-
duct or service.”

17. Lane, op. cit.
18. Gillespie, op. cit.
19. TerraChoice Group, Inc., op. cit.
20. Paul DiMaggio and Walter Powell, “The Iron Cage Revisited: Institutional Isomorphism and

Collective Rationality in Organizational Fields,” American Sociological Review, 48/2 (1983):
147-160.

21. Delmas and Toffel (2008), op. cit.
22. Gibson, op. cit.
23. See , accessed May 7, 2009.
24. Kate Galbraith, “FTC Sends Stern Warning on ‘Biodegradable’ Marketing Claims,” Green: A

Blog About Energy and the Environment, The New York Times, June 11, 2009.
25. David Baron, Business and its Environment, 6th Edition (Upper Saddle River, NJ: Pearson Educa-

tion, Inc., 2009).

The Drivers of Greenwashing

CALIFORNIA MANAGEMENT REVIEW VOL. 54, NO. 1 FALL 2011 CMR.BERKELEY.EDU 85

26. See , accessed May 7, 2011.
27. Jacob Vos, “Actions Speak Louder than Words: Greenwashing in Corporate America,” Notre

Dame Journal of Law, Ethics and Public Policy, 23 (2009): 673-697.
28. Delmas and Toffel (2008), op. cit.
29. Felix Oberholzer-Gee, Forest Reinhardt and Elizabeth Raabe. “UBS and Climate Change—

Warming Up to Global Action?” Harvard Business School Case, 2007.
30. Magali Delmas and Vered Doctori Blass, “Measuring Corporate Environmental Performance:

The Trade-offs of Sustainability Ratings,” Business Strategy and the Environment, 19/4 (May
2010): 245-260.

31. Martin B. Meznar and Douglas Nigh, “Buffer or Bridge? Environmental and Organizational
Determinants of Public Affairs Activities in American Firms,” Academy of Management Journal,
38/4 (August 1995): 975-996.

32. James Wimbush, Jon Shepard, and Steven Markham, “An Empirical Examination of the Rela-
tionship Between Ethical Climate and Ethical Behavior from Multiple Levels of Analysis,”
Journal of Business Ethics, 16/16 (December 1997): 1705-1716.

33. Daniel Brass, Kenneth Butterfield, and Bruce Skaggs, “Relationships and Unethical Behavior:
A Social Network Perspective,” The Academy of Management Review, 23/1 (January 1998):
14-31.

34. LaRue Hosmer, “The Institutionalization of Unethical Behavior,” Journal of Business Ethics, 6/6
(August 1987): 439-447.

35. Ibid.
36. Baron, op. cit.
37. John Cullen, Praveen Parboteeah, and Bart Victor, “The Effects of Ethical Climates on Organi-

zational Commitment: A Two-Study Analysis,” Journal of Business Ethics, 46/2 (August 2003):
127-141.

38. Cullen et al., op. cit.
39. For a review of the literature, see Kelly Martin and John Cullen, “Continuities and Extensions

of Ethical Climate Theory: A Meta-Analytic Review,” Journal of Business Ethics, 69/2 (December
2006): 175-194.

40. Richard P. Rumelt, “Inertia and Transformation,” in Cynthia Montgomery, ed., Resources in an
Evolutionary Perspective: Towards a Synthesis of Evolutionary and Resource-Based Approaches to Strat-
egy (Norwell, MA: Kluwer Academic Publishers, 1995), pp. 101-132.

41. Michael Hannan and John Freeman, “Structural Inertia and Organizational Change,” American
Sociological Review, 49/2 (1984): 149-164.

42. John Maxwell, Sandra Rothenberg, Forrest Briscoe, and Alfred Marcus, “Green Schemes:
Corporate Environmental Strategies and Their Implementation,” California Management Review,
39/3 (Spring 1997): 118-134.

43. James Herron, “BPCEO Shies Away fromRadical Change,”WSJ.com, October 19, 2010, available
at , accessed May
7, 2011.

44. Gabriel Szulanski. “Exploring Internal Stickiness: Impediments to the Transfer of Best Practice
Within the Firm,” Strategic Management Journal, 17/1 (Winter 1996): 27-43.

45. Morten Hansen, “The Search-Transfer Problem: The Role of Weak Ties in Sharing Knowledge
across Organization Subunits,” Administrative Science Quarterly, 44/1 (March 1999): 82-111.

46. See, for example, Daniel Kahneman, “Maps of Bounded Rationality: Psychology for Behav-
ioral Economics,” The American Economic Review, 93/5 (December 2003): 1449-1475.

47. TerraChoice Group, Inc., op. cit.
48. See, for example, Daniel Kahneman and Dan Lovallo, “Timid Choices and Bold Forecasts: A

Cognitive Perspective on Risk Taking,” Management Science, 39/1 (January 1993): 17-31.
49. Colin Camerer. “Bounded Rationality in Individual Decision Making,” Experimental Economics,

1/2 (1998): 163-183.
50. Kahneman and Lovallo, op. cit.
51. George Ainslie and Nick Haslam, “Hyperbolic Discounting,” in George Loewenstein and

Jon Elster, eds., Choice Over Time (New York, NY: Russell Sage Foundation, 1992); George
Marios Angeletos, David Laibson, Andrea Repetto, Jeremy Tobacman, and Stephen Weinberg,
“The Hyperbolic Consumption Model: Calibration, Simulation, and Empirical Evaluation,”
The Journal of Economic Perspectives, 15/3 (Summer 2001): 47-68.

52. Kahneman and Lovallo, op. cit.
53. Shelley Taylor and Jonathon Brown, “Illusion and Well-Being: A Social Psychological Perspec-

tive on Mental Health,” Psychological Bulletin, 103/2 (March 1988): 193-210.

The Drivers of Greenwashing

86 UNIVERSITY OF CALIFORNIA, BERKELEY VOL. 54, NO. 1 FALL 2011 CMR.BERKELEY.EDU

54. Arnold Cooper, Carolyn Woo, and William Dunkelberg, “Entrepreneurs’ Perceived Chances
for Success,” Journal of Business Venturing, 3/2 (Spring 1988): 97-108.

55. Pratima Bansal and Iain Clelland, “Talking Trash: Legitimacy, Impression Management, and
Unsystematic Risk in the Context of the Natural Environment,” The Academy of Management
Journal, 47/1 (February 2004): 93-103.

56. Ibid; Magali Delmas, Maria Montes-Sancho, and Jay Shimshack, “Mandatory Information Disclo-
sure Policy: Evidence from the Electric Utility Industry,” Economic Inquiry, 48/2 (2010): 483-492.

57. Archon Fung and Dara O’Rourke, “Reinventing Environmental Regulation from the Grass-
roots Up: Explaining and Expanding the Success of the Toxics Release Inventory,” Environmen-
tal Management, 25/2 (February 2000): 115-127.

58. Geoffrey Frost, “The Introduction of Mandatory Environmental Reporting Guidelines: Austra-
lian Evidence,” Abacus, 43/2 (June 2007): 190-216.

59. Magali Delmas and Laura Grant, “Eco-Labeling Strategies and Price-Premium: The Wine
Industry Puzzle,” Business & Society (forthcoming).

60. See , accessed May 7, 2011.

61. Magali Delmas and Ann Terlaak, “A Framework for Analyzing Environmental Voluntary
Agreements” California Management Review. 43/3 (Spring 2001): 44-63.

62. Bansal and Clelland, op. cit.
63. Jedd Ferris, “Yvon Chouinard: Patagonia’s Reluctant Businessman,” Blue Ridge Outdoors Maga-

zine, May 2010.
64. .
65. Ibid.
66. “U.K. Launches Anti-Greenwashing Guide,” Environmental Leader: Environmental & Energy

Management News, February 2, 2011.
67. Andrew Winston, “A New Tool for Avoiding Greenwash,” Sustainable Life Media, available at

,
accessed May 7, 2011.

68. Ibid.

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CALIFORNIA MANAGEMENT REVIEW VOL. 54, NO. 1 FALL 2011 CMR.BERKELEY.EDU 87

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60

2

C h a p t e r o u t l i n e
➜ The nature of leadership
➜ Contemporary leadership

Level 5 leadership
Servant leadership
Authentic leadership
Gender differences

➜ From management to leadership
Leadership traits
Behavioural approaches
Task versus people
The Leadership Grid

➜ Contingency approaches
The situational model of

leadership
Fiedler’s contingency theor

y

➜ Situational substitutes for
leadership

➜ Charismatic and
transformational leadership

Charismatic leadership
Transformational versus

transactional leadership

➜ Followership
➜ Power and influence

Position pow

er

Personal

power

Other sources of power
Interpersonal influence

tactics
➜ Contemporary leaders
➜ Leadership of sustainable

development

1 Define leadership and explain its importance for
organisations.

2 Describe how leadership is changing in today’s
organisations, including Level 5 leadership,
servant leadership and authentic leadership.

3 Discuss how women’s style of leading is
typically different from men’s.

4 Identify personal characteristics associated with
effective leaders.

5 Define task-oriented behaviour and
people-oriented behaviour and explain
how these categories are used to
evaluate and adapt leadership
style.

6 Describe the situational model of leadership
and its application to subordinate
participation.

7 Discuss how leadership fits the organisational
situation and how organisational
characteristics can substitute for leadership
behaviours.

8 Describe transformational leadership and
when it should be used.

9 Explain how followership is related to
effective leadership.

10 Identify sources of leader
power and the tactics that

leaders use to influence
others.

l e a r n i n g o b j e C t i v e s
After studying this chApter, you should be Able to:

C h a p t e r 1

5

L E A D I N G I N
O R G A N I S A T I O N S

Samson, Danny, and Richard L. Daft. Management : Asia Pacific, Cengage Learning Australia, 2014. ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/latrobe/detail.action?docID=1991004.
Created from latrobe on 2019-10-08 23:00:43.

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60

3

new Manager self-test

W h AT ’ S y O u R p E R S O N A L S T y L E ?

Ideas about effective leadership change over time. To understand your approach to
leadership, think about your personal style towards others or towards a student group
to which you belong, and then answer each item below as Mostly true or Mostly false
for you.

Mostly true Mostly false

1 I am a modest, unassuming person.

2 When a part of a group, I am more concerned about how the
group does than how I do.

3 I prefer to lead with quiet modesty rather than personal
assertiveness.

4 I feel personally responsible if the team does poorly.

5 I act with quiet determination.

6 I resolve to do whatever needs doing to produce the best result
for the group.

7 I am proactive to help the group succeed.

8 I facilitate high standards for my group’s performance.

scoring and interpretation: A recent view of leadership called Level 5 Leadership
says that the most successful leaders have two prominent qualities: humility and will.
Give yourself one point for each item marked Mostly true.

Humility: Items 1, 2, 3,

4

Will: Items 5, 6, 7, 8.
Humility means a quiet, modest, self-effacing manner. A humble person puts

group or organisational success ahead of one’s personal success. Will means a quiet
but fierce resolve to stay the course to achieve the group’s desired outcome and to
help the group succeed. The traits of humility and will are opposite the traditional
idea of leadership as loud and self-centred. If you scored 3 or 4 on either humility or
will, you are on track to level 5 leadership, which says that ordinary people often make
excellent leaders.

Samson, Danny, and Richard L. Daft. Management : Asia Pacific, Cengage Learning Australia, 2014. ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/latrobe/detail.action?docID=1991004.
Created from latrobe on 2019-10-08 23:00:43.
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part f i v e : L ead ing604

In the prevIous chapter, we explored differences in attitudes and personality that affect
behaviour. Some of the most important attitudes for the organisation’s success are those of its leaders,
because leader attitudes and behaviours play a critical role in shaping employee attitudes, such as job
satisfaction and organisational commitment.

Yet there are as many variations among leaders as there are among other individuals, and many
different styles of leadership can be effective. Different leaders behave in different ways depending on
their individual differences as well as their followers’ needs and the organisational situation. Consider the
differing styles of Pat McGovern, founder and chair of IDG, a technology publishing and research firm
that owns magazines such as CIO, PC World and Computerworld, and Tom Siebel, founder and former
CEO of software company Siebel Systems. McGovern treats each employee to lunch at the Ritz on his
or her tenth anniversary with IDG to tell them how important they are to the success of the company. He
personally thanks almost every person in every business unit once a year, which takes about a month of his
time. Managers provide him with a list of accomplishments for all their direct reports, which McGovern
memorises the night before his visit so he can congratulate people on specific accomplishments. In
addition to appreciating and caring about employees, McGovern also shows that he believes in them by
decentralising decision making so that people have the autonomy to make their own decisions about how
best to accomplish organisational goals.

Tom Siebel, in contrast, was known as a disciplined and dispassionate manager who remained
somewhat aloof from his employees and maintained strict control over every aspect of the business.
At Siebel he enforced a dress code, set tough goals and standards, and held people strictly

When Jess Moore took over the role of general site
manager at the ICI Australia (now Orica) site at Botany
in Sydney, he knew he was in for a major challenge.
The site was infamous in Australia as an ‘industrial
relations nightmare’. In essence, the interests of the
company managers and the plant employees (the
operators and the tradesmen) had totally diverged.
Employee relations at the site had been poor for
decades, with many employees doing little work during
regular work hours, leading to the creation of lots of
overtime. This was a prevalent approach in Australian
industrial organisations during the twentieth century,
especially in the oil and gas, brewing and many other
manufacturing sectors. The Botany site had a poor
safety record, with numerous severe injuries and
deaths on the site. When Jess first came to the site, he
wanted to do what had made him a successful leader
elsewhere within ICI: spend a few weeks walking the
site, simply talking to everybody about the problems
the site faced and discussing the way forward. From
a business perspective, the whole Botany site was
threatened with closure due to lack of competitiveness.
Things were so bad that when Jess wanted to go into
a control room to talk to the plant operators, the shop
stewards who represented the unionised workforce

barred him from entering and communicating with
shop floor operators, saying that all communications
had to be done with the union, who would then pass
the messages on to operators and tradesmen. Jess
knew that he could not lead the site away from the
precipice it was about to topple over while the interests
of management and workers seemed so far apart. Time
was of the essence, so Jess had to move quickly to
turn things around and revitalise the site. Customers
were dissatisfied with service levels and costs were
too high, while employees were taking home very large
pay packets based on the overtime they generated
for themselves. Further, the site had major safety and
environmental problems, having previously had a poor
record of ‘health safety and environment’ stemming
from poor management–worker relationships. Jess’s
many challenges included turning around the whole
psychology of the workplace.

Question

How does a leader such as Jess Moore inspire
employees to give their best to the organisation? What
leadership style would you recommend Jess Moore use
to turn complacent workers into a team of productive
employees pulling together to serve the customer?

ManageMent
challenge

Samson, Danny, and Richard L. Daft. Management : Asia Pacific, Cengage Learning Australia, 2014. ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/latrobe/detail.action?docID=1991004.
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1 5 : L EAD ING IN ORGAN ISAT IONS 605

accountable. ‘We go to work to realise our professional ambitions, not to have a good time,’ Siebel
has said.1 Both Siebel and McGovern have been successful as leaders, even though their styles are
quite different.

This chapter explores one of the most widely discussed and
researched topics in management: leadership. Here we define
leadership and explore how managers develop leadership
qualities. We look at some important leadership approaches
for contemporary organisations; examine trait, behavioural
and contingency theories of leadership effectiveness; discuss
charismatic and transformational leadership; explore the
role of followership; and consider how leaders use power
and influence to get things done. The final section of the
chapter discusses servant leadership and moral leadership, two
enduring approaches that have received renewed emphasis in
recent years. Chapters 16 to 18 will look in detail at many of
the functions of leadership, including employee motivation,
communication and encouraging teamwork.

The naTure of leadership
In most situations, a team, military unit, department or volunteer group is only as good as its leader. So,
what does it mean to be a leader? Among all the ideas and writings about leadership, three aspects stand
out: people, influence and goals. Leadership occurs among people, involves the use of influence and
is used to attain goals.2 Influence means that the relationship among people is not passive. Moreover,
influence is designed to achieve some end or goal. Thus, leadership as defined here is the ability to
influence people towards the attainment of goals. This definition captures the idea that leaders are
involved with other people in the achievement of goals. Leadership is reciprocal, occurring among people.3
Leadership is a ‘people’ activity, distinct from administrative paperwork or problem-solving activities.

S

o

ur

ce
: S

hu
tte

rst
oc

k.c
om

/s_
bu

kle
y

Bob Geldof might
seem like an unlikely
multinational leader, but
he was one of the first to
mobilise global musical
forces, and in doing so he
created musical history. In
1984, as lead singer with
the Boomtown Rats, Geldof
joined Ultravox lead singer
Midge Ure to write a song
to raise money for famine
relief, and persuaded
colleagues to donate
their services to record
it. Geldof later organised
Live Aid, a concert that
raised some £40 million
for famine relief and
long-term development in
underdeveloped countries.
Geldof joined with Nelson
Mandela to champion
the cause of poverty
alleviation in 2005. That
series of events in July
2005 was known as Live 8,
which sought to influence
the wealthy countries of
the world to work harder
to ‘Make Poverty History’.

leadership
The ability to influence
people towards
the attainment of
organisational goals.

➜ The attitudes and behaviours of
leaders shape the conditions that
determine how well employees can
do their jobs; thus, leaders play a

tremendous role in the organisation’s
success.

➜ Many different styles of leadership
can be effective.

➜ Leadership is the ability to
influence people towards the
attainment of organisational
goals.

reMeMber
this

ConTemporary leadership
The concept of leadership evolves as the needs of organisations change. That is, the environmental context
in which leadership is practised influences which approach might be most effective, as well as what
kinds of leaders are most admired by society. The technology, economic conditions, labour conditions

Samson, Danny, and Richard L. Daft. Management : Asia Pacific, Cengage Learning Australia, 2014. ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/latrobe/detail.action?docID=1991004.
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part f i v e : L ead ing60

6

and social and cultural mores of the times all play a role. A significant influence on leadership styles in
recent years is the turbulence and uncertainty of the environment. Ethical and economic difficulties,
corporate governance concerns, globalisation, changes in technology, new ways of working, shifting
employee expectations and significant social transitions have contributed to a shift in how we think about
and practise leadership. Four approaches that are in tune with leadership for today’s turbulent times are
Level 5 leadership, servant leadership, authentic leadership and interactive leadership, which has been
associated with women’s style of leading.

Capable

L
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al

Contributing

L
ev

el
2

–

T

ea
m

m
em

b
er

Competent

L
ev

el
3

–
M

an
ag

er

Effective

L
ev

el
4

–
L

ea
d

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Level 5

Builds
excellence

through
dedication

and
humility

L
ev

el
5

–
E

xe
cu

ti
ve

Stimulates
high

standards;
champions
dedication
to vision

Manages
team members

and assets
to reach set
objectivesContributes

individually;
works well

in group
Contributes

talent,
skills,

knowledge

LeveL 5 LeadershIp
A study conducted by Jim Collins and his research associates identified the critical importance of what
Collins calls Level 5 leadership in transforming companies from merely good to truly great organisations.4
As described in his book Good to Great: Why Some Companies Make the Leap . . . and Others Don’t, Level
5 leadership refers to the highest level in a hierarchy of manager capabilities, as illustrated in Exhibit 15.1.

As reflected in the exhibit, a key characteristic of Level 5 leaders is an almost complete lack of ego
(humility) coupled with a fierce resolve to do what is best for the organisation (will). humility means
being unpretentious and modest rather than arrogant and prideful. In contrast to the view of great leaders
as larger-than-life personalities with strong egos and big ambitions, Level 5 leaders often seem shy and
self-effacing. Although they accept full responsibility for mistakes, poor results or failures, Level 5 leaders
give credit for successes to other people. Level 5 leaders build organisations based on solid values that go
far beyond just making money, with an unwavering resolve to do whatever is needed to make the company
successful over the long term.5

One leader who demonstrates Level 5 leadership qualities is Qi Lu of Microsoft.

exhibit 15.1 Level 5
hierarchy

humility
Being unpretentious
and modest rather than
arrogant and prideful.

Source: Based on Jim Collins,
Good to Great: Why Some
Companies Make the Leap . . .
and Others Don’t (New York:
HarperCollins, 2001), p. 20.

Samson, Danny, and Richard L. Daft. Management : Asia Pacific, Cengage Learning Australia, 2014. ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/latrobe/detail.action?docID=1991004.
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1 5 : L EAD ING IN ORGAN ISAT IONS 60

7

Level 5 leaders like Qi Lu are extremely ambitious for their companies rather than for themselves.
As another example, consider Darwin Smith, CEO of Kimberly-Clark from 1971 to 1991. Over those
20 years, Smith transformed Kimberly-Clark from a stodgy paper company with falling stock prices
into the leading consumer paper products company in the world. The company generated cumulative
shareholder returns that were 4.1 times greater than those of the general market. Yet few people have ever
heard of Smith. He shunned the spotlight and was never featured in splashy articles in Fortune magazine
or The Wall Street Journal. He was ambitious for the company, not for himself.6

This attitude becomes highly evident in the area of succession planning. Level 5 leaders develop a solid
core of leaders throughout the organisation, so that when they leave, the company can continue to thrive
and grow even stronger. Egocentric leaders, by contrast, often set their successors up for failure because
it will be a testament to their own greatness if the company doesn’t perform well without them. Rather
than building an organisation around ‘a genius with a thousand helpers’, Level 5 leaders want everyone
to develop to their fullest potential.

servant LeadershIp
When Jack Welch, longtime CEO of General Electric (GE), speaks to MBA students, he reminds them
that ‘any time you are managing people, your job is not about you, it’s about them. It starts out about you
as . . . an individual in a company’, Welch says. ‘But once you get a leadership job, it moves very quickly to
being about them.’7 Some leaders operate from the assumption that work exists for the development of the
worker as much as the worker exists to do the work.8 The concept of servant leadership, first described by
Robert Greenleaf in 1970, has gained renewed interest in recent years as companies recover from ethical
scandals and compete to attract and retain the best human talent.

9

A servant leader transcends self-interest to serve others, the organisation and society.10 Marilyn
Nelson, joint owner and former CEO of the Carlson Companies (Radisson Hotels, TGI Fridays), says
being a true leader means you ‘have to subordinate your own emotions, your own desires, even make
decisions on behalf of the whole that might conflict with what you would do on an individual basis’.11
A stunning example of this occurred in the spring of 2009 when a US-flagged cargo ship, the Maersk

LEvEL 5 LEADERShIp AT WORk
InnovatIve

Way

Qi Lu grew up in a rural village in China with no electricity
or running water. Today, he is Executive Vice President,
Applications and Services Group at Microsoft, having
previously been president of Microsoft’s Online Services
division. How did he get there? Not from personal ambition,
say former colleagues at Yahoo!. ‘He shunned the limelight,’
said Tim Cadogan, now CEO of OpenX, ‘but he was considered
one of the stars.’

Lu rose through the ranks at Yahoo!, and he got the job at
Microsoft based not on aggressiveness and pursuit of personal

advancement, but rather because of his sheer intellectual
abilities and his commitment to go above and beyond the call
of duty to accomplish organisational goals. Lu feels a strong
sense of duty and loyalty, pouring his heart and soul into the
mission rather than spending his energies promoting himself.
On his last day of work at Yahoo!, a problem came up with
a database. Rather than leaving the problem for others, Lu
worked side by side with his former employees to try to fix
it. He finally left at midnight, when his network access was
automatically cut off.

Source: Miguel Helft. (31 August 2009). A Hired Gun for Microsoft, in Dogged Pursuit of Google. The New York Times,
http://www.nytimes.com/2009/08/31/technology/internet/31search.html (accessed 31 August 2009).

servant leadership
occurs when a leader
transcends self-interest
to serve others, the
organisation and society.

Samson, Danny, and Richard L. Daft. Management : Asia Pacific, Cengage Learning Australia, 2014. ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/latrobe/detail.action?docID=1991004.
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part f i v e : L ead ing60

8

Alabama, was seized and raided by Somali pirates. Captain Richard Phillips ordered crew members of
the unarmed ship not to fight and gave himself up as a hostage to free the ship and crew. (A big-budget
Hollywood film about this incident, called Captain Phillips, was released in 2013.) Contrast his behaviour
with that of Costa Concordia captain Francesco Schettino, who allegedly abandoned his ship while
passengers were still aboard after the luxury cruise liner hit a rock and sank off the coast of Italy, killing
at least 30 people. Schettino has been charged with manslaughter, shipwreck and abandoning ship.12

In organisations, servant leaders operate on two levels: for the fulfilment of their subordinates’ goals
and needs and for the realisation of the larger purpose or mission of their organisation. Servant leaders give
things away – power, ideas, information, recognition, credit for accomplishments, even money. Servant
leaders often work in the non-profit world because it offers a natural way to apply their leadership drive and
skills to serve others. But servant leaders also succeed in business. Fred Keller has built a US$250 million
plastics manufacturing company, Cascade Engineering, by continuously asking one question: What good
can we do? Keller started the business 40 years ago with six employees. Today, it has 1000 employees in
15 business divisions. Keller has made social responsibility a cornerstone of the business. The company
offers jobs to welfare recipients. Keller has also donated large amounts to various philanthropic causes,
both as an individual and through Cascade.13

authentIC LeadershIp
Another popular concept in leadership today is the idea of authentic leadership, which refers to
individuals who know and understand themselves, who espouse and act consistently with higher-order
ethical values, and who empower and inspire others with their openness and authenticity. To be authentic
means to be real, to stay true to one’s values and beliefs, and to act based on one’s true self rather than
emulate what others do. Authentic leaders inspire trust and commitment because they respect diverse
viewpoints, encourage collaboration and help others to learn, grow and develop as leaders. Exhibit 15.2
outlines the key characteristics of authentic leaders, and each is discussed below.14

●● Authentic leaders pursue their purpose with passion. Leaders who lead without a purpose can fall prey to
greed and the desires of the ego. When leaders demonstrate a high level of passion and commitment
to a purpose, they inspire commitment from followers.

●● Authentic leaders practise solid values. Authentic leaders have values that are shaped by their personal
beliefs, and they stay true to them even under pressure. People come to know what the leader stands
for, which inspires trust.

●● Authentic leaders lead with their hearts as well as their heads. All leaders sometimes have to make
tough choices, but authentic leaders maintain a compassion for others as well as the courage to make
difficult decisions.

●● Authentic leaders establish connected relationships. Authentic leaders build positive and enduring
relationships, which makes followers want to do their best. In addition, authentic leaders surround
themselves with good people and work to help others grow and develop.

●● Authentic leaders demonstrate self-discipline. A high degree of self-control and self-discipline keeps
leaders from taking excessive or unethical risks that could harm others and the organisation.

authentic leadership
Individuals who know and
understand themselves,
who espouse and act
consistently with higher-
order ethical values and who
empower and inspire others
with their openness and
authenticity.

Samson, Danny, and Richard L. Daft. Management : Asia Pacific, Cengage Learning Australia, 2014. ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/latrobe/detail.action?docID=1991004.
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1 5 : L EAD ING IN ORGAN ISAT IONS 609

Gender dIfferenCes
Some of the general characteristics associated with Level 5 leaders and authentic leaders are also hallmarks
of interactive leadership, which has been found to be associated with female leaders. interactive
leadership means that the leader favours a consensual and collaborative process, and influence derives
from relationships rather than position power and formal authority.15

Although both men and women can practise interactive leadership, research indicates that women’s
style of leadership is typically different from that of most men, and is particularly suited to today’s
organisations.16 Using data from actual performance evaluations, one study found that when rated by
peers, subordinates and bosses, female managers scored significantly higher than men on abilities such as
motivating others, fostering communication and listening.17 Another study of leaders and their followers
in businesses, universities and government agencies found that women were rated higher on social and
emotional skills, which are crucial for interactive leadership.18 Indeed, in a study already mentioned in
Chapter 13 that reviewed more than 7000 360-degree performance evaluations, it was discovered that
women outshone men in almost every leadership dimension measured, even some considered typically
masculine qualities, such as driving for results. The exception was that women were typically rated lower
on developing a strategic perspective, which some researchers believe hinders female managers’ career
advancement despite their exceptional ratings on other leadership dimensions.19 Exhibit 15.3 shows
results for five of the 16 dimensions measured by the study.

One good example of an interactive leader is Cindy Szadokierski, who started as a reservations agent
for United Airlines and today is vice president in charge of operations for United’s largest hub at O’Hare
International Airport. As she oversees 4000 employees and 600 flights a day, her favourite times are the
weekly afternoon walkabouts on the O’Hare ramp and the weekly morning strolls through the terminal,
where she can connect with employees and customers. Pete McDonald, chief operating officer of
United’s parent, UAL Corporation, says there were serious operations problems at O’Hare, so they put
‘the most communicative person’ in the job. Szadokierski’s approach to leadership is more collaborative
than autocratic or ‘command and control’.20

Pursues purpose

with passion

Practises solid

values

Leads with the

heart as well as

the head

Demonstrates

self-discipline

Connects with

others

The
authentic

leader

exhibit 15.2
Components of authentic
leadership

interactive leadership
The focus on minimising
personal ambition and
developing others.

Source: Based on Bill
George, Authentic Leadership:
Rediscovering the Secrets to
Lasting Value (San Francisco:
Jossey-Bass, 2003).

Samson, Danny, and Richard L. Daft. Management : Asia Pacific, Cengage Learning Australia, 2014. ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/latrobe/detail.action?docID=1991004.
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part f i v e : L ead ing610

Men can be interactive leaders as well, as illustrated above by the example of Pat McGovern. McGovern
believes that having personal contact with employees and letting them know they’re appreciated is a
primary responsibility of leaders.21 The characteristics associated with interactive leadership are emerging
as valuable qualities for both male and female leaders in today’s workplace. Values associated with
interactive leadership include personal humility, inclusion, relationship building and caring.

exhibit 15.3 Gender differences in leadership behaviours

leadership ability Who does it best?

Develops others (Women rated higher)

Drives for results (Women rated higher)

Inspires and motivates others (Women rated higher)

Innovates (Women and men rated about equally)

Builds relationships (Women rated higher)

Technical or professional expertise (Women and men rated about equally)

Source: Data from Zenger Folkman, Inc., reported in Jack Zenger and Joseph Folkman. (15 March 2012). Are Women Better Leaders than Men? HBR
Blog Network, Harvard Business Review, http://blogs.hbr.org/cs/2012/03/a_study_in_leadership_women_do.html (accessed 12 September 2012).

➜ A significant influence on leadership
styles in recent years is the
turbulence and uncertainty of the
environment.

➜ One effective approach in today’s
environment is Level 5 leadership,
which is characterised by an almost
complete lack of ego (humility),
coupled with a fierce resolve to do
what is best for the organisation (will).

➜ Humility means being unpretentious
and modest rather than arrogant and
prideful.

➜ A servant leader is a leader who serves
others by working to fulfil followers’
needs and goals, as well as to achieve
the organisation’s larger mission.

➜ Authentic leadership refers to
leadership by individuals who know
and understand themselves, who
espouse and act consistently with
higher-order ethical values, and who
empower and inspire others with
their openness and authenticity.

➜ Women leaders typically score
significantly higher than men on
abilities such as motivating others,

building relationships and
developing others – skills that
are based on humility and
authenticity and are particularly
suited to today’s organisations.

➜ Interactive leadership is a leadership
style characterised by values such as
inclusion, collaboration, relationship
building and caring.

➜ Although interactive leadership is
associated with women’s style of
leading, both men and women can be
effective interactive leaders.

reMeMber
this
Samson, Danny, and Richard L. Daft. Management : Asia Pacific, Cengage Learning Australia, 2014. ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/latrobe/detail.action?docID=1991004.
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1 5 : L EAD ING IN ORGAN ISAT IONS 611

from managemenT To leadership
Hundreds of books and articles have been written in recent years about the differences between
management and leadership. As we know, good management is essential in organisations, yet managers
have to be leaders, too, because distinctive qualities are associated with management and leadership that
provide different strengths for the organisation. A good metaphor for the distinction between management
and leadership is to say that management organises the production and supply of fish to people, whereas
leadership teaches and motivates people to fish. Organisations need both types of skills.22

As shown in Exhibit 15.4, management and leadership reflect two different sets of qualities and skills
that frequently overlap within a single individual. A person might have more of one set of qualities than
the other, but ideally, a manager develops a balance of both manager and leader qualities.23 A primary
distinction between management and leadership is that management promotes stability and order within
the existing organisational structure and systems. This ensures that suppliers are paid, customers invoiced,
products and services produced on time, and so forth. Leadership, on the other hand, promotes vision and
change. Leadership means questioning the status quo and being willing to take reasonable risks so that
outdated, unproductive or socially irresponsible norms can be replaced to meet new challenges.

Consider how Alan Mulally has applied both management and leadership to revive Ford Motor
Company. Ford was losing $83 million a day in 2008. Three years later, the company had a net profit of
$20 billion. Ford was the only one of the Big Three automakers that didn’t accept a bailout from the US
government. Mulally needed excellent management skills to root out operating inefficiencies, cut costs,
streamline the structure and improve quality. Yet the turnaround of Ford also depended on consummate
leadership. Mulally inspired people with a vision of saving a storied American company and transforming it
to meet the challenges of the twenty-first century. He shifted the culture from one of ego-driven infighting
to one of cooperation, accountability and commitment. And he motivated thousands of employees to
embrace change and execute the vision and strategy. Mulally ate in the company cafeteria rather than the
executive dining room so that he could talk with people at all levels of the company, occasionally popped
into meetings to offer encouragement and support, and personally answered emails from employees.24

Leadership cannot replace management; it should be in addition to management. Good management
is needed to help the organisation meet current commitments, while good leadership is needed to move
the organisation into the future. Leadership’s power comes from being built on the foundation of a well-
managed organisation.

➜ Leadership and management reflect
two different sets of qualities and
skills that provide different benefits
for the organisation.

➜ Management promotes stability and
efficient organising to meet current
commitments, whereas leadership
often inspires engagement and

organisational change to meet
new conditions.

➜ Both leadership and management
are important to organisations,
and people can learn to be good
leaders as well as good managers.

reMeMber
this
Samson, Danny, and Richard L. Daft. Management : Asia Pacific, Cengage Learning Australia, 2014. ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/latrobe/detail.action?docID=1991004.
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part f i v e : L ead ing612

LeadershIp traIts
Early efforts to understand leadership success focused on the
leader’s traits. traits are the distinguishing personal characteristics
of a leader, such as intelligence, honesty, self-confidence and even
appearance. The early research looked at leaders who had achieved
a level of greatness, and hence was referred to as the ‘Great Man’
approach. The idea was relatively simple: find out what made these
people great and select future leaders who already exhibited the
same traits or could be trained to develop them. Generally, early
research found only a weak relationship between personal traits and
leader success.25

In recent years, interest in examining leadership traits has
re-emerged. In addition to personality traits, physical, social and work-
related characteristics of leaders have been studied.26 Exhibit 15.5
summarises the physical, social and personal leadership characteristics
that have received the greatest research support. However, these

characteristics do not stand alone. The appropriateness of a trait or set of traits depends on the leadership
situation. For example, sport coaches Sir Alex Ferguson of Manchester United, Bob Fulton (who
successfully coached Manly and Australia in rugby league) and Kevin Sheedy (former long-time Australian
Football League coach of Essendon Football Club) have different personality traits, but all have been
successful leaders of their football teams.

Effective leaders typically possess varied traits, and no single leader can have a complete set of
characteristics that is appropriate for handling any problem, challenge or opportunity that comes along.
In addition, traits that are typically considered positive can sometimes have negative consequences, and
traits sometimes considered negative can have positive consequences. For example, optimism is a highly
desirable trait for a leader.

As described in the previous chapter, studies have shown that optimism is the single characteristic
most common to top executives.27 Leaders need to be able to see possibilities where others see problems
and instil in others a sense of hope for a better future. However, optimism can also lull leaders into laziness
and overconfidence, causing them to miss danger signals and underestimate risks. The global financial
crisis can be blamed partly on leaders who grew overconfident and led their organisations astray. Optimism
has to be paired with ‘reality testing’ and conscientiousness, another trait common to successful leaders,
as shown in Exhibit 15.5.28

Therefore, rather than just understanding their traits, the best leaders recognise and hone their
strengths.29 strengths are natural talents and abilities that have been supported and reinforced
with learned knowledge and skills and provide each individual with his or her best tools for
accomplishment and satisfaction.30 Every manager has a limited capacity; those who become good
leaders are the ones who tap into their key strengths that can make a difference. Effective leadership
isn’t about having the ‘right’ traits, but rather about finding the strengths that one can best exemplify
and apply as a leader.

Focus on the
organisation

Rational

Maintains stability

Assigns tasks

Organises

Analyses

Position power

Focus on people

Visionary

Promotes change

Defines purpose

Nurtures

Innovates

Personal power

Leader QualitiesManager Qualities

exhibit 15.4 Leader
and manager qualities

traits
The distinguishing personal
characteristics of a leader,
such as intelligence,
honesty, self-confidence
and even appearance.

strengths
Natural talents and abilities
that have been supported
and reinforced with learned
knowledge and skills.

Sources: Based on ‘What
Is the Difference Between
Management and Leadership?’,
The Wall Street Journal Online,
http://guides.wsj.com/
management/developing-
a-leadership-style/what-is-
the-difference-between-
management-and-leadership
(accessed 28 June 2009); and
Genevieve Capowski. (March
1994). Anatomy of a Leader:
Where Are the Leaders of
Tomorrow? Management
Review, 12.

Samson, Danny, and Richard L. Daft. Management : Asia Pacific, Cengage Learning Australia, 2014. ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/latrobe/detail.action?docID=1991004.
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1 5 : L EAD ING IN ORGAN ISAT IONS 613

exhibit 15.5 Personal characteristics of leaders

physical characteristics personality Work-related characteristics

Energy
Physical stamina

Self-confidence
Honesty and integrity
Optimism
Desire to lead
Independence

Achievement drive, desire to excel
Conscientiousness in pursuit of goals
Persistence against obstacles, tenacity

intelligence and ability social characteristics social background

Intelligence, cognitive ability
Knowledge
Judgement, decisiveness

Sociability, interpersonal skills
Cooperativeness
Ability to enlist cooperation
Tact, diplomacy

Education
Mobility

Sources: Based on Bernard M. Bass, Bass & Stogdill’s Handbook of Leadership: Theory, Research, and Managerial Applications,
3rd edn (New York: The Free Press, 1990), pp. 80–1; and S. A. Kirkpatrick and E. A. Locke. (1991). Leadership:

Do Traits Matter? Academy of Management Executive, 5:2, 48–60.

➜ Traits are distinguishing personal characteristics, such as
intelligence, self-confidence, energy and independence.

➜ Strengths are natural talents and abilities that have
been supported and reinforced with learned knowledge
and skills.

reMeMber
this

BehavIouraL approaChes
The inability to define effective leadership based solely on traits led to an interest in looking at the
behaviour of leaders and how it might contribute to leadership success or failure. Two basic leadership
behaviours identified as important for leadership are attention to tasks and attention to people.

task versus peopLe
Two types of behaviour that have been identified as applicable to effective leadership in a variety of
situations and time periods are task-oriented behaviour and people-oriented behaviour.31 Although they are
not the only important leadership behaviours, concern for tasks and concern for people must be shown
at some reasonable level. Thus, many approaches to understanding leadership use these metacategories,
or broadly defined behaviour categories, as a basis for study and comparison.

Important early research programs on leadership were conducted at the Ohio State University and the
University of Michigan.32 Ohio State researchers identified two major behaviours they called consideration
and initiating structure. consideration falls in the category of people-oriented behaviour, and is the extent
to which the leader is mindful of subordinates, respects their ideas and feelings, and establishes mutual
trust. initiating structure is the degree of task behaviour; that is, the extent to which the leader is task
oriented and directs subordinate work activities towards goal attainment. Studies suggest that effective
leaders may be high on consideration and low on initiating structure or low on consideration and high on
initiating structure, depending on the situation.33

consideration
The extent to which
the leader is mindful of
subordinates, respects
their ideas and feelings, and
establishes mutual trust.

initiating structure
The degree of task
behaviour; the extent
to which the leader is
task oriented and directs
subordinate work activities
towards goal alignment.

Samson, Danny, and Richard L. Daft. Management : Asia Pacific, Cengage Learning Australia, 2014. ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/latrobe/detail.action?docID=1991004.
Created from latrobe on 2019-10-08 23:00:43.
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part f i v e : L ead ing614

Research at the University of Michigan at about the same time also considered task- and people-
oriented behaviours by comparing the behaviour of effective and ineffective supervisors.34 The most
effective supervisors were those who established high performance goals and displayed supportive
behaviour towards subordinates. These were referred to as employee-centred leaders. The less effective
leaders were called job-centred leaders; these leaders tended to be less concerned with goal achievement
and human needs in favour of meeting schedules, keeping costs low, and achieving production efficiency.

the LeadershIp GrId
Building on the work of the Ohio State and Michigan studies, Blake and Mouton of the University of
Texas proposed a two-dimensional theory called the Managerial Grid®, which was later restated by Blake
and McCanse as the leadership grid®.35 The model and five of its major management styles are depicted
in Exhibit 15.6. Each axis on the grid is a nine-point scale, with 1 meaning low concern and 9 meaning
high concern.

Team management (9, 9) often is considered the most effective style and is recommended for leaders
because organisation members work together to accomplish tasks. Country club management (1, 9) occurs
when primary emphasis is given to people rather than to work outputs. Authority compliance management
(9, 1) occurs when efficiency in operations is the dominant orientation. Middle-of-the-road management
(5, 5) reflects a moderate amount of concern for both people and production. Impoverished management
(1, 1) means the absence of a management philosophy; managers exert little effort towards interpersonal
relationships or work accomplishment.

leadership grid
A two-dimensional
leadership theory that
measures the leader’s
concern for people and for
production.

1
1
2
3
4
5
6
7
8
9

Low

Concern for production HighLow

High

C
on

ce
rn

f
or

p
eo

p
le

2 3 4 5 6 7 8 9
®

1,9
Country club management
Thoughtful attention to the
needs of people for satisfying
relationships leads to a
comfortable, friendly organisation
atmosphere and work tempo.

9,9
Team management
Work accomplishment is
from committed people;
interdependence through
a common stake in
organisation purpose
leads to relationships of
trust and respect.

5,5
Middle-of-the-road management
Adequate organisation performance is
possible through balancing the necessity
to get out work with maintaining morale of
people at a satisfactory level.

Authority-compliance
Efficiency in operations
results from arranging
conditions of work in
such a way that human
elements interfere to a
minimum degree. 9,1

Impoverished management
Exertion of minimum effort
to get required work done
is appropriate to sustain
organisation membership.
1,1

exhibit 15.6 The
Leadership Grid figure

Source: The Leadership Grid
figure, Paternalism figure and
Opportunism figure from
Robert R. Blake and Anne
Adams McCanse, Leadership
Dilemmas–Grid Solutions
(formerly the Managerial Grid
by Robert R. Blake and Jane
S. Mouton) (Houston: Gulf
Publishing Company, 1991),
Grid figure, p. 29; Paternalism
figure, p. 30; Opportunism
figure, p. 31. Copyright ©
1991 by Blake and Mouton,
and Scientific Methods, Inc.
Reproduced by permission of
the owners.

Samson, Danny, and Richard L. Daft. Management : Asia Pacific, Cengage Learning Australia, 2014. ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/latrobe/detail.action?docID=1991004.
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1 5 : L EAD ING IN ORGAN ISAT IONS 615

reMeMber
this

➜ Two basic leadership behaviours
identified as important for leadership
are attention to tasks and attention
to people.

➜ Consideration is the term used by
researchers at Ohio State University
to describe the extent to which a
leader is sensitive to subordinates,

respects their ideas and feelings, and
establishes mutual trust.

➜ Initiating structure is the term that
describes the extent to which a
leader is task oriented and directs
subordinates’ work activities towards
goal accomplishment.

➜ Researchers at the University
of Michigan used the terms

employee-centred leaders and
job-centred leaders to describe
the same two basic leadership
behaviours.

➜ The Leadership Grid is a two-
dimensional leadership model that
measures the leader’s concern for
people and concern for production
to categorise the leader in one of five
different leadership styles.

NEWS CORPORATION
News Corporation has certainly come a long
way since its humble beginnings in Adelaide.
Today, its founder, Chairman and CEO
Rupert Murdoch makes multibillion-dollar
deals in television, media and Internet-based
industries all over the world. However, not
all of these deals bear fruit immediately. For
example, Star TV lost approximately A$80
million on sales of A$140 million in Asia, and
News has appointed Gareth Chang to try and
revitalise its Asian operations. This particularly
means focusing efforts on establishing Star
TV’s reach into the huge potential markets of
India and China. Chang is well connected to
a number of political leaders across Asia, and
these relationships are important to getting the
access to marketplaces and the licences that
are critical to distribute media and television
signals. Rupert Murdoch has been a successful
leader by any measure, building from an
Australian base of newspaper publishing to take
News Corporation to become an A$85 billion
corporate giant that includes Fox film studios
and TV network, satellite TV in most major
regions of the world, and ownership of major
sporting teams and newspapers all over the
world. Forbes ranked Murdoch the 33rd most
powerful person in the world in 2013, and he
has a net personal worth of $13.4 billion.

While Murdoch is positioning his children
to succeed him in running this business, he is
also building satellite TV capacity in China and

other growth markets. He is without doubt a
strong and successful leader. However, in mid-
2011, News Corporation and Mr Murdoch had
to move into crisis management mode as the
UK phone hacking scandal severely challenged
their ethics and corporate reputation.

In another bold move and an attempt to
regain shareholder confidence News Corp
was divided into two businesses in 2013,
one made up of the TV and film empire
(21st Century Fox) and the other a smaller,
less profitable business consisting of the
newspaper and book publishing enterprises
(retaining the name News Corp). Murdoch,
who is now in his 80s, serves as chairman of
both businesses and is CEO of 21st Century
Fox. It was hoped that the split would allow
both arms of the media and publishing
businesses to focus on building value, and
also distance the more profitable parts of the
company from the UK newspaper hacking
scandal. The publishing arm faces greater
challenges than the entertainment arm, as
the declining profitability of newspapers
continues to test leadership decisions and
future strategic choices. Since breaking into
two, the share price for 21st Century Fox
has remained close to its opening price of
A$34; however, News Corp hit a low of
A$14.50 soon after the split occurred, slowly
recovering to around A$18.00 but it still
faces heavy financial losses.

Sources: Forbes ‘Most Powerful People’. http://www.
forbes.com/profile/rupert-murdoch/ (accessed

18 November 2013); Durie, J. and Kitney, D. (29 June
2012). News Corporation Split Will Unlock Value. The

Australian, http://www.theaustralian.com.au/media/
local-news-assets-to-stay-together-as-directors-
approve-historic-split-of-the-global-media-giant/

story-e6frg996-1226411572734 (accessed 18
November 2013); Investor Relations 21st Century Fox,

http://www.21cf.com/Investor_Relations/ (accessed
18 November 2013); Investor Relations News

Corporation, http://investors.newscorp.com/stockquote.
cfm (accessed 18 November 2013) and Rushton, K.
(11 November 2013). News Corp Expected to Post

$12m Loss. The Telegraph, http://uk.finance.yahoo.com/
news/news-corp-expected-post-12m-203151634.html

(accessed 18 November 2013).

Case sTudy

So
ur

ce
: G

et
ty

Im
ag

es
/P

as
ca

l L
e S

eg
re

ta
in

Rupert Murdoch and News Corporation
have created a global high technology
communications network.

Samson, Danny, and Richard L. Daft. Management : Asia Pacific, Cengage Learning Australia, 2014. ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/latrobe/detail.action?docID=1991004.
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part f i v e : L ead ing616

ConTingenCy approaChes
Steven Sinofsky led a team of Microsoft software engineers working on the next generation of
Windows operating system software. At Apple, Bertrand Serlet led a team to try to make sure the new
Macintosh operating system is better. Although they held the same type of job, Sinofsky and Serlet
were widely different in their approaches to leadership. Sinofsky is a meticulous planner and likes
to run a tight ship. ‘Under Sinofsky,’ one engineer said, ‘you plan and you stick to the plan.’ Serlet,
on the other hand, prefers things to be a little chaotic. He isn’t a stickler for rules and procedures,
emphasising a more flexible, laid-back style. A programmer who has worked under both leaders
compared Sinofsky’s style to that of a martial marching band, while Serlet’s was compared to an
improvisational jazz group.36

How can two people with widely different styles both be effective leaders? The answer lies in
understanding contingency approaches to leadership, which explore how the organisational situation
influences leader effectiveness. Contingency approaches include the situational model based on the
work of Hersey and Blanchard, the leadership model developed by Fiedler and his associates, and the
substitutes-for-leadership concept.

the sItuatIonaL modeL of LeadershIp
The situational model of leadership, which originated with Hersey and Blanchard, is an interesting
extension of the behavioural theories summarised in the Leadership Grid (see Exhibit 15.6). This
approach focuses a great deal of attention on the characteristics of followers in determining appropriate
leadership behaviour. The point of the situational model is that subordinates vary in readiness, which is
determined by the degree of willingness and ability a subordinate demonstrates while performing a specific
task. Willingness refers to a combination of confidence, commitment and motivation, and a follower may
be high or low on any of the three variables. Ability refers to the amount of knowledge, experience and
demonstrated skill a subordinate brings to the task. Effective leaders adapt their style according to the
readiness level of the people they are managing. People low in readiness – because of little ability or
training or insecurity – need a different leadership style than those who are high in readiness and have
good ability, skills, confidence and willingness to work.37

According to the situational model, a leader can adopt one of four leadership styles, as shown in
Exhibit 15.7. The directing style is a highly dictating style and involves giving explicit directions about
how tasks should be accomplished. The coaching style is one where the leader explains decisions and
gives subordinates a chance to ask questions and gain clarity and understanding about work tasks.
The supporting style is one where the leader shares ideas with subordinates, gives them a chance to
participate and facilitates decision making. The fourth style, the entrusting style, provides little direction
and little support because the leader turns over responsibility for decisions and their implementation
to subordinates.

Exhibit 15.7 summarises the situational relationship between leader style and follower readiness.
The directing style has the highest probability of successfully influencing low readiness followers who
are unable or unwilling – because of poor ability and skills, little experience or insecurity – to take
responsibility for their own task behaviour. The leader is specific, directing people exactly what to do, how
to do it and when. The coaching and supporting styles work for followers at moderate readiness levels.

contingency approach
A model of leadership that
describes the relationship
between leadership styles
and specific organisational
situations.

situational model
A contingency approach
to leadership that links the
leader’s behavioural style
with the task readiness of
employees.

Samson, Danny, and Richard L. Daft. Management : Asia Pacific, Cengage Learning Australia, 2014. ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/latrobe/detail.action?docID=1991004.
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1 5 : L EAD ING IN ORGAN ISAT IONS 617

For example, followers might lack some education and experience for the job but have high confidence,
interest and willingness to learn. As shown in the exhibit, the coaching style is effective in this situation
because it involves giving direction but also includes seeking input from others and clarifying tasks rather
than simply instructing that they be performed. When followers have the necessary skills and experience
but are somewhat insecure in their abilities or lack high willingness, the supporting style enables the
leader to guide followers’ development and act as a resource for advice and assistance. When followers
demonstrate high readiness, that is, they have high levels of education, experience and readiness to accept
responsibility for their own task behaviour, the entrusting style can effectively be used. Because of the high
readiness level of followers, the leader can delegate responsibility for decisions and their implementation
to subordinates who have the skills, abilities and positive attitudes to follow through. The leader provides
a general goal and sufficient authority to do the task as followers see fit.

To apply the situational model, the leader diagnoses the readiness level of followers and adopts the
appropriate style – directing, coaching, supporting or entrusting. For example, Jo Newton, an impulse
import category leadership manager at Mars’ Slough office near London, uses primarily a supporting style.
Most members of Newton’s team are at moderate to high readiness levels, so Newton advises them of the
results the company wants and then steps back, providing guidance and support as needed. ‘I like people to
come up with their own way of doing things. . . .’ she says. ‘I like to support people as opposed to directing
them to do things.’38 A leader taking over a new team of inexperienced or uncertain members would likely
have to provide more direction with either a directing or coaching style. On the other hand, Warren Buffett
uses a primarily entrusting style. The octogenarian CEO of Berkshire Hathaway is considered one of the
world’s best managers, but he isn’t closely involved in the day-to-day management of all the businesses
Berkshire owns. He trusts the managers of the various units, who are highly skilled professionals able
and willing to take responsibility for their own task behaviour.39 An entrusting leader style is not always
appropriate, but all managers need to be able to delegate some tasks and decisions for the organisation to
work smoothly. The Shoptalk discusses techniques for effective delegation.

F
oc

u
s

on
t

as
k

n
ee

d
s

Focus on people needs
High

High
Low

2. Coaching style

Dual-focus leader provides both
task instruction and personal
support as needed. 
Use this style when followers have
moderate readiness because of
confidence to proceed but lack
ability.  

Engaging leader encourages, supports,
consults with and develops
followers’ skills and confidence. 
Use this style when followers have
moderate readiness because of
ability but lack confidence and need
personal support.

3. Supporting style

1. Directing style 

Authoritative leader provides detailed
goals and tasks, closely monitors
operations and performance.
Use this style when followers have
low readiness, low ability and lack
confidence.

Delegating leader who displays little
focus on either task or people needs.
Use this style when followers have
high readiness because of ability
and confidence to perform tasks
themselves.

4. Entrusting style

exhibit 15.7 The
situational model of
leadership

Source: Based on Gary Yukl,
Angela Gordon and Tom Taber.
A Hierarchical Taxonomy
of Leadership Behavior:
Integrating a Half Century of
Behavior Research. Journal of
Leadership and Organization
Studies, 9:1, 15–32, and Paul
Hersey, Kenneth Blanchard and
Dewey Johnson, Management
of Organizational Behavior:
Utilizing Human Resources, 7th
edn (Upper Saddle River, NJ:
Prentice Hall, 1996).

Samson, Danny, and Richard L. Daft. Management : Asia Pacific, Cengage Learning Australia, 2014. ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/latrobe/detail.action?docID=1991004.
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part f i v e : L ead ing618

new Manager self-test

TA S k v E R S u S p E O p L E O R I E N TAT I O N

instructions: Responding to the statements below can help
you diagnose your approach to dealing with others when you
are in a leadership role. If you have been a leader at work with
people reporting to you, think back to that experience. Or you
can think about how you usually behave as a leader in a group
to get an assignment completed. Please answer honestly about
how frequently you display each behaviour.

Mostly
true

Mostly
false

1 I intentionally try to make people’s
work on the job more pleasant.

2 I focus more on execution than on
being pleasant with people.

3 I go out of my way to help others.

4 I personally hold people accountable
for their performance.

5 I work hard to maintain a friendly
atmosphere on the team.

6 I clearly tell people what I expect
of them

7 I think a lot about people’s personal
welfare.

8 I check up on people to know how
they are doing.

9 I am concerned more with
relationships than with results.

10 I assign people to specific roles
and tasks.

11 I focus more on being pleasant with
people than on execution of tasks.

12 I am concerned more with results than
with people’s feelings.

scoring and interpretation: Give yourself 2 points for each
Mostly true and 1 point for each Mostly false.

People Orientation: Sum your points for the odd-numbered
questions: ______________________________________________.

Task Orientation: Sum your points for the even-numbered
questions: ______________________________________________.

Your People Orientation score reveals your orientation
towards people and relationships as described in the chapter.
A score of 10 or higher suggests that you may be ‘high’ on
people behaviour. A score of 9 or below suggests that you
may be ‘low’ on people orientation. Your Task Orientation
score reveals your orientation towards tasks and outcomes. A
score of 10 or higher suggests that you may be ‘high’ on task-
oriented behaviour. A score of 9 or below suggests that you
may be ‘low’ on task orientation.

What is your primary leadership orientation? Which of the
following best represents your leadership style (check one)?
Look at Exhibit 15.7 on page 617 to see the quadrant in which
you fit.

______Low Task, Low People 5 Entrusting style

______Low Task, High People 5 Supporting style

______High Task, Low People 5 Directing style

______High Task, High People 5 Coaching style
Does your quadrant seem correct based on your

experience? Compare your scores to other students’ scores.

fIedLer’s ContInGenCy theory
Whereas the situational model focused on the characteristics of followers, Fiedler and his associates
looked at some other elements of the organisational situation to assess when one leadership style is
more effective than another.40 The starting point for Fiedler’s theory is the extent to which the leader’s

Samson, Danny, and Richard L. Daft. Management : Asia Pacific, Cengage Learning Australia, 2014. ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/latrobe/detail.action?docID=1991004.
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1 5 : L EAD ING IN ORGAN ISAT IONS 619

style is task oriented or relationship (people) oriented as referred to above. Fiedler considered a person’s
leadership style to be relatively fixed and difficult to change; therefore, the basic idea is to match the
leader’s style with the situation most favourable for his or her effectiveness. By diagnosing leadership style
and the organisational situation, the correct fit can be arranged.

sItuatIon: favouraBLe or unfavouraBLe?
The suitability of a person’s leadership style is determined by whether the situation is favourable or
unfavourable to the leader. The favourability of a leadership situation can be analysed in terms of
three elements: the quality of relationships between leader and followers, the degree of task structure
(meaning the extent to which processes can be formally defined or standardised) and the extent
to which the leader has formal authority over followers.41 A situation would be considered highly
favourable to the leader when leader–member relationships are positive, tasks are highly structured
and the leader has formal authority over followers. In this situation, followers trust, respect and have
confidence in the leader. The group’s tasks are clearly defined, involve specific procedures and have
clear, explicit goals. In addition, the leader has formal authority to direct and evaluate followers, along
with the power to reward or punish. A situation would be considered highly unfavourable to the leader
when leader–member relationships are poor, tasks are highly unstructured and the leader has little
formal authority. In a highly unfavourable situation, followers have little respect for or confidence and
trust in the leader. Tasks are vague and ill-defined and lack clear-cut procedures and guidelines. The
leader has little formal authority to direct subordinates and does not have the power to issue rewards
or punishments.

matChInG Leader styLe to the sItuatIon
When Fiedler examined the relationships among leadership style and situational favourability, he found
the pattern shown in Exhibit 15.8. Task-oriented leaders are more effective when the situation is either
highly favourable or highly unfavourable. Relationship-oriented leaders are more effective in situations of
moderate favourability. The task-oriented leader excels in the favourable situation because everyone gets
along, the task is clear and the leader has power; all that is needed is for someone to lead the charge and
provide direction. Similarly, if the situation is highly unfavourable to the leader, a great deal of structure
and task direction is needed. A strong leader will define task structure and establish strong authority.
Because leader–member relations are poor anyway, a strong task orientation will make no difference in
the leader’s popularity.

Task-oriented
leader

Relationship-
oriented
leader

P
er

fo
rm

an
ce

Low
High

Situation very
unfavourable to leader

Situation very
favourable to leader

Situation intermediately
favourable to leader

exhibit 15.8 How
leader style fits the
situation

Source: Based on Fred
E. Fiedler. The Effects
of Leadership Training
and Experience: A
Contingency Model
Interpretation. (1972).
Administrative Science
Quarterly, 17, 455.

Samson, Danny, and Richard L. Daft. Management : Asia Pacific, Cengage Learning Australia, 2014. ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/latrobe/detail.action?docID=1991004.
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part f i v e : L ead ing620

hOW TO DELEGATE

management
in pr actice

Sometimes, managers cling too tightly to their decision-
making and task responsibilities. Failure to delegate occurs
for a number of reasons: managers are most comfortable
making familiar decisions; they feel they will lose personal
status by delegating tasks; they believe they can do a better
job themselves; or they have an aversion to risk – they
will not take a chance on delegating because performance
responsibility ultimately rests with them.

Yet delegating tasks and decision making offers an
organisation many advantages. Decisions are made at the right
level, lower-level employees are motivated, and employees
have the opportunity to develop decision-making skills. The
following approach can help you to delegate more effectively
as a manager:

●➜ delegate the whole task. A manager should delegate an
entire task to one person rather than dividing it among
several people. This type of delegation gives the individual
complete responsibility and increases his or her initiative
while giving the manager some control over the results.

●➜ select the right person. Not all employees have the same
capabilities and degrees of motivation. If delegation is to be
effective, managers must match talent to task. They should
identify subordinates who made independent decisions in
the past and show a desire for more responsibility.

●➜ ensure that authority equals responsibility. Merely
assigning a task is not effective delegation. Managers often
load subordinates with increased responsibility, but do not
extend their decision-making range. In addition to having
responsibility for completing a task, the worker must be
given the authority to make decisions about how best to do
the job.

●➜ give thorough instruction. Successful delegation includes
information on what, when, why, where, who and how.

The subordinate must clearly understand the task and
the expected results. It is a good idea to write down all
provisions discussed, including required resources and
when and how the results will be reported.

●➜ Maintain feedback. Feedback means keeping open lines of
communication with the subordinate to answer questions
and provide advice, but without exerting too much control.
Open lines of communication make it easier to trust
subordinates. Feedback keeps the subordinate on the right
track.

●➜ evaluate and reward performance. Once the task is
completed, the manager should evaluate results, not
methods. When results do not meet expectations, the
manager must assess the consequences. When they do
meet expectations, the manager should reward employees
for a job well done with praise, financial rewards when
appropriate and delegation of future assignments.

ARE yOu A pOSITIvE DELEGATOR?
Do you help or hinder the decentralisation process? If you
answer yes to more than three of the following questions, you
may have a problem delegating:

●➜ I tend to be a perfectionist.

●➜ My boss expects me to know all the details of my job.

●➜ I don’t have the time to explain clearly and concisely how a
task should be accomplished.

●➜ I often end up doing tasks myself.

●➜ My subordinates typically are not as committed as I am.

●➜ I get upset when other people don’t do the task right.

●➜ I really enjoy doing the details of my job to the best of my
ability.

●➜ I like to be in control of task outcomes.

Sources: Thomas R. Horton. (September 1992). Delegation and Team Building: No Solo Acts Please. Management Review, 58–61;
Andrew E. Schwartz. (June 1987). The Why, What, and to Whom of Delegation. Management Solutions, 31–8; Delegation. (June 1986).

Small Business Report, 38–43; and Russell Wild. (May 2000). Clone Yourself. Working Woman, 79–80.

An example of matching style to situation is to consider what type of leadership is best suited to
organisations which are underperforming. Researchers at the University of Chicago who looked at CEOs
in turnaround situations – where companies typically have high debt loads and a need to improve results
in a hurry – found that tough-minded, task-focused characteristics such as analytical skills, a focus on
efficiency and setting high standards were more valuable leader qualities than relationship skills such as
good communication, listening and teamwork.42

Samson, Danny, and Richard L. Daft. Management : Asia Pacific, Cengage Learning Australia, 2014. ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/latrobe/detail.action?docID=1991004.
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1 5 : L EAD ING IN ORGAN ISAT IONS 621

The relationship-oriented leader performs better in situations of intermediate favourability because
human relations skills are important in achieving high group performance. In these situations, the leader
may be moderately well-liked, have some power and supervise jobs that contain some ambiguity. A leader
with good interpersonal skills can create a positive group atmosphere that will improve relationships,
clarify task structure and establish position power.

A leader, then, needs to know two things to use Fiedler’s contingency theory. First, the leader should
know whether he or she has a relationship- or task-oriented style. Second, the leader should diagnose the
situation and determine whether leader–member relations, task structure and position power are favourable
or unfavourable. Fiedler believed that fitting leader style to the situation can yield big dividends in profits
and efficiency.43 On the other hand, Fiedler’s model has also been criticised.44 Some researchers have
challenged the idea that leaders cannot adjust their styles as situational characteristics change. Despite
these criticisms, though, Fiedler’s model has continued to influence leadership studies. Fiedler’s research
called attention to the importance of finding the correct fit between leadership style and situation.

siTuaTional subsTiTuTes for leadership
The contingency leadership approaches considered so far focus on the leader’s style, the subordinates’
natures and the situation’s characteristics. The final contingency approach suggests that situational
variables can be so powerful that they actually substitute for or neutralise the need for leadership.45 This
approach outlines those organisational settings in which a leadership style is unimportant or unnecessary.

Exhibit 15.9 shows the situational variables that tend to substitute for or neutralise leadership
characteristics. A substitute for leadership makes the leadership style unnecessary or redundant. For
example, highly professional subordinates who know how to do their tasks do not need a leader who
initiates structure for them and tells them what to do. A neutraliser counteracts the leadership style and
prevents the leader from displaying certain behaviours. For example, if a leader has absolutely no position
power or is physically removed from subordinates, the leader’s ability to give directions to subordinates
is greatly reduced.

Situational variables in Exhibit 15.9 include characteristics of the group, the task and the organisation
itself. When followers are highly professional and experienced, both leadership styles are less important.
People do not need much direction or consideration. With respect to task characteristics, highly structured
tasks substitute for a task-oriented style, and a satisfying task substitutes for a people-oriented style.
With respect to the organisation itself, group cohesiveness substitutes for both leader styles. Formalised
rules and procedures substitute for leader task orientation. Physical separation of leader and subordinate
neutralises both leadership styles.

The value of the situations described in Exhibit 15.9 is that they help leaders to avoid leadership
overkill. Leaders should adopt a style that complements the organisational situation. Consider the work
situation for bank tellers. A bank teller performs highly structured tasks, follows clearly written rules and
procedures, and has little flexibility in terms of how to do the work. The head teller should not adopt a task-
oriented style, because the organisation already provides structure and direction. The head teller should
concentrate on a people-oriented style to provide a more pleasant work environment for the other tellers.
In other organisations, if group cohesiveness or intrinsic satisfaction meets employees’ social needs, the
leader is free to concentrate on task-oriented behaviours. The leader can adopt a style complementary to
the organisational situation to ensure that both task needs and people needs of the work group will be met.

substitute for leadership
A situational variable that
makes a leadership style
redundant or unnecessary.

neutraliser
A situational variable that
counteracts a leadership
style and prevents the
leader from displaying
certain behaviours.

Samson, Danny, and Richard L. Daft. Management : Asia Pacific, Cengage Learning Australia, 2014. ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/latrobe/detail.action?docID=1991004.
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part f i v e : L ead ing622

exhibit 15.9 Substitutes and neutralisers for leadership

Variable task-oriented leadership
people-oriented
leadership

Organisational variables

Group cohesiveness Substitutes for Substitutes for
Formalisation Substitutes for No effect on
Inflexibility Neutralises No effect on
Low position power Neutralises Neutralises
Physical separation Neutralises Neutralises

Task characteristics
Highly structured task Substitutes for No effect on
Automatic feedback Substitutes for No effect on
Intrinsic satisfaction No effect on Substitutes for

Group characteristics
Professionalism Substitutes for Substitutes for
Training/experience Substitutes for No effect on

reMeMber
this

➜ A contingency approach is a model
of leadership that describes the
relationship between leadership
styles and specific situations.

➜ One contingency approach is the
situational model, which links the
leader’s behavioural style with the
readiness level of followers.

➜ In general, a task-oriented leader
style fits a low-readiness follower,

and a relationship leader style fits a
higher-readiness follower.

➜ In Fiedler’s contingency theory,
the suitability of a leader’s style
is determined by whether the
situation is considered favourable or
unfavourable to the leader.

➜ Task-oriented leaders are considered
to perform better in either highly
favourable or highly unfavourable
situations.

➜ Relationship-oriented leaders
are considered to perform better
in situations of intermediate
favourability.

➜ A substitute for leadership is a
situational variable that makes
a leadership style redundant or
unnecessary.

➜ A neutraliser is a situational variable
that counteracts a leadership
style and prevents the leader from
displaying certain behaviours.

Patricia Neden is the Chief Executive Officer
of Innovation and Business Skills Australia
(IBSA). IBSA is one of 11 Industry Skills
Councils (ISCs), not-for-profit companies
funded by the Australian Government.
Previously, Patricia was Deputy Secretary
in the Victorian Department of Innovation,
Industry and Regional Development and
responsible for Skills Victoria.

Patricia’s experience covers policy,
intergovernmental negotiations, national

systems implementation and purchasing arrangements.
She previously held senior positions in other Victorian
Government departments, including Industry and Labour.
Patricia commenced her career in the private sector, working
predominantly in information technology and manufacturing in
Victoria and overseas, and in the mining industry in Western
Australia.

Patricia is a Director of TVET Australia, and a member of
the National Quality Council’s Quality of Assessment Action
Group. She is a member of the Australian Government’s
Contributions Review Panel for international education

Austr AliAn
mAnAger profile pATRIcIA NEDEN

So
ur

ce
: C

ou
rte

sy
P

at
ric

ia
N

ed
en

Samson, Danny, and Richard L. Daft. Management : Asia Pacific, Cengage Learning Australia, 2014. ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/latrobe/detail.action?docID=1991004.
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1 5 : L EAD ING IN ORGAN ISAT IONS 623

CharismaTiC and TransformaTional leadership
Research has also looked at how leadership can inspire and motivate people beyond their normal levels
of performance. Some leadership approaches are more effective than others for bringing about high levels
of commitment and enthusiasm. Two types of leadership with a substantial impact are charismatic and
transformational.

providers and on the Board of the Victorian Registration and
Qualifications Authority.

Challenges facing managers today include aligning people
with company objectives and driving change through the
development of innovative products, processes and ways
of doing things internally. Patricia believes that developing
a culture of ‘can do’ energises people and results in goals
being achieved. Another contemporary challenge is the mix
of generations in the workforce and their varied expectations
about both the nature of work and conditions. Providing work
that mines the experience of older people and allows for the

development of younger ones is critical. It is also important
to accommodate the different working conditions various
age groups require, ranging from flexible arrangements to
accommodate creche pick-up times at one end of the spectrum,
to part-time arrangements to ensure grandchildren are looked
after or other pursuits are factored in at the other end.

In 2008, the Institute of Public Administration awarded
Patricia a Victorian Fellowship in recognition of her
outstanding contribution to public administration and
exemplary service to the Victorian community.

Source: Courtesy Patricia Neden.

ARE yOu A chARISmATIc LEADER?

If you were the head of a major department in a company,
how important would each of the following activities be to
you? Answer yes or no to indicate whether you would strive to
perform each activity.

1. Help employees clarify goals and how to reach them.

2. Give people a sense of mission and overall purpose.

3. Help get jobs out on time.

4. Look for new product or service opportunities.

5. Use policies and procedures as guides for problem solving.

6. Promote unconventional beliefs and values.

7. Give monetary rewards in exchange for high performance
from employees.

8. Command respect from everyone in the department.

9. Work alone to accomplish important tasks.

10. Suggest new and unique ways of doing things.

11. Give credit to people who do their jobs well.

12. Inspire loyalty to yourself and to the organisation.

13. Establish procedures to help the department operate
smoothly.

14. Use ideas to motivate others.

15. Set reasonable limits on new approaches.

16. Demonstrate social nonconformity.
The even-numbered items represent behaviour and

activities of charismatic leaders. Charismatic leaders are
personally involved in shaping ideas, goals and direction of
change. They use an intuitive approach to develop fresh ideas
for old problems and seek new directions for the department
or organisation. The odd-numbered items are considered more
traditional management activities, or what would be called
transactional leadership. Managers respond to organisational
problems in an impersonal way, make rational decisions, and
coordinate and facilitate the work of others. If you answered
yes to more even-numbered than odd-numbered items, you
may be a potential charismatic leader.

Sources: Based on Bass, B. M. (1985). Leadership and Performance Beyond Expectations (Free Press: New York); Burns, L. R. and Becker, S. W. Leadership and Management. In
S. Shortell and A. Caluzny (eds) (1986). Health Care Management (Wiley: New York).

management
in pr actice
Samson, Danny, and Richard L. Daft. Management : Asia Pacific, Cengage Learning Australia, 2014. ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/latrobe/detail.action?docID=1991004.
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part f i v e : L ead ing624

CharIsmatIC LeadershIp
Charisma has been referred to as ‘a fire that ignites followers’ energy and commitment, producing results
above and beyond the call of duty’.46 The charismatic leader has the ability to inspire and motivate
people to do more than they would normally do, despite obstacles and personal sacrifice. Followers are
willing to put aside their own interests for the sake of the team, department or organisation. The impact
of charismatic leaders normally comes from (1) stating a lofty vision of an imagined future that employees
identify with; (2) displaying an ability to understand and empathise with followers; and (3) empowering
and trusting subordinates to accomplish results.47 Charismatic leaders tend to be less predictable because
they create an atmosphere of change, and they may be obsessed by visionary ideas that excite, stimulate
and drive other people to work hard. One of the best-known charismatic leaders in the business world of
recent decades was the late Apple co-founder and CEO Steve Jobs.

charismatic leader
A leader who has the ability
to motivate employees to
transcend their expected
performance.

chARISmATIc LEADERShIp
InnovatIve

Way

Steve Jobs was a legend long before he died in October 2011.
His creativity and obsession with innovative product design,
combined with the force of his personality, made Apple what
it is today. Since his death, managers have been reading books
and articles that describe his leadership style to try to tap into
some of the Steve Jobs magic. Part of that magic relied on
Jobs’s charisma.

Jobs commanded a rock-star-like following. The tale of
how he dropped out of college, co-founded Apple, got fired
from his own company, returned years later to save it, and
then transformed it by creating a whole new business with
the iPod, iPhone and iPad is the stuff of legend. Jobs provided
the pizzazz for Apple employees, business partners and the
public. His charismatic personality played an important role in
persuading media companies to make their content available
on Apple products. ‘When Steve talks, people listen,’ a Harvard
Business School professor said a few months before Jobs’s

death. Jobs’s passion and commitment inspired and motivated
millions of employees and customers. However, his quick,
unpredictable temper, driven, wilful personality, impatience,
relentless demands and hypercritical attitude sometimes
undermined performance.

Jobs challenged and inspired teams to reach beyond the
possible, yet he could easily dismiss a promising idea or effort
as ‘a piece of crap’, contributing to disillusionment and the
loss of potential. Despite this, many people – even some he
mistreated – admired and respected (some have even said
worshipped) Steve Jobs. They tell their ‘Steve-Jobs-yelled-in-
my-face’ stories with pride. His energising personality and
refusal to ‘sell out’ made people want to be around him, and
want to be like him. Indeed, one magazine article commented
that the amazing staff loyalty he inspired turned Apple into
‘Steve Jobs with a thousand lives’.

Source: Jon Katzenbach. (Summer 2012). The Steve Jobs Way. Strategy + Business, http://www.strategy-business.com/article/00109?gko=d331b (accessed 11 June 2012);
Steve Moore. (March 2009). Not Bad for a Hippie Dropout. Management Today, 27; Connie Guglielmo. (17 May 2008). What Makes Steve Jobs Run? National Post, FW–8;

(18 January 2009). Editorial: Apple – and U.S. – Need Steve Jobs. McClatchy-Tribune Business News; Leslie Kwoh and Emma Silverman. (31 March 2012). Bio as Bible:
Managers Imitate Steve Jobs. The Wall Street Journal, B1; and Miguel Helft and Claire Cain Miller. (17 January 2011). A Deep Bench of Leadership at Apple.

The New York Times, http://www.nytimes.com/2011/01/18/technology/18cook.html?_r=0 (accessed 18 January 2011).

As the example of Steve Jobs illustrates, there can be both positive and negative aspects of charisma.
Other charismatic leaders include Mother Teresa, Sam Walton, Alexander the Great, Oprah Winfrey and
Martin Luther King, Jr. Charisma can be used for positive outcomes that benefit the group, but it can
also be used for self-serving purposes that lead to the deception, manipulation and exploitation of others.
When charismatic leaders respond to organisational problems in terms of the needs of the entire group
rather than their own emotional needs, they can have a powerful, positive influence on organisational
performance.48 At Apple, Steve Jobs’s personal identity was so closely aligned with his company that

Samson, Danny, and Richard L. Daft. Management : Asia Pacific, Cengage Learning Australia, 2014. ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/latrobe/detail.action?docID=1991004.
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1 5 : L EAD ING IN ORGAN ISAT IONS 625

serving Apple and serving his own emotional needs were likely one and the same! As with the Level 5 and
authentic leadership approaches discussed earlier in this chapter, humility typically plays an important
part in distinguishing whether a charismatic leader will work to benefit the larger organisation or use his
or her gifts for ego-building and personal gain.49

Charismatic leaders are skilled in the art of visionary leadership. A vision is an attractive, ideal future
organisational state or outcome that is credible yet not readily attainable. Vision is an important component
of both charismatic and transformational leadership. Visionary leaders, who concentrate on formulating
and communicating the organisation’s longer term ‘big picture’, speak to the hearts of employees, letting
them feel that they are part of something bigger than themselves. Where others see obstacles or failures,
visionary leaders see possibility and hope. Charismatic leaders typically have a strong vision for the future,
almost an obsession, and they can motivate others to help realise it.50 These leaders have an emotional
impact on subordinates because they strongly believe in the vision and can communicate it to others in
a way that makes the vision real, personal and meaningful.

vision
An attractive, ideal future
organisational state or
outcome that is credible yet
not readily attainable.

IN THE HANDS OF A MATADOR
It was, by any standard, a bold move. Taking
the leadership reins in 2004 as CEO and
president of Spain-based Acciona, one
of Europe’s most profitable real estate
and construction businesses, José Manuel
Entrecanales envisioned a future in which
businesses would balance economic gain
with environmental standards. Entrecanales
convinced his board to address climate
change and promote renewable energy

development. The company wasted no time
making a public announcement of its long-
term sustainability plans and undertaking new
strategies led by a Sustainability Committee.
Over the next six years, Acciona managers
made investments in sustainability including
wind generators. By 2009, Acciona had
risen to third in the world in wind energy
production. In less than a decade, Acciona
has established a green reputation, and it was

the leadership of Entrecanales, undertaken
with the precise timing and calculated moves
of a great matador, that envisioned the new
spheres of action.

Sources: Daniel Arenas, Jeremie Fosse and Matthew
Murphy. (2011). Acciona: a Process of Transformation

Towards Sustainability. The Journal of Management
Development, 30:10, 1027–48; and Patricia McCormick.
(11 March 1963). A Brave Matador Explains the Bullfight.

Sports Illustrated, http://sportsillustrated.cnn.com/vault/
article/magazine/MAG1074594/2/index.htm (accessed

4 August 2012).

Case sTudy

transformatIonaL versus
transaCtIonaL LeadershIp
transformational leaders are similar to charismatic leaders, but are distinguished by their special ability
to bring about innovation and change by recognising their followers’ needs and concerns, providing
meaning, challenging people to look at old problems in new ways and acting as role models for new values
and behaviours. Transformational leaders inspire followers not only to believe in the leader personally,
but also to believe in their own potential to imagine and create a better future for the organisation.
Transformational leaders create significant change in both their followers and the organisation.51

Transformational leadership can be better understood when considered in comparison to transactional
leadership.52 transactional leaders clarify the role and task requirements of subordinates, initiate structure,
provide appropriate rewards, and try to be considerate and meet the social needs of subordinates. The
transactional leader’s ability to satisfy subordinates may improve productivity. Transactional leaders excel
at management functions. They are hardworking, tolerant and fair minded. They take pride in keeping
things running smoothly and efficiently. Transactional leaders often stress the impersonal aspects of

transformational leaders

transformational leader
A leader distinguished by a
special ability to bring about
innovation and change.

transactional leader
A leader who clarifies
employees’ role and task
requirements, initiates
structure, provides rewards
and displays consideration
for employees.

Samson, Danny, and Richard L. Daft. Management : Asia Pacific, Cengage Learning Australia, 2014. ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/latrobe/detail.action?docID=1991004.
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part f i v e : L ead ing626

performance, such as plans, schedules and budgets. They have a sense of commitment to the organisation
and conform to organisational norms and values. Transactional leadership is important to all organisations,
but leading change requires a different approach.

Transformational leaders have the ability to lead changes in the organisation’s mission, strategy,
structure and culture, as well as to promote innovation in products and technologies. Transformational
leaders do not rely solely on tangible rules and incentives to control specific transactions with followers.
They focus on intangible qualities such as vision, shared values and ideas to build relationships, give
larger meaning to diverse activities, and find common ground to enlist followers in the change process.53

ASEA BROWN BOvERI
Percy Barnevik is a transformational
leader who transformed two rather sleepy
engineering firms (ASEA, a Swedish
engineering group, and Brown Boveri, a
Swiss competitor) into one of the world’s
top engineering giants. Barnevik had a
vision of a new type of organisation for
a new Europe without boundaries. He
wanted Asea Brown Boveri (ABB) to
be a transnational company operating
freely across borders, one that combined
global scale and world-class technology
with small company dynamism and deep
roots in the local community. Barnevik
pushed authority, responsibility and
accountability down to the lowest levels
of the organisation and empowered
employees throughout the company to
help him achieve his vision for the new
ABB. New CEO Ulrich Spiesshofer leads

this $40 billion company, which achieved
a healthy 10 per cent profit margin in
2012, in a highly decentralised manner.
The company employs 146 000 staff and
owns many thousands of patents, using
technology to build sustainable solutions
for its customers worldwide. ABB has
a strong business culture: ‘The key to
success lies in how well all of us understand
and apply the business principles –
demonstrating personal, professional
and corporate responsibility, showing
respect for the views and needs of others
and applying our shared determination
to win.’ ABB has strongly embraced
sustainability principles and practices, and
is regarded as a sustainability leader in its
industries. It is a clear example that an
old, well established company, working in
traditional ‘smokestack’ industries does

not have to be conservative, but can
indeed be successful through embracing
modern practices of staff empowerment,
sustainability, knowledge management
and decentralised decision making, to its
great benefit. These approaches are so
strongly ingrained in ABB’s ‘DNA’ that
even though a few CEOs have come and
gone since the foundations were laid by
Barnevik, the ABB way of working has
endured, matured and been prosperous,
even through the difficult period of the
global financial crisis.

Sources: Vries, M. F. R. (Winter 1998). Charisma
in Action: The Transformational Abilities of Virgin’s

Richard Branson and ABB’s Percy Barnevik.
Organizational Dynamics, 7–21; ABB Group Annual

Report 2012, p. 10, http://www.abb.com/;
http://www.abbaustralia.com.au/cawp/seitp202/

8986869d0a190b74c1257be7004db946.aspx;
http://www400.abbext.com/2012/ar/servicepages/

filelibrary/files/collection.php.

Ca
se

sT
ud

y

Studies show that transformational leadership has a positive impact on follower development
and follower performance.54 Moreover, transformational leadership skills can be learned, and are not
ingrained personality characteristics. However, some personality traits may make it easier for a leader
to display transformational leadership behaviours. For example, studies of transformational leadership
have found that the trait of agreeableness, as discussed in the previous chapter, is often associated with
transformational leaders.55 In addition, transformational leaders are typically emotionally stable and
positively engaged with the world around them, and they have a strong ability to recognise and understand
others’ emotions.56 These characteristics are not surprising, considering that these leaders accomplish
change by building networks of positive relationships.

CONCEPT
ExTENSION

Self-test

Samson, Danny, and Richard L. Daft. Management : Asia Pacific, Cengage Learning Australia, 2014. ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/latrobe/detail.action?docID=1991004.
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1 5 : L EAD ING IN ORGAN ISAT IONS 627

followership
No discussion of leadership is complete without a consideration of
followership. Leadership matters, but without effective followers, no
organisation can survive. People have different expectations of what
constitutes a good follower versus a good leader, as illustrated by the
results of studies asking people to rank the desired characteristics of
leaders and followers. The top five qualities desired in each are as listed
in Exhibit 15.10.57

There may be some differences, but overall, many of the qualities that
define a good follower are the same as those possessed by a good leader.
Leaders can develop an understanding of their followers and create the
conditions that help them to be most effective.58 One model of followership is illustrated in Exhibit 15.11.
Robert E. Kelley conducted extensive interviews with managers and their subordinates and came up with
five follower styles, which are categorised according to two dimensions.59

➜ A charismatic leader is a leader who
has the ability to inspire and motivate
people to transcend their expected
performance, even to the point of
personal sacrifice.

➜ Both charismatic and
transformational leaders provide
followers with an inspiring vision, an
attractive, ideal future that is credible
yet not readily attainable.

➜ A transformational leader is
distinguished by a special ability
to bring about innovation and

change by creating an inspiring
vision, shaping values, building
relationships and providing
meaning for followers.

➜ A transactional leader clarifies
subordinates’ roles and task
requirements, initiates structure,
provides rewards and displays
consideration for followers.

reMeMber
this

exhibit 15.10 The top five qualities of leaders and followers

leader folloWer

Honest Honest
Competent Competent
Forward-looking Dependable
Inspiring Cooperative
Intelligent Loyal

exhibit 15.11 Styles of
followership

Source: Based on Robert
E. Kelley, The Power of
Followership (New York:
Doubleday, 1992).

PassiveActive

Dependent, uncritical thinking

Independent, critical thinking

Passive

AlienatedEffective

Pragmatic
survivor

Conformist

Samson, Danny, and Richard L. Daft. Management : Asia Pacific, Cengage Learning Australia, 2014. ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/latrobe/detail.action?docID=1991004.
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part f i v e : L ead ing628

The first dimension is the quality of independent, critical thinking versus dependent, uncritical
thinking. Independent critical thinkers are mindful of the effects of their own and others’ behaviour on
achieving organisational goals. They can weigh the impact of their boss’s and their own decisions and
offer constructive criticism, creativity and innovation. Conversely, a dependent, uncritical thinker does
not consider possibilities beyond what he or she is told, does not contribute to the cultivation of the
organisation and accepts the supervisor’s ideas without thinking.

The second dimension of follower style is active versus passive behaviour. An active follower participates
fully in the organisation, engages in behaviour that is beyond the limits of the job, demonstrates a sense
of ownership and initiates problem solving and decision making. A passive follower, by contrast, is
characterised by a need for constant supervision and prodding by superiors. Passivity is often regarded as
laziness; a passive person does nothing that is not required and avoids added responsibility.

The extent to which an individual is active or passive and is an independent, critical thinker or a
dependent, uncritical thinker determines whether the person will be an alienated follower, a passive
follower, a conformist, a pragmatic survivor or an effective follower, as illustrated in Exhibit 15.11.

●● The alienated follower is a passive, yet independent, critical thinker. Alienated employees are often
effective followers who have experienced setbacks and obstacles, perhaps promises broken by their
superiors. Thus, they are capable, but focus exclusively on the shortcomings of their boss. Often
cynical, alienated followers are able to think independently, but they do not participate in developing
solutions to the problems or deficiencies that they see. These people waste valuable time complaining
about their boss without offering constructive feedback.

●● The conformist participates actively in a relationship with their boss, but doesn’t use critical thinking
skills. In other words, a conformist typically carries out any and all orders, regardless of the nature of
the request. The conformist participates willingly, but without considering the consequences of what
he or she is being asked to do – even at the risk of contributing to a harmful endeavour. A conformist is
concerned only with avoiding conflict. This follower style might reflect an individual’s over-dependent
attitude towards authority, yet it can also result from rigid rules and authoritarian environments that
create a culture of conformity.

●● The pragmatic survivor has qualities of all four extremes – depending on which style fits with the
prevalent situation. This type of person uses whatever style best benefits his or her own position and
minimises risk. Pragmatic survivors often emerge when an organisation is going through desperate
times, and individuals find themselves doing whatever is needed to get through the difficulty. Within
any given company, some 25 to 35 per cent of people tend to be pragmatic survivors, avoiding risks
and fostering the status quo.60

●● The passive follower exhibits neither critical, independent thinking nor active participation.
Being passive and uncritical, these people show neither initiative nor a sense of responsibility.
Their activity is limited to what they are told to do, and they accomplish things only with a great
deal of supervision. Passive followers leave the thinking to the boss. Often, this style is the result
of a micromanaging boss who encourages passive behaviour. People learn that to show initiative,
accept responsibility, or think creatively is not rewarded and may even be punished by the boss,
so they grow increasingly passive.

critical thinking
Thinking independently
and being mindful of the
effect of one’s behaviour on
achieving goals.

uncritical thinking
Failing to consider the
possibilities beyond what
one is told; accepting
others’ ideas without
thinking.

alienated follower
A person who is an
independent, critical
thinker but is passive in the
organisation.

conformist
A follower who participates
actively in the organisation
but does not use critical
thinking skills.

pragmatic survivor
A follower who has qualities
of all four follower styles,
depending on which fits the
prevalent situation.

passive follower
A person who exhibits
neither critical independent
thinking nor active
participation.

CONCEPT
ExTENSION

Case project 15.2

Samson, Danny, and Richard L. Daft. Management : Asia Pacific, Cengage Learning Australia, 2014. ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/latrobe/detail.action?docID=1991004.
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1 5 : L EAD ING IN ORGAN ISAT IONS 629

●● The effective follower is both a critical, independent thinker and active in the organisation. Effective
followers behave the same towards everyone, regardless of their position in the organisation. They
develop an equitable relationship with their leaders and do not try to avoid risk or conflict. These
people are capable of self-management, discern strengths and weaknesses in themselves and their
bosses, are committed to something bigger than themselves, and work towards competency, solutions
and positive impact.

Consider the effective followership of the night cleaner at FAVI, a French copper-alloy foundry. While
she was cleaning one night, the phone rang, and she answered it to discover that an important visitor to
the company had been delayed and was now waiting at the airport without the promised lift to his hotel.
(FAVI’s CEO had left the airport when the visitor didn’t arrive as expected.) What did the cleaner do?
She simply took the keys to one of the company cars, drove 90 minutes to pick up the visitor and deliver
him to his hotel, then went back to finish the cleaning that she had stopped three hours earlier.61

Effective followers recognise that they have power in their relationships with superiors; thus, they
have the courage to manage upward, to initiate change and to put themselves at risk or in conflict with
the boss if they believe that it serves the best interest of the team or organisation.

effective follower
A critical, independent
thinker who actively
participates in the
organisation.

➜ Leaders can accomplish nothing
without effective followers.

➜ Critical thinking means thinking
independently and being mindful
of the effect of one’s behaviour on
achieving goals.

➜ Uncritical thinking means failing to
consider the possibilities beyond what

one is told, accepting others’ ideas
without thinking.

➜ An effective follower is a critical,
independent thinker who actively
participates in the organisation.

➜ An alienated follower is a person who
is an independent, critical thinker but
is passive in the organisation.

➜ A conformist is a follower who
participates actively in the

organisation but does not use
critical thinking skills.

➜ A passive follower is one
who exhibits neither critical
independent thinking nor active
participation.

➜ A follower who has qualities of all
four follower styles, depending on
which fits the prevalent situation, is
called a pragmatic survivor.

reMeMber
this

power and influenCe
Both followers and leaders use power and influence to get things done in organisations. Sometimes the
terms power and influence are used synonymously, but there are distinctions between the two. power is
the potential ability to influence the behaviour of others.62 influence is the effect that a person’s actions
have on the attitudes, values, beliefs or behaviour of others. Whereas power is the capacity to cause a
change in a person, influence may be thought of as the degree of actual change.

Most discussions of power include five types that are available to leaders,63 and these can be
categorised as either hard power or soft power. Hard power is power that stems largely from a person’s
position of authority, and includes legitimate, reward and coercive power. Soft power includes expert
power and referent power, which are based on personal characteristics and interpersonal relationships
more than on a position of authority.

power

power
The potential ability to influence
the behaviour of others.

influence
The effect that a person’s
actions have on the attitudes,
values, beliefs or behaviour of
others.

Samson, Danny, and Richard L. Daft. Management : Asia Pacific, Cengage Learning Australia, 2014. ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/latrobe/detail.action?docID=1991004.
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part f i v e : L ead ing630

posItIon power
The traditional manager’s power comes from the organisation (hard power). The manager’s position gives
him or her the power to reward or punish subordinates to influence their behaviour. Legitimate power,
reward power and coercive power are all forms of position power used by managers to change employee
behaviour.

LeGItImate power
Power coming from a formal management position in an organisation and the authority granted to it is
called legitimate power. Once a person has been selected as a supervisor, most employees understand
that they are obligated to follow his or her direction with respect to work activities. Subordinates accept
this source of power as legitimate, which is why they comply with directives given by the supervisor
or manager.

reward power
Another kind of power, reward power, stems from the authority to bestow rewards on other people.
Managers may have access to formal rewards, such as pay increases or promotions. They also have at
their disposal informal rewards such as praise, attention and recognition. Managers can use rewards to
influence subordinates’ behaviour.

CoerCIve power
The opposite of reward power is coercive power. It refers to the authority to punish or recommend
punishment. Managers have coercive power when they have the right to fire or demote employees,
criticise them or withhold pay increases. If an employee does not perform as expected, the manager
has the coercive power to reprimand the employee, put a negative letter in the employee’s file, deny the
employee a raise and hurt the employee’s chances for a promotion.

personaL power
Effective leaders don’t rely solely on the hard power of their formal position to influence

others. Jeff Immelt, CEO of GE, considers himself a failure if he exercises his formal
authority more than seven or eight times a year. The rest of the time, he is using softer
means to persuade and influence others and to resolve conflicting ideas and opinions.64
In contrast to the external sources of position power, personal power most often
comes from internal sources, such as an individual’s special knowledge or personal
characteristics. Personal power is the primary tool of the leader, and it is becoming

increasingly important as more businesses are run by teams of workers who are less
tolerant of authoritarian management.65 Two types of personal power are expert power and

referent power.

expert power
Power resulting from a person’s special knowledge or skill regarding the tasks being performed is referred
to as expert power. When someone is a true expert, others go along with their recommendations
because of his or her superior knowledge. Followers as well as leaders can possess expert power. For
example, some managers lead teams in which members have expertise that the leader lacks. Some

legitimate power
Power that stems from
a formal position in an
organisation and the
authority granted to it.

reward power
Power that results from the
authority to reward others.

coercive power
Power that stems from
the authority to punish or
recommend punishment.

take a
MoMent

As a new manager, you may not
have a lot of position power. Build

your personal power by strengthening
your knowledge and skills and by
developing positive relationships.

Interpersonal influence tactics will
serve you well throughout your

career, even as your position
power increases.

expert power
Power that stems from
special knowledge or skill
in tasks performed by
employees.

Samson, Danny, and Richard L. Daft. Management : Asia Pacific, Cengage Learning Australia, 2014. ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/latrobe/detail.action?docID=1991004.
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1 5 : L EAD ING IN ORGAN ISAT IONS 631

referent power
Power that results from
the characteristics that
command employees’
identification, respect and
admiration, so that they
wish to emulate the leader.

leaders at top management levels may lack expert power because subordinates know more about
technical details than they do.

referent power
referent power comes from an individual’s personal characteristics that command others’ identification,
respect and admiration, meaning that others wish to emulate that individual. Referent power does not
depend on a formal title or position. When employees admire a supervisor because of the way that he
or she deals with them, the influence is based on referent power. Referent power is most visible in the
area of charismatic leadership. In social and religious movements, we often see charismatic leaders who
emerge and gain a tremendous following based solely on their personal power.

other sourCes of power
There are additional sources of power that are not linked to a particular person or position, but rather to
the role an individual plays in the overall functioning of the organisation. These important sources include
personal effort, relationships with others and information.

personaL effort
People who show initiative, work beyond what is expected of them, take on undesirable but important
projects, and show interest in learning about the organisation and industry often gain power as a result.
Stephen Holmes says he got his start towards the CEO’s office at Wyndham Worldwide because of
personal effort. As a young internal auditor at a private-equity firm in the early 1980s, Holmes was
spending his evenings trying to learn a new spreadsheet program. Noted investor Henry Silverman
noticed him night after night and, intrigued by the young auditor’s efforts, stopped by to see what he was
doing. Silverman asked Holmes to move with him to future companies, including Blackstone, HMS and
eventually Wyndham. ‘I was a kid,’ Holmes says, ‘[but he] put me into positions that no one else my age
was getting to do.’66

network of reLatIonshIps
People who are enmeshed in a network of relationships have greater power. A leader or employee with
many relationships knows what’s going on in the organisation and industry, whereas one who has few
interpersonal connections is often in the dark about important activities or changes. Developing positive
associations with superiors or other powerful people is a good way to gain power, but people with the
greatest power are those who cultivate relationships with individuals at all levels, both inside and outside
the organisation.

InformatIon
Information is a primary business resource, and people who have access to information and control
over how and to whom it is distributed are typically powerful. To some extent, access to information
is determined by a person’s position in the organisation. Top managers typically have access to more
information than middle managers, who in turn have access to more information than lower-level
supervisors or front-line employees. Both leaders and followers can tap into these additional sources
of power. Leaders succeed when they take the time to build relationships both inside and outside the
organisation and to talk informally about important projects and priorities. Jack Griffin was forced out

Samson, Danny, and Richard L. Daft. Management : Asia Pacific, Cengage Learning Australia, 2014. ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/latrobe/detail.action?docID=1991004.
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part f i v e : L ead ing632

as CEO of Time Inc. after less than six months on the job, largely because he failed to develop positive
relationships. Griffin tried to use the hard power of his position to make necessary changes at Time
without building the soft power connections needed to implement the changes. Board members began
to realise that Griffin had become so unpopular that the company was likely to lose valuable employees
if he stayed on as CEO.67 Many political commentators have observed that previous Australian Prime
Minister Kevin Rudd exhibited similar leadership behaviours to Jack Griffin at Time Inc. – and
Mr Rudd suffered the same fate. Mr Rudd was rejected by his parliamentary party and stood down from
his leadership role because of his overuse of position power and lack of personal power and goodwill
with his colleagues.

new Manager self-test

I N T E R p E R S O N A L pAT T E R N S

The majority of a new manager’s work is accomplished
through interpersonal relationships. To understand your
relationship pattern, consider the following verbs. These
20 verbs describe some of the ways people feel and act from
time to time. Think about your behaviour in groups. How do
you feel and act in groups? Check the five verbs that best
describe your behaviour in groups as you see it.

___acquiesce___coordinate___lead

___advise___criticise___oblige

___agree___direct___relinquish

___analyse___disapprove___resist

___assist___evade___retreat

___concede___initiate___withdraw

___concur___judge
Two underlying patterns of interpersonal behaviour

are represented in the preceding list: dominance (authority
or control) and sociability (intimacy or friendliness). Most
individuals tend either to like to control things (high
dominance) or to let others control things (low dominance).
Similarly, most persons tend either to be warm and personal
(high sociability) or to be somewhat distant and impersonal
(low sociability). In the following diagram, circle the five verbs
in the list that you used to describe yourself. The set of

10 verbs in either horizontal row (sociability dimension) or
vertical column (dominance dimension) in which three or more
are circled represents your tendency in interpersonal behaviour.

high doMinance loW doMinance

High sociability advises acquiesces
coordinates agrees
directs assists
initiates concurs
leads obliges

Low sociability analyses concedes
criticises evades
disapproves relinquishes
judges retreats
resists withdraws

Your behaviour pattern suggested in the diagram is a clue to
your interpersonal style as a new manager. Which of the four
quadrants provides the best description of you? Is that the
type of leader you aspire to become? Generally speaking the
high sociability and high dominance pattern reflects the type
of leader to which many new managers aspire.

Source: Johnson, D. W. and Johnson, F. P. (2003), Joining Together: Group Theory and
Group Skills, 8th edn, New York: Allyn and Bacon, 189–90.

InterpersonaL InfLuenCe taCtICs
Leaders often use a combination of influence strategies, and people who are perceived as having greater
power and influence typically are those who use a wider variety of tactics. One survey of a few hundred
leaders identified more than 4000 different techniques that these people used to influence others.68

However, these tactics fall into basic categories that rely on understanding the principles that cause
people to change their behaviour and attitudes. Exhibit 15.12 lists six principles for asserting influence.

Samson, Danny, and Richard L. Daft. Management : Asia Pacific, Cengage Learning Australia, 2014. ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/latrobe/detail.action?docID=1991004.
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1 5 : L EAD ING IN ORGAN ISAT IONS 633

Notice that most of these involve the use of personal power rather than relying solely on position power
or the use of rewards and punishments.69

1 Use rational persuasion. The most frequently used influence strategy is to use facts, data and logical
argument to persuade others that a proposed idea, request or decision is appropriate. Using rational
persuasion can often be highly effective because most people have faith in facts and analysis.70 Rational
persuasion is most successful when a leader has technical knowledge and expertise related to the issue
at hand (expert power), although referent power is also used. That is, in addition to facts and figures,
people have to believe in the leader’s credibility.

1. Use rational persuasion.

2. Help people like you.

3. Rely on the rule of reciprocity.

Greater
influence

4. Develop allies.

5. Be assertive – ask for what you want.

6. Make use of higher authority.

Leader

2 Help people to like you. People would rather say yes to someone they like than to someone they
don’t. Effective leaders strive to create goodwill and favourable impressions. When a leader shows
consideration and respect, treats people fairly and demonstrates trust in others, people are more likely
to want to help and support the leader by doing what he or she asks. In addition, most people like a
leader who makes them feel good about themselves, so leaders should never underestimate the power
of praise.

3 Rely on the rule of reciprocity. Leaders can influence others through the exchange of benefits and
favours. Leaders share what they have – whether it is time, resources, services or emotional support.
The feeling among people is nearly universal that others should be paid back for what they do, in one
form or another. This unwritten ‘rule of reciprocity’ means that leaders who do favours for others can
expect that others will do favours for them in return.71

4 Develop allies. Effective leaders develop networks of allies – people who can help the leader accomplish
his or her goals. Leaders talk with followers and others outside of formal meetings to understand their

exhibit 15.12 Six
interpersonal influence
tactics for leaders

Samson, Danny, and Richard L. Daft. Management : Asia Pacific, Cengage Learning Australia, 2014. ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/latrobe/detail.action?docID=1991004.
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part f i v e : L ead ing634

needs and concerns as well as to explain problems and describe the leader’s point of view. They strive
to reach a meeting of minds with others about the best approach to a problem or decision.72

5 Ask for what you want. Another way to influence others is to make a direct and personal request.
Leaders have to be explicit about what they want, or they aren’t likely to get it. An explicit proposal
is sometimes accepted simply because others have no better alternative. Also, a clear proposal or
alternative will often receive support if other options are less well defined.

6 Make use of higher authority. Sometimes to get things done leaders have to use their formal
authority, as well as gain the support of people at higher levels to back them up. However, research
has found that the key to successful use of formal authority is to be knowledgeable, credible and
trustworthy – that is, to demonstrate expert and referent power as well as legitimate power. Managers
who become known for their expertise, who are honest and straightforward with others, and who
inspire trust can exert greater influence than those who simply issue orders.73

Research indicates that people rate leaders as ‘more effective’ when they are perceived to use a variety
of influence tactics. But not all managers use influence in the same way. Studies have found that leaders
in human resources, for example, tend to use softer, more subtle approaches such as building goodwill,
using favours and developing allies, whereas those in finance are inclined to use harder, more direct tactics
such as formal authority and assertiveness.74

➜ Power is the potential ability to
influence the behaviour of others.

➜ All leaders use power to influence
people and accomplish organisational
goals.

➜ Influence is the effect a person’s
actions have on the attitudes, values,
beliefs or behaviour of others.

➜ Legitimate power is power that stems
from a manager’s formal position in
an organisation and the authority
granted by that position.

➜ Reward power results from the
authority to bestow rewards.

➜ Coercive power stems from the
authority to punish or recommend
punishment.

➜ Expert power is power that results
from a leader’s special knowledge
or skill in the tasks performed by
subordinates.

➜ Referent power results from
characteristics that command
subordinates’ identification with,

respect and admiration for, and
desire to emulate the leader.

➜ Both leaders and followers can
tap into other sources of power,
including personal effort, networks of
relationships and access to or control
over information.

➜ Leaders use a wide range of
interpersonal influence tactics, and
people who use a wider variety of
tactics are typically perceived as
having greater power.

reMeMber
this

ConTemporary leaders
Local leaders in Australia, New Zealand and Asia are not dissimilar from those in Europe and
North America. In the US, great leaders include Jack Welch, who has been referred to at various points
in this textbook. Welch powered the global giant GE from being a solid and sound manufacturing
company into a dynamic and extremely productive and profitable company. The company has
diversified, taking its capabilities and disciplines from manufacturing businesses into GE Financial
Services. This group is now GE Money, one of the world’s most successful credit card and financial
services operators. Welch was a massively successful but older-style leader, and is now retired from
the stable company (GE) that he ran.

Samson, Danny, and Richard L. Daft. Management : Asia Pacific, Cengage Learning Australia, 2014. ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/latrobe/detail.action?docID=1991004.
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1 5 : L EAD ING IN ORGAN ISAT IONS 635

Contrast that with a new group of much younger leaders, such as Google executive chairman and
former CEO Eric Schmidt, who knows that speed and change are the essence of the company’s success.
Google has been massively successful since its IPO (Initial Public Offering, meaning its launch on the
share market) in mid 2004, with its stock price essentially doubling, and revenue growth that is dazzling.
Against longer-established giant competitors such as Microsoft, Yahoo! and Amazon, Google is winning
the Internet search and related advertising game. When they founded Google, Larry Page and Sergey
Brin were both in their early thirties, and realised they needed experience to bring the company to a large
and successful scale, so they brought in the then 48-year-old Schmidt. From its beginning in a Stanford
University dormitory room, only six years before its huge float, Google has achieved great fame, and
now has a substantial revenue stream from advertising. Google employs over 46 000 people worldwide,
including some 4900 ‘techies’.75 The leadership task is substantial. Google provides its employees with
three free meals each day and free laundry and banking services, which is unheard of in most companies.
Page, Brin and Schmidt have brought together just the right combination of technological ‘edge’ with
business acumen and a culture of high quality and entrepreneurial innovation.76 In December 2004,
Google was worth US$45 billion in total; by December 2013, this figure had grown to a market
capitalisation of US$345 billion:77 not bad from an idea started by a couple of university students!
Google’s empire includes YouTube, DoubleClick, On2 Technologies, Motorola Mobility, Google Voice
and AdMob, among others. Facebook, also started by a university student (Mark Zuckerberg), was
recently valued at $120 billion.78

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Ta
ny

a M
on

ro The ‘new breed’ of
leader in Australian
industry includes Denise
Goldsworthy (Rio Tinto at
left) and Tanya
Monro (IPAS).

New CEOs in the past several years have included:

●● Sally MacDonald, who successfully assumed the top job as CEO of Oroton Group for seven years,
beginning at age 37, and is now the Managing Director and founder of Antipodean Group. With
a Commerce degree from the University of Melbourne and a Harvard MBA, Sally moved from
management consulting to a career in consumer goods leadership.

●● Stuart Crosby, of Computershare, who worked extensively in this and other businesses in
New Zealand, Hong Kong and Australia.

●● Denise Goldsworthy, Rio Tinto, Managing Director of two of Rio Tinto’s subsidiary companies,
Dampier Salt (DSL) and HIsmelt, is responsible for more than 500 employees and a large global
customer base. Since Denise’s appointment to DSL, the world’s leading exporter of solar salt, record
earnings of US$129 million were posted in 2009. In her role as MD of HIsmelt, she is responsible for

Samson, Danny, and Richard L. Daft. Management : Asia Pacific, Cengage Learning Australia, 2014. ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/latrobe/detail.action?docID=1991004.
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part f i v e : L ead ing636

the marketing of HIsmelt iron-making technology. Denise attributes her success to her style of leading
and motivating her management team (see http://www.telstrabusinesswomensawards.com/
award-winners/past-winners/2010/national-238.aspx).

●● Inaki Berroeta, CEO of Vodafone Australia, who was formerly chief executive of Vodafone Romania
and before that head of Vodafone Malta.79

●● Nicole Hollows, who moved to the position of CEO of Macarthur Coal at age 36, entering as CEO
into a previously ‘man’s world’ of mining at a very young age. She has since moved on to become
Managing Director of AMCI Australia and SE Asia.

●● Marius Kloppers of BHP Billiton, who, at age 45, began running the world’s biggest mining
company, stepping down from the role in 2013 to be replaced by Scottish businessman
Andrew Mackenzie.

●● Mike Smith, appointed at age 50 to the top job at ANZ Bank, who as CEO needed to fill the
big shoes of John McFarlane who retired from a very successful period of culture revitalisation of
that bank.80

●● Paul Zahra of David Jones, appointed with the task of rebuilding the company’s image after it was
tainted by the resignation of the previous CEO in distasteful circumstances (accusations of sexual
harassment of an employee).

●● Howard Goldberg, CEO of Country Road, aiming to drive growth into this lifestyle brand and
reinvigorate its market offerings (http://www.countryroad.com.au).

●● Tanya Monro, Director of the Institute for Photonics & Advanced Sensing (IPAS), is a
recognised leader of the international scientific community who has been responsible for
breakthroughs in optical fibre research. In 2005 she founded the Centre of Expertise in

Photonics as a collaborative venture between the University of Adelaide and
DSTO, and the success of this centre led to the creation of the Institute for
Photonics & Advanced Sensing (IPAS), which brings together 130 physicists,
chemists and biologists to tackle the big questions in sensing technologies
(see http://www.telstrabusinesswomensawards.com/award-winners/
past-winners/2010/national-238.aspx).

These CEOs have one major new factor in common that may not have been present
in previous generations, and it is essentially a prerequisite for such a high level leadership
job these days: substantial international experience and a global orientation.81 In all markets
and supply chains, any CEO who is not constantly taking a global view of challenges and
opportunities is doomed to fail, and executive search firms and boards see international
business management experience as a necessary requirement for a CEO these days.

Rosabeth Moss Kanter’s book on leadership points to the confluence of factors
that make for success in both sporting teams and business teams, citing the factors
of accountability, collaboration and initiative, as well as acting on mistakes and
being able to deal effectively with adversity – as have all the above-mentioned chief
executives.82 To this we would add the characteristics that make for a great leader
of being able to:

●● set vision and strategy

●● communicate/inspire

Maile Carnegie was
appointed Managing

Director of Google
Australia and New Zealand

in July 2013. Carnegie
had previously been with

Procter & Gamble for
21 years. She joined P&G

straight out of university
and spent three years as
its Australian managing

director and many years as
marketing and commercial

director in the US head
office. Carnegie has

described how she learned
from mistakes made early

in her leadership career
and has realised that

exceptional leaders manage
both short- and long-term

results. As a leader, she
has focused on change

innovation in Australia.

So
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: A

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Samson, Danny, and Richard L. Daft. Management : Asia Pacific, Cengage Learning Australia, 2014. ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/latrobe/detail.action?docID=1991004.
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1 5 : L EAD ING IN ORGAN ISAT IONS 637

●● have complete integrity

●● be tough and performance oriented

●● be and act humble: the leader as servant

●● care personally and be empathetic (for
example, for staff)

●● be knowledge focused

●● use energy and passion

●● be smart (IQ), meaning be able to deal with
complexity

●● be agile/flexible

●● always be customer oriented/focused.

Leadership is a set of behaviours that can be demonstrated at any level in an organisation in any
industry or profession, and not just by the chief executive, but hopefully as encouraged by him or her in
each and every employee.

Janine Allis is founder
and Managing Director
of Boost Juice, which she
built from a start-up
idea in her home. A true
entrepreneur, she has
achieved remarkable
growth in this health-
oriented business, at a
profit, on an international
basis, while also managing
to raise a family of four
children. Her recent new
business venture is in
healthy Mexican food,
called Salsa’s Fresh Mex
Grill.

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new Manager self-test

W h AT I S T h E I m pA c T O f L E A D E R S h I p ?

What are your beliefs and understandings about how top leaders influence organisational performance. To learn about your
beliefs, please answer whether each item below is Mostly true or Mostly false based on your personal beliefs.

Mostly true Mostly false

1 The quality of leadership is the most important influence on the performance of an organisation.
2 People in top-level leadership positions have the power to make or break an organisation.
3 Most activities in an organisation have little to do with the decisions or activities of the top leaders.
4 Even in a bad economy, a good leader can prevent a company from doing poorly.
5 A company cannot do well unless it has high quality leadership at the top.
6 High-quality versus low-quality leadership has a bigger impact on a firm’s performance than does

the business environment.
7 Poor organisational performance is often due to factors beyond the control of even the best leaders.
8 Eventually, bad leadership at the top will trigger poor organisational performance.
9 Leaders typically should not be held responsible for a firm’s poor performance.

interpretation: This scale is about the ‘romance’ of leadership,
which is the romantic view that leaders are very responsible
for organisational performance, while ignoring other factors
such as economic conditions. Company performance is difficult
to control and is an outcome of complex forces. Attributing
too much responsibility to leaders is a simplification shaped
by our own mental construction more than by the reality and
complexity of organisational performance. Top leaders are not
heroes, but they are important as one of several key factors that
can shape organisational performance.

scoring: Give yourself 1 point for each item 1, 2, 4, 5, 6 and
8 marked as Mostly true and each item 3, 7 and 9 marked as
Mostly false. A score of 7 or higher suggests a belief in the
romance of leadership – that leaders have more control over
performance outcomes than is actually the case. If you scored
3 or less, you may underestimate the impact of top leaders,
a somewhat sceptical view. A score of 4 to 6 suggests a
balanced view of leadership.

Samson, Danny, and Richard L. Daft. Management : Asia Pacific, Cengage Learning Australia, 2014. ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/latrobe/detail.action?docID=1991004.
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part f i v e : L ead ing638

leadership of susTainable developmenT
If there is one thing that will stop a new initiative or approach stone cold, it is if senior leaders in an
organisation do not ‘talk the talk’ and ‘walk the walk’. The energy, enthusiasm, role modelling and some
resources to get things going are necessary for essentially any new initiative, including sustainable
development. All staff at some point look to their ‘bosses’ to get guidance as to what behaviours and
procedures are and are not to be implemented. People will be encouraged to save water, paper and energy
if they see their organisation’s leaders doing so, and will be immediately ‘turned off’ if they see leaders
not role modelling these activities.

In respect of external stakeholder relationships and the empowerment of those stakeholders, only
senior leaders such as board members, chief executives and general managers can usually initiate and
authorise such activities. Moreover, the cultural aspects of sustainable development, meaning the
sustainability orientation (see Chapter 5), becomes a state of mind that is set in place by the organisation’s
leaders, and will not take hold or remain if it is not so led.

The strategic aspect of sustainable development, namely the intent to pursue sustainability strategy and
the work to broaden the vision and measures of success for the organisation, needs to be authorised from
the top of the organisation. Leaders then can use these tools of management, meaning goals, measures,
objectives and plans, to do the leadership work of influencing their staff and external stakeholders to move
up the ‘sustainability maturity’ curve.

Coca-Cola has embraced sustainable development through a CEO-led set of initiatives. The company
has set in place stringent improvement initiatives in almost all of its functions and activities. This includes
in improving the environmental impact of the materials it uses, recycling packaging, and in its community
relations and support activities. Similarly, Toyota has taken the global lead in improving fuel efficiency
of motoring by offering its hybrid Synergy Drive engines, which are approximately twice as fuel efficient
as conventional engines, through much of its vehicle range. These companies invest large amounts of
resources in such initiatives, and are led by people who believe such strategies are good business. These
leaders are taking a long-term view on their business and the environment in which they operate. They
recognise that stakeholder engagement – achieved by advances in ‘doing the right thing’ – is ultimately of
critical importance. Such leadership comes from the application of moral and servant leadership concepts.

in class: Sit with a student partner and explain your scores
to each other. What are your beliefs about leadership? What is
the basis for your beliefs? The instructor can ask for a show of
hands concerning the number of high, medium and low scores
on the questionnaire. Discuss the following questions: Do you
believe that presidents, top executives and heads of non-profit
organisations act alone and hence are largely responsible for

performance? What is the evidence for this belief? What other
forces will affect an organisation? What is a realistic view of
top leader influence in a large organisation?

Source: Adapted from Birgit Schyns, James R. Meindl and Marcel A. Croon.
(2007). The Romance of Leadership Scale: Cross-Cultural Testing and Refinement.

Leadership, 3:1, 29–46.

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Samson, Danny, and Richard L. Daft. Management : Asia Pacific, Cengage Learning Australia, 2014. ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/latrobe/detail.action?docID=1991004.
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1 5 : L EAD ING IN ORGAN ISAT IONS

Jess Moore, who was introduced earlier in this chapter,
showed very strong leadership in his efforts to turn around
the ICI Botany site from one where employees were totally
misaligned with the business needs and goals to one in
which common goals and strategies were implemented.
He started with a high level of communication about the
imperative to improve the plant’s performance, and of the
benefits to all of doing this. At one point, he invited all
the plant operators to move from their award-based wage
system to become staff members on salary. This structural
change removed the incentive for plant operators to
create overtime, as salaries were fixed and had reasonable
overtime allowances built in. Productivity and service
levels to customers started to improve. There was a great
deal of resistance to these major changes, and Jess had to
weather a six-week-long strike at the plant, including acts
of violence and even death threats. During this difficult
time of change, support from his head office waned at
times, and Jess and his management team needed to have
and display large amounts of personal courage to stay
the course of their convictions and revitalise the whole
culture and way of working at Botany. The outcome was
a tremendous achievement in turning a troubled and
unproductive workplace into a competitive and positive

culture. The very same workers who used to spend their
time looking to do the minimum possible during their
work shift so as to maximise the opportunity for overtime
(which sometimes meant letting plants and equipment
get into mechanical trouble) became proud champions
of the performance improvements. Some plants, such as
the polythene (plastic sheet) plant, achieved productivity
improvements of more than 500 per cent once the system
and attitudes of the workforce were turned around. Jess
Moore and his small team of managers were breakthrough
leaders in the way that they combated fierce tradition and
resistance, achieving benefits for all stakeholders, including
workers, customers, managers and the company’s
shareholders. The biggest challenge ultimately proved
to be environmental: the ongoing cost of cleaning up
the environmental disaster that came from decades of
previously poor leadership and management, when toxic
chemicals were poured into the ground and into drains, is
proving to be monumental. ICI who operated this site, now
called Orica, is spending hundreds of millions of dollars,
cleaning up the sins of its past. The company now has a
highly enlightened leadership and ‘top shelf’ approach to
all aspects of sustainability, but is still somewhat burdened
by the legacy of its (distant) past poor leadership record.

response
to the

ManageMent
challenge

1 Suggest some personal traits that you believe would be useful to

a business leader today. Are these traits more valuable in some

situations than in others? How do you think traits differ from

strengths?

2 In studies where people were asked what they wanted from leaders

versus followers, people have indicated they wanted a higher maturity

level for followers. What might account for this?

3 If a male manager changes his behaviours to incorporate elements of

interactive leadership more common to female managers, can he still

be an ‘authentic’ leader? Discuss.

4 Suggest the sources of power that would be available to a leader of

a university’s student organisation. What sources of power may not

be available? To be effective, should student leaders keep power to

themselves or delegate power to other students?

5 What skills and abilities does a manager need to lead effectively in

a virtual environment? Do you believe a leader with a consideration

style or an initiating-structure style would be more successful as a

virtual leader? Explain your answer.

6 What is transformational leadership?

Give examples of organisational

situations that would call for transformational,

transactional or charismatic leadership.

7 How does Level 5 leadership differ from the concept of

servant leadership? Do you believe anyone has the potential

to become a Level 5 leader? Discuss.

8 Why do you think so little attention is given to followership compared

to leadership in organisations? Discuss how the role of an effective

follower is similar to that of a leader.

9 Do you think leadership is more important or less important in today’s

flatter, team-based organisations?

10 Are some leadership styles better suited to such organisations as

opposed to traditional hierarchical organisations?

Explain.

11 Consider the leadership position of a senior partner in a law firm.

What task, subordinate, and organisational factors might serve as

substitutes for leadership in this situation?

DisCussion
questions

639

Samson, Danny, and Richard L. Daft. Management : Asia Pacific, Cengage Learning Australia, 2014. ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/latrobe/detail.action?docID=1991004.
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part f i v e : L ead ing640

Paula Smith has just been offered the

opportunity of a lifetime. The chairman of

the board of Resitronic Company has called to

ask her to take the job as director of the troubled

audio equipment manufacturing subsidiary. The first

question Smith asked was: ‘Will the board give me the

autonomy to turn this company around?’ The answer was yes.

Resitronic’s problems were so severe that the board was desperate for

change and ready to give Smith whatever it took to save the company.

Smith knows that cost cutting is the first place she needs

to focus. Labour expenses are too high, and product quality and

production times are below industry standards. She sees that labour

and management at Resitronic are two armed camps, but she needs

cooperation at all levels to achieve a turnaround. Smith is energised.

She knows she finally has the autonomy to try out her theories about

an empowered workforce. Smith knows she must ask managers and

workers to take a serious pay cut, with the promise of incentives to

share in any improvements they might make. She also knows that

everyone will be looking at her own salary as an indication of whether

she walks her talk.

Smith is torn. She realises she faces a year or two of complete hell,

with long hours, little time for her family or outside interests, bitter

resistance in employees and no guarantees of success. Even if she comes

in at the current director’s salary, she will be taking a cut in pay. But if

she takes a bigger cut coming in, with the promise of bonuses and share

options tied to her own performance, she sends a strong message to the

entire subsidiary that they rise or fall together. She wonders what might

happen if she fails. Many influences on the audio equipment subsidiary

are beyond her control. Resitronic itself is in trouble. From her current

vantage point, Smith believes she can turn things around, but what will

she discover when she gets inside? What if the board undercuts her?

Doesn’t she owe it to herself and her family to be compensated at the

highest possible level for the stress and risk they will be enduring? Can

she afford to risk her own security to send a message of commitment to

the plan she is asking others to follow?

WhAt do you do?

1 Take the same salary as the current director for one year. Circulate the

information that although you are taking a cut to come to Resitronic,

you are confident that you can make a difference. Build in pay

incentive bonuses for the following years if the subsidiary succeeds.

2 Take a bigger cut in pay with generous incentive bonuses. Ask the

board and the entire workforce to do the same. Open the books and let

the whole company know exactly where they stand.

3 Ask for the same salary you are making now. You know you are

going to be worth it, and you don’t want to ask your family to suffer

monetarily as well as in their quality of life during this transition.

d o e s wa g e r e f o r m s Ta r T aT T h e T o p ?
ethiCal

Challenge

step 1. Think about one situation in which

a leader was effective at motivating people, and

another situation in which a leader was ineffective,

perhaps demotivating people. When you have these

situations firmly in mind, answer the following questions:

1 What source or type of power was used by the effective

leader? The ineffective

leader?

2 Did the effective leader emphasise a task-oriented or relationship-

oriented style? Explain your rating. What about the ineffective leader?

3 Did the effective leader come across as a humble person serving

others or something larger than him- or herself, or did the leader

seem ego-centred and self-serving? What about the ineffective

leader?

step 2. Divide into groups of three to five students. Compare your

answers and look for patterns that distinguish effective from ineffective

leaders across your group members’ experiences. What patterns do

you find?

step 3. Each group member should describe the leadership situation,

with respect to its ‘favourability’ or ‘readiness of followers’. What

relationship do you observe between the leadership situations and the

style that the leader used?

step 4. Prepare to present your findings to the class and to participate

in a discussion led by your instructor.

w h i C h l e a d e r s h i p s T y l e s a r e m o r e e f f e C T i v e ?
group

Challenge

When DGL International, a manufacturer

of refinery equipment, brought in John

Terrill to manage its technical services division,

company executives informed him of the urgent

situation. Technical services, with 20 engineers, was the

highest-paid, best-educated and least productive division

in the company. The instruction to Terrill: turn it around. Terrill called

a meeting of the engineers. He showed great concern for their personal

welfare and asked point blank: ‘What’s the problem? Why can’t we

produce? Why does this division have such turnover?’

Without hesitation, employees launched a hail of complaints. ‘I was

hired as an engineer, not a pencil pusher’, and ‘We spend over half our

d g l i n T e r n aT i o n a l

Case for
Cr itiCal
analysis

Case for
Cr itiCal
analysis
Samson, Danny, and Richard L. Daft. Management : Asia Pacific, Cengage Learning Australia, 2014. ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/latrobe/detail.action?docID=1991004.
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1 5 : L EAD ING IN ORGAN ISAT IONS 641

time writing asinine reports in triplicate for top management, and no one

reads the reports’.

After a two-hour discussion, Terrill concluded he had to get top

management off the engineers’ backs. He promised the engineers, ‘My

job is to stay out of your way so you can do your work, and I’ll try to keep

top management off your backs, too.’ He called for the day’s reports

and issued an order effective immediately that the originals be turned in

daily to his office rather than mailed to headquarters. For three weeks,

technical reports piled up on his desk. By month’s end, the stack was

nearly a metre high. During that time no one called for the reports. When

other managers entered his office and saw the stack, they usually asked,

‘What’s all this?’ Terrill answered: ‘Technical reports’. No one asked to

read them.

Finally, at month’s end, a secretary from finance called and asked for

the monthly travel and expense report. Terrill responded, ‘Meet me in the

president’s office tomorrow morning.’

The next morning the engineers cheered as Terrill walked through

the department pushing a cart loaded with the enormous stack of reports.

They knew the showdown had come.

Terrill entered the CEO’s office and placed the stack of reports on his

desk. The CEO and the other senior executives looked bewildered.

‘This,’ Terrill announced, ‘is the reason for the lack of productivity

in the technical services division. These are the reports you people

require every month. The fact that they sat on my desk all month

shows that no one reads this material. I suggest that the engineers’

time could be used in a more productive manner, and that one

brief monthly report from my office will satisfy the needs of other

departments.’

Questions

1 What leadership style did John Terrill use? What do you think was his

primary source of power?

2 Based on the Hersey–Blanchard theory, described on p. 616 of this

chapter, should Terrill have been less participative? Should he have

initiated more task structure for the engineers? Explain.

3 What leadership approach would you have taken in this situation?

Questions

1 Does Camp Bow Wow CEO Heidi Ganahl possess qualities associated

with contemporary leadership?

2 In what way is Ganahl’s leadership charismatic and visionary? Give

examples.

3 Where does Ganahl’s leadership fall on the Leadership

Grid discussed in the chapter and illustrated in Exhibit 15.6?

Explain.

on the job
viDeo Case

C a m p b o w w o w : l e a d e r s h i p

1 Buchanan, L. (April 2004). Pat McGovern . . . For Knowing the Power of
Respect. 25 Entrepreneurs We Love. Inc Magazine, 110–47; Warner, M.
(4 September 2000). Confessions of a Control Freak. Fortune, 130–40.

2 Gary Yukl. (1989). Managerial Leadership: A Review of Theory and
Research. Journal of Management 15, 251–89.

3 James M. Kouzes and Barry Z. Posner. (January 1990). The Credibility Factor:
What Followers Expect from Their Leaders. Management Review, 29–33.

4 Jim Collins. (January 2001). Level 5 Leadership: The Triumph of Humility
and Fierce Resolve. Harvard Business Review, 67–76; Jim Collins. (October
2001). Good to Great. Fast Company, 90–104; A. J. Vogl. (September–
October 2001). Onward and Upward (an interview with Jim Collins).
Across the Board, 29–34; and Jerry Useem. (19 February 2001). Conquering
Vertical Limits. Fortune, 84–96.

5 Jim Collins. (January 2011). Enduring Greatness. Leadership Excellence, 8.
6 Collins. Level 5 Leadership.
7 Quoted in William J. Holstein. (8 May 2005). The View’s Still Great from

the Corner Office. The New York Times.
8 Richard L. Daft and Robert H. Lengel. (1998). Fusion Leadership: Unlocking

the Subtle Forces That Change People and Organizations (San Francisco:
Berrett-Koehler).

9 Leigh Buchanan. (May 2007). In Praise
of Selflessness: Why the Best Leaders Are
Servants. Inc., 33–5.

10 Robert K. Greenleaf. (1977). Servant Leadership: A
Journey into the Nature of Legitimate Power and Greatness
(Mahwah, NJ: Paulist Press).

11 (30 October 2006). Not Her Father’s Chief Executive (an
interview with Marilyn Carlson Nelson). U.S. News & World Report,
64–5.

12 (16 April 2009). Maersk Alabama Crew Recalls Pirate Attack. USA Today,
http://www.usatoday.com/news/nation/2009-04-16-pirates_N.htm (accessed
30 April 2009); Stacy Meichtry, Arian Campo-Flores and Leslie Scism.
(17 January 2012). Cruise Company Blames Captain. The Wall Street
Journal, http://online.wsj.com/article/SB1000142405297020373530457716
5290656739300.html (accessed 20 January 2012); (23 March 2012). Death
Toll of Italy’s Costa Concordia Wreck Rises to 30. Philippine Star, http://
www.philstar.com/article.aspx?articleid=790169&publicationsubcategory
id=200 (accessed 14 September 2012).

13 Adam Bluestein. (May 2011). Start a Company. Change the World.
Inc., 71–80.

enDnotes

For a real-world application of the management theories described in this chapter, log on to CourseMate to watch the On the

Job video and answer the following questions.

Samson, Danny, and Richard L. Daft. Management : Asia Pacific, Cengage Learning Australia, 2014. ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/latrobe/detail.action?docID=1991004.
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part f i v e : L ead ing642

14 Bill George. (2003). Authentic Leadership: Rediscovering the Secrets to
Lasting Value (San Francisco: Jossey-Bass); Bill George. (22 October
2006). Truly Authentic Leadership. Special Report: America’s Best
Leaders. U.S. News & World Report, http://www.usnews.com/usnews/news/
articles/061022/30authentic.htm (accessed 5 October 2010).

15 Judy B. Rosener. (1995). America’s Competitive Secret: Utilizing Women as a
Management Strategy (New York: Oxford University Press), pp. 129–35.

16 Alice H. Eagly and Linda L. Carli. (2003). The Female Leadership
Advantage: An Evaluation of the Evidence. The Leadership Quarterly,
14, 807–34; Rosener, America’s Competitive Secret; Judy B. Rosener.
(November–December 1990). Ways Women Lead. Harvard Business Review,
119–25; Sally Helgesen. (1990). The Female Advantage: Women’s Ways of
Leadership (New York: Currency/Doubleday); Bernard M. Bass and Bruce
J. Avolio. (Winter 1994). Shatter the Glass Ceiling: Women May Make
Better Managers. Human Resource Management, 33:4, 549–60; and Carol
Kinsey Goman. (10 August 2011). What Men Can Learn from Women
about Leadership in the 21st Century. The Washington Post, http://www
.washingtonpost.com/national/on-leadership/what-men-can-learn-from-
womenabout-leadership/2011/08/10/gIQA4J9n6I_story.html (accessed
12 September 2012).

17 Rochelle Sharpe. (20 November 2000). As Leaders, Women Rule.
BusinessWeek, 75–84.

18 Kevin S. Groves. (2005). Gender Differences in Social and Emotional
Skills and Charismatic Leadership. Journal of Leadership and Organizational
Studies, 11:3, 30ff.

19 Jack Zenger and Joseph Folkman. (15 March 2012). Are Women Better
Leaders Than Men? HBR Blog Network. Harvard Business Review,
http://blogs.hbr.org/cs/2012/03/a_study_in_leadership_women_do.html
(accessed 12 September 2012); and Herminia Ibarra and Otilia Obodaru.
(January 2009). Women and the Vision Thing. Harvard Business
Review, 62–70.

20 Susan Carey. (14 August 2007). More Women Take Flight in Airline
Operations. The Wall Street Journal, B1; and Ann Therese Palmer.
(24 December 2006). Teacher Learns All About Airline; United VP Began as
Reservations Clerk, Rose Through Ranks. Chicago Tribune, 3.

21 Leigh Buchanan. (April 2004). Pat McGovern . . . For Knowing the Power of
Respect. Segment in 25 Entrepreneurs We Love. Inc., 110–47.

22 This analogy is from Gordon P. Rabey. (2010). Leadership Is Response: A
Paper for Discussion. Industrial and Commercial Training, 42:2, 87–92.

23 This discussion is based on Philip A. Dover and Udo Dierk. (2010). The
Ambidextrous Organization: Integrating Managers, Entrepreneurs, and
Leaders. Journal of Business Strategy, 31:5, 49–58; Gary Yukl and Richard
Lepsinger. (2005). Why Integrating the Leading and Managing Roles Is
Essential for Organizational Effectiveness. Organizational Dynamics, 34:4,
361–75; and Henry Mintzberg. (2009). Managing (San Francisco:
Berrett-Kohler Publishers).

24 Nancy F. Koehn. (1 April 2012). The Driver in Ford’s Amazing Race. The
New York Times, BU.1.

25 G. A. Yukl. (1981). Leadership in Organizations (Englewood Cliffs, NJ:
Prentice Hall); and S. C. Kohs and K. W. Irle. (1920). Prophesying Army
Promotion. Journal of Applied Psychology, 4, 73–87.

26 R. Albanese and D. D. Van Fleet. (1983). Organizational Behavior:
A Managerial Viewpoint (Hinsdale, IL: The Dryden Press); and S. A.
Kirkpatrick and E. A. Locke. (1991). Leadership: Do Traits Matter? Academy
of Management Executive, 5:2, 48–60.

27 A summary of various studies and surveys is reported in Del Jones.
(15 December 2005) Optimism Puts Rose-Colored Tint in Glasses of Top
Execs. USA Today.

28 Annie Murphy Paul. (November–December 2011). The Uses and Abuses of
Optimism (and Pessimism). Psychology Today, 56–63.

29 Tom Rath and Barry Conchie. (2009). Strengths Based Leadership (Gallup
Press); Marcus Buckingham and Donald O. Clifton. (2001). Now, Discover
Your Strengths (New York: The Free Press), p. 12.

30 Buckingham and Clifton, Now, Discover Your Strengths.
31 Gary Yukl, Angela Gordon and Tom Taber. (2002). A Hierarchical Taxonomy

of Leadership Behavior: Integrating a Half Century of Behavior Research.
Journal of Leadership and Organizational Studies, 9:1, 13–32.

32 C. A. Schriesheim and B. J. Bird. (1979). Contributions of the Ohio State
Studies to the Field of Leadership. Journal of Management, 5, 135–45; C. L.
Shartle. (1979). Early Years of the Ohio State University Leadership Studies.
Journal of Management, 5, 126–34; and R. Likert. (1979). From Production-
and Employee-Centeredness to Systems 1–4. Journal of Management, 5,
147–56.

33 P. C. Nystrom. (1978). Managers and the High-High Leader Myth. Academy
of Management Journal, 21, 325–31; and L. L. Larson, J. G. Hunt and
Richard N. Osborn. (1976). The Great High-High Leader Behavior Myth:
A Lesson from Occam’s Razor. Academy of Management Journal, 19, 628–41.

34 R. Likert. From Production- and Employee-Centeredness to Systems 1–4.
35 Robert R. Blake and Jane S. Mouton. (1985). The Managerial Grid III

(Houston, TX: Gulf).
36 John Markoff. (5 June 2007). Competing as Software Goes to Web. The

New York Times, C1, C5.
37 This discussion is based on Paul Hersey and Ken Blanchard. (January 1996).

Revisiting the Life-Cycle Theory of Leadership. In Great Ideas Revisited.
Training & Development, 42–7; Kenneth H. Blanchard and Paul Hersey.
(January 1996). Life-Cycle Theory of Leadership. In Great Ideas Revisited.
Training & Development, 42–7; Paul Hersey. (February 2009). Situational
Leaders: Use the Model in Your Work. Leadership Excellence, 12; and Paul
Hersey and Kenneth H. Blanchard, (1982). Management of Organizational
Behavior: Utilizing Human Resources, 4th edn (Englewood Cliffs, NJ:
Prentice Hall). The concept of readiness comes from Hersey.
Situational Leaders.

38 Jennifer Robison. (10 January 2008). Many Paths to Engagement: How
Very Different Management Styles Get the Same Great Results at
Mars Incorporated. Gallup Management Journal, http://gmj.gallup.com/
content/103513/Many-Paths-Engagement.aspx (accessed 31 July 2010).

39 Andrew Ross Sorkin. Warren Buffett, Delegator in Chief. The New York
Times, http://www.nytimes.com/2011/04/24/weekinreview/24buffett.html
(accessed 14 September 2012).

40 Fred E. Fiedler. (1954). Assumed Similarity Measures as Predictors of Team
Effectiveness. Journal of Abnormal and Social Psychology, 49, 381–88;
F. E. Fiedler. (1958). Leader Attitudes and Group Effectiveness (Urbana, IL:
University of Illinois Press); and F. E. Fiedler. (1967). A Theory of Leadership
Effectiveness (New York: McGraw-Hill).

41 Fred E. Fiedler and M. M. Chemers. (1974). Leadership and Effective
Management (Glenview, IL: Scott, Foresman).

42 Reported in George Anders. (19 November 2007). Theory & Practice: Tough
CEOs Often Most Successful, a Study Finds. The Wall Street Journal.

43 Fred E. Fiedler. (1965). Engineer the Job to Fit the Manager. Harvard
Business Review, 43, 115–22; and F. E. Fiedler, M. M. Chemers and
L. Mahar. (1976). Improving Leadership Effectiveness: The Leader Match
Concept (New York: Wiley).

44 R. Singh. (1983). Leadership Style and Reward Allocation: Does Least
Preferred Coworker Scale Measure Tasks and Relation Orientation?
Organizational Behavior and Human Performance, 27, 178–97; and
D. Hosking. (1981). A Critical Evaluation of Fiedler’s Contingency
Hypotheses. Progress in Applied Psychology, 1, 103–54.

45 S. Kerr and J. M. Jermier. (1978). Substitutes for Leadership: Their Meaning
and Measurement. Organizational Behavior and Human Performance, 22,
375–403; and Jon P. Howell and Peter W. Dorfman. (1986). Leadership

Samson, Danny, and Richard L. Daft. Management : Asia Pacific, Cengage Learning Australia, 2014. ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/latrobe/detail.action?docID=1991004.
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10/20/2019 Indra Nooyi: Achieving Both Financial Growth And Purpose At

PepsiCo

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13,068 views | Nov 21, 2017, 03:14pm

Indra Nooyi: Achieving Both

Financial Growth And Purpose At

PepsiCo

Leadership

Dan Schawbel

Under 30

I spoke to Indra Nooyi, the Chairman and Chief Executive Officer of PepsiCo, about

how she’s been able to focus on both financial performance and purpose at PepsiCo,

her view on women in the workplace, how millennials have changed the role of the

CEO, the impact of technology on the workplace and her be

st

career advice.

Mrs. Nooyi is the chief architect of Performance with Purpose, PepsiCo’s pledge to d

what’s right for the business by being responsive to the needs of the world around us

As part of Performance with Purpose, PepsiCo is focusing on delivering sustained

PEPSICOIndra Nooyi

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growth by making healthier and more nutritious products, limiting their

environmental footprint and protecting the planet, and empowering their associates

and people in the communities they serve. Nooyi was recently recognized as one of

the inaugural “Heroes of Conscious Capitalism” at the annual CEO Summit along

with 27 other business leaders. She was recognized for her contribution toward

realizing a world in which business is both practiced and recognized as a force for

good.

In addition to being a member of the PepsiCo Board of Directors, Mrs. Nooyi serves

as a member of the boards of Schlumberger Limited, The Consumer Goods Forum,

Catalyst, Lincoln Center for the Performing Arts and Tsinghua University. She is also

a member of the Foundation Board of the World Economic Forum and the American

Academy of Arts & Sciences.

Dan Schawbel: What inspired you to focus on Performance with Purpose? Why is

important for leaders to inject purpose into their company culture?

Today In: Leadership

Indra Nooyi: When I became CEO in 2006, one of the fundamental beliefs I

brought to the role was that corporations don’t exist in a vacuum – we are a part of

every community where we do business. And I wanted to make sure that PepsiCo wa

not only delivering top-tier financial returns, but doing so in a way that was

responsive to the needs of the world around us. That’s the idea at the heart of

Performance with Purpose. In the beginning, a number of people were skeptical

about it. But today, Performance with Purpose is in our DNA, it’s a big part of what

attracts so many talented people to the company, and it’s helping fuel our success.

Schawbel: The recent Lean In and McKinsey survey on women in the workplace

shows that there are very few minority women in the c-suite. Why do you think this

happens and how did you break the glass ceiling while others have not?

Nooyi: I think there are a number of reasons. Some of them are related to the kinds

of policies and programs that are in place for supporting women of all backgrounds

and whether they’re effective. But I also think each of us – women and men alike –

need to be more supportive of women who have demonstrated talent and skill in the

jobs. Personally, I think a big reason I am where I am today is because of the suppor

I’ve gotten from my husband, Raj, and my former boss, Steve Reinemund, who

https://www.consciouscapitalism.org/blog/heroes-of-conscious-capitalism-2017-class

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https://womenintheworkplace.com/

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always believed in me and helped me overcome the barriers that can make it difficul

for so many women to achieve their potential. All of us women need strong support

systems to help us get where we want to go.

Schawbel: You recently talked about how millennials have changed the role of the

CEO. How does your focus on purpose align with the needs of the emerging

millennial leader?

Nooyi: Millennials make up nearly a quarter of the world’s population and they are

currently the largest demographic group in the United States, so we listen to what

they have to say. And what they’re saying is, they want companies to embrace a sens

of purpose. They want companies to do more than make money. They want us to

make a positive contribution to the world. And that’s part of what’s behind

Performance with Purpose – the idea that in the 21 century, being a great company

means being a good company, too.

Schawbel: Technology has made us hyperconnected yet the recent HBR cover story

shows that it’s also made us feel lonely and isolated. Can you talk about the impact

technology has had on you personally as you lead over 260,000 employees

worldwide?

Nooyi: On one hand, the digital revolution has made my job much easier.

Communicating with our associates around the world, getting real-time updates on

our operations in every country and every time zone, cultivating a global sense of

family and community that makes people proud to work at PepsiCo – that’s a huge

advantage of technology. On the other hand, technology presents unique challenges

that are forcing us to rethink the way we do business, such as the growth of

eCommerce. At the same time, the increasing pace of technological change also

requires us to constantly update our skills, to stay on top of emerging trends and new

technologies. And it’s my job to help our company navigate these challenges and

transform them into opportunities.

Schawbel: What are your top three pieces of career advice?

Nooyi:

1. Volunteer for the most difficult projects early in your career. Don’t settle for a

cushy, 9-5 existence. When you first enter a company, people should know you’ve

st

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Follow me on Twitter or LinkedIn. Check out my website.

I’m a partner and research director at Future Workplace, an executive development firm dedicate

to rethinking and reimagining the workplace. I also wrote the New York T… Read More

arrived.

2. Learn from everyone around you. Don’t talk too much. Listen, observe, read,

absorb. Recognize when you need help and don’t be afraid to ask.

3. Don’t get political. Don’t start talking about your next job. Just do the job you’ve

been given and do it exceedingly well. If you do that, everybody else will notice and

want you on their team.

Dan Schawbel

Tweets by DanSchawbel

http://linkedin.com/in/danschawbel

Home

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/

(http://sydney.edu.au/)
Sydney Environment Institute (http://sydney.edu.au/environment-institute)

Opinion

Greenwashing as a marketing tool
“First and foremost, the Australian laws protect the consumers against misleading
claims by brands. A marketing campaign must not overstate, directly or by implication,
attributes or benefits they don’t really have. Their campaign must not create confusion
through deceiving claims.” Mary Whitman explores the damaging impacts of using
greenwashing as a marketing tool.

Image by Lauri Rantala, via Flickr Commons.

By Mary Whitman, Writer
Published 12 July 2018

Australian Consumer Law (http://consumerlaw.gov.au/)protects the consumers against unfair
contract terms, unsafe products, lay-by agreements, and all kinds of unfair business practices.

As any other law, this one also has its flaws. Greenwashing, in particular, is a peculiar phenomenon
that’s been tricking consumer laws across the globe. Greenwashing is an unethical marketing
technique of making misleading and unsubstantiated claims about the environmental “friendliness”
of a product.

Given the fact that green living is a huge trend and people are getting more conscious about the
environment, brands from all industries are making effort to be eco-friendly. The problem is when
they aim to seem eco-friendly instead of aiming to be eco-friendly.

(htt
inst

http://sydney.edu.au/

http://sydney.edu.au/environment-institute

http://consumerlaw.gov.au/

http://sydney.edu.au/environment-institute/search

/

To illustrate this through an example: many banks claimed to be eco-friendly just because they
allowed the consumers to conduct their finances online. They claimed they were using less paper
and they were contributing towards the preservation of our environment. Still, they continued
lending money to coal mines and other dangerous emitters. Under the pressure of the community,
Australian banks started taking actual measures towards becoming carbon neutral only recently
(https://www.smh.com.au/business/banking-and-finance/green-is-the-new-black-for-australian-
banks-20151105-gkrj4o.html).

How does greenwashing work as a marketing tool? Why is it so common and why do people fall for
it? Is it a safe way to promote goods and services?

How Does Greenwashing Work?
We live in a society where ideas of sustainable development are taking the lead. We’ve been
damaging our planet for too long. Now, we have to suffer the consequences. If we don’t take any
action and we continue living this way, the existence of future generations will be endangered. The
facts are overwhelming, and an increasing number of people are getting interested in using less
plastic and other products that are harmful for the environment.

This is where businesses get into the picture. When the audience demands something, businesses
are falling all over themselves to deliver it. They are making huge efforts to demonstrate they are
environmentally conscious. They are spending huge resources on the campaign, hiring assignment
writers (https://www.assignmentgeek.com.au/) to produce content and marketing experts to
promote their eco-friendly ways. They spend more investment in the marketing process than on
actual attempts to contribute towards the preservation and restoration of our environment.

This is the most common greenwashing strategy: a company highlights an eco-friendly program or
policy, but the core of its business practices is not as sustainable as it seems.

Is It a Good Marketing Technique?
When a brand claims that its product or service is environmentally friendly, it will attract a larger
target audience. Yes; the green label will add appeal to a marketing campaign. Still, providing a claim
that is not rooted on actual practices is an unethical marketing technique that may lead to severe
consequences.

First and foremost, the Australian laws protect the consumers against misleading claims by brands.
A marketing campaign must not overstate, directly or by implication, attributes or benefits they
don’t really have. Their campaign must not create confusion through deceiving claims.

This unethical marketing practice is creating problems for the really eco-friendly brands, which are
usually smaller and locally-based manufacturers of goods and services. The BIO label is so
common and so abused in marketing, that the consumers no longer trust it.

Popular Greenwashing Examples: Proof that Even the Big Names Get Caught
Avon, a huge cosmetic corporation, is constantly highlighting its anti-animal testing policy, but they
still pay for animal testing (https://www.peta.org/action/action-alerts/avon-tests-on-animals/) to get
their products sold in China. Yes; many people will buy their products thinking they are less
damaging than other brands. But they will be tricked into believing they are doing something good
for the environment, when the reality is different. That is greenwashing at its worst.

Nestle also faced serious problems due to greenwashing. Many consumers are no longer faithful to
the brand once they realized they were misled with deceiving claims. The brand claims to be
sustainable, making continuous efforts to contribute to a healthier future and enhance the quality
of life. The marketing campaigns, however, never told us that Nestle was abusing community water

https://www.smh.com.au/business/banking-and-finance/green-is-the-new-black-for-australian-banks-20151105-gkrj4o.html

https://www.assignmentgeek.com.au/

https://www.peta.org/action/action-alerts/avon-tests-on-animals/

https://www.alternet.org/story/136117/communities_speak_out%3A_nestle%2C_stop_stealing_our_water

/

resources
(https://www.alternet.org/story/136117/communities_speak_out%3A_nestle%2C_stop_stealing…
in North America.

Australian consumers are no strangers to greenwashing techniques by local brands. Woodside has
been subjected to a lot of criticism because of the way it promotes its “sustainable development”
goals. When you see the photos of clean reefs and happy people at its website and on its
brochures, you can’t even assume this is an oil and gas company that’s directly responsible
(http://www.abc.net.au/news/2015-03-18/ten-companies-responsible-for-third-of-greenhouse-
gas-pollution/6330562) for third of Australia’s greenhouse gas pollution.

Avoid Greenwashing by Any Means
Remember: the green label tells only a part of the story. Yes; some policies of the brand may be
eco-friendly. However, you have to be sure you’re not being greenwashed into supporting a
company that actually does damage to the environment.

Look at the company as a whole. Don’t trust a single ad and search for more information about their
sustainable practices. Finally, you can use Google. Just search for the brand’s name and include the
keyword environment in your search. You’ll find enough resources to investigate. If you type Nestle
environment as a search term, for example, you’ll see both sides of the coin.

Always look at both sides of the coin! It’s the only way to buy goods and services without causing
damage to our planet!

Mary Whitman is a writer with a Master of Arts from The University of Adelaide. Mary works
focused on the environmental issues and Sustainable Development Goals. Now she works on the
research on social impacts of climate change in Australia.

https://www.alternet.org/story/136117/communities_speak_out%3A_nestle%2C_stop_stealing_our_water

http://www.abc.net.au/news/2015-03-18/ten-companies-responsible-for-third-of-greenhouse-gas-pollution/6330562

PERFORMANCE

WITH PURPOSE

Sustainability
Report 201

7

PepsiCo makes great-tasting, feel-good food and beverages — from treats to nutritious eats.
We’re committed to an approach to business that not only delivers top-tier financial returns, but one
that is responsive to the needs of the more than 200 countries and territories we serve around the
world. That commitment — reflected in a philosophy we call Performance with Purpose — is about
expanding our portfolio of more nutritious products, shrinking our environmental footprint as a
good global citizen and working to lift up people and families, from widening the circle of opportunity
to providing relief in times of need. We’re striving to advance sustainability and profitability
hand-in-hand — and we believe that in the 21st century, that’s more important than ever before.

Welcome

Our Approach

Products

Planet

People

Managing Impact

Welcome

COVER IMAGE
1 Tea leaves sourced for Pepsi

Lipton Tea Partnership (Jakarta,
Indonesia)

2 Tomatoes sourced for Alvalle
Gazpacho (Murcia, Spain)

3 Blueberries sourced for Naked
Juice (Pasco, Washington, U.S.)

4 Potatoes sourced for Lay’s products
(Camden, North Carolina, U.S.)

5 Coconuts sourced for Kero Coco
(São Mateus, Brazil)

6 Oranges sourced for Tropicana
Juice (Bradenton, Florida, U.S.)

7 Potatoes sourced for Lay’s
products (Mae Sot, Thailand)

8 Oats sourced for Quaker
products (Saskatchewan,
Canada)

1

2

4

5

8

7

6

3

Contents

OUR APPROACH
About PepsiCo

1

CEO Letter 2
Vice Chairman’s Q&A

4

2017 Financial performance 5
Our sustainability journey so far 6
Progress against our goals

7

PwP through our value chain 8
Sustainable Development Goals

9

PRODUCTS

10

Perspectives

11

Our strategy

12

Portfolio transformation in action

13

Innovation

14

Global action

15

Case study — Reformulation

16

PLANET

17

Perspectives

18

Our strategy

19

Agriculture 20

Climate 21
Packaging 22
Waste 23
Global action 24
Case study — Access to water 25

PEOPLE 26
Perspectives 27
Our strategy 28
Human rights 29
Economic growth for growers 30
Diversity and inclusion 31
Global action 32
Case study — Women
with Purpose 33

MANAGING IMPACT
GRI materiality topics
assessment process 34
GRI materiality topics
assessment results 35
Governance 36
More information 37

Our sustainability reporting suite comprises:

• This 2017 Sustainability Report summarizing key aspects
of the year’s performance

• 2017 PwP Performance Metrics sheet containing detailed
performance data against our 2025 goals for the past three years

• Online ‘A-Z Topics’ covering detailed information on
progress, programs, governance and management

ABOUT OUR REPORTING
This is our second year of reporting progress against
our Performance with Purpose (PwP) 2025 Agenda

.

PepsiCo Sustainability Report 2017

http://www.pepsico.com/sustainability/Sustainability-Reporting

http://www.pepsico.com/sustainability/A-Z-Topics

ABOUT PEPSICO

PERFORMANCE
WITH PURPOSE
is PepsiCo’s vision to deliver top-tier
financial performance by improving the
products we sell, operating responsibly
to protect our planet and empowering
people around the world.

THERE ARE MORE THAN

260,000
PepsiCo employees worldwide.

PEPSICO PRODUCTS ARE ENJOYED
BY CONSUMERS MORE THAN

1BILLION
times a day.

OUR PRODUCTS ARE SOLD IN

200+
countries and territories around the world.

PEPSICO HAS A PORTFOLIO OF

22 BILLION DOLLAR BRANDS
that generated more than $1 billion each in estimated annual retail
sales in 2017, spanning Beverages, Snacks and Nutrition.

Welcome Products Planet People Managing ImpactOur Approach

PepsiCo Sustainability Report 2017 1

LETTER FROM
INDRA NOOYI

Twelve years ago, we embarked
on a journey at PepsiCo that we
call Performance with Purpose.
Since then, much has changed —
at PepsiCo and around the world
— but the underlying principles
behind Performance with Purpose
remain the same.

We know we need to deliver the kind of
top-tier financial results our investors,
associates and all our stakeholders
expect. And we also know something else.
We know we need to do it with a sense of
purpose, a moral compass, guiding our way.

For me, and all of us at PepsiCo,
Performance with Purpose is — and always
has been — about the way we make money,
not the way we spend it. About who we are,
the character of our company.

We’ve tried to adhere to the idea of a social
contract once defined by British statesman
Edmund Burke as a partnership between the
living, those who’ve come before and those
yet to be born.

And that means managing PepsiCo with an
eye toward not only short-term priorities,
but long-term priorities, not only the level
of returns, but the level and duration of
returns, recognizing that our success —
and the success of the communities we
serve and the wider world — are
inextricably bound together.

Much of our early work on Performance with
Purpose required us to think differently
about our business and make the kinds of
long-term investments — from researching
and developing new, more nutritious
products, to finding ways to reduce water
and energy use across plants and farms —
that could help us deliver on the vision of
making our growth, our operations and our
impact more sustainable.

Our success — and
the success of the
communities we
serve and the wider
world — are inextricably
bound together.”

Our aspiration of creating
a good company —
good ethically and good
commercially — is
now coming to fruition,
yielding a broader,
more lasting impact
than we ever imagined.’’

Products Planet People Managing ImpactWelcome Our Approach

PepsiCo Sustainability Report 20172

Sustainability has been defined as “meeting the
needs of the present without compromising
the ability of future generations to meet their
own needs.” Over the last dozen years, we’ve tried
to meet the needs of the present while strengthening
the ability of future generations to meet theirs,
integrating that aspiration into our goals for what we
originally called Human Sustainability, Environmental
Sustainability and Talent Sustainability — today
known as Products, Planet and People:

PRODUCTS
We’ve built on our legacy as the first company
to voluntarily remove trans fat from our snacks by
reducing added sugars, sodium and saturated fat
in our products, launching a revolutionary nutrition-
focused vending option, Hello Goodness, and growing
our portfolio of Good for You and Better for You options
from about 38 percent of revenue in 2006 to roughly
50 percent last year.* We also teamed up with
others in our industry to form the Healthy Weight
Commitment Foundation, removing 6.4 trillion Calories
from our food and beverage products, surpassing
our collective pledge by more than 400 percent.
And through Food for Good, we’ve provided 80 million
nutritious servings to low-income U.S. families since
2009 to date.

LETTER FROM INDRA NOOYI
CONTINUED PLANET

We’ve raised the bar for what it means to be a
responsible corporate water steward, earning the
prestigious Stockholm Industry Water Award. In fact, we
achieved a 25 percent water-use efficiency improvement
between 2006 and 2015 in our legacy operations. And
we’ve invested more than $40 million since 2006 to
provide safe water access around the world, benefiting
nearly 16 million people in some of the planet’s most
water-stressed regions.

We’ve also made our delivery fleet more energy
efficient, eliminating the need for over 1 million
gallons of diesel fuel since our electric vehicle
initiative began in 2010 — the equivalent of keeping
more than 2,000 passenger cars off the road for a
year — while also making our beverage coolers and
vending machines 60 percent more energy efficient.
And we are one of the largest users of food-grade
recycled PET in the U.S. In fact, if more recycled PET
were available, we’d buy it. We’ve also launched the
first 100 percent compostable chip bag in test markets,
while diverting more and more of our waste from
landfill — approximately 95 percent as of the end
of 2017.

PEOPLE
We’ve reimagined what it means to support our
associates, from ushering in on-site and near-site
childcare at campuses around the world, to expanding
PepsiCo University’s online course offerings to help
associates upgrade their skills to navigate a rapidly
changing world. And we’ve also helped lift up the
communities we serve, playing a critical role in
disaster relief efforts from Texas to Florida and Puerto
Rico, Mexico to Ecuador, China to the Philippines.

So, while we still have work to do in certain areas,
we’re incredibly proud of the progress we’ve made.
Our aspiration of being a good company — good
ethically and good commercially — is now coming
to fruition, yielding a broader, more lasting impact
than we ever imagined, and setting a standard that
companies across our industry and beyond aspire
to meet.

Looking ahead, we’ll continue viewing our work
through both a microscope and a telescope, focusing
on the most granular details — grams of saturated
fat, parts per billion of greenhouse gas, the number
of women in management roles — as well as the
larger ambition of building a business that acts in
accordance with our values, each of us striving to do
what’s right for the company and what’s right for our
communities. Because at the end of the day, there’s
no separating the two.

Leading this company remains a source
of incredible pride. In my first sustainability
report letter in 2007, I opened with a story:

When I was a child in India, my
mother would ask my sister and me
a simple but compelling question:
‘What would you do to change the
world?’ Today, I know my answer
would be that I want to lead a
company that is a force for good in
the world. A company that delivers
strong financial performance,
while embracing purpose in
everything it does.”

That is still my answer. And I know that if we stay
focused on our mission, if we engage the head, heart
and hands of our more than 260,000 associates, and
adhere to the idea that how we make money is as
important as how we spend it, we’ll continue doing
more than advancing the heritage of a great and
iconic company. We’ll keep changing the world.

Sincerely,

Indra K. Nooyi
PepsiCo Chairman and CEO

* As we evolve our portfolio and expand our offerings, we are continually updating our definitions of our Good for You, Better for You
and Fun for You categories, and what products fit within each category. Below are 2017 definitions:
GOOD FOR YOU options help consumers meet recommended daily intakes of whole grains, vegetables, fruits, dairy, nuts and seeds
with low to no amounts of particular nutrients, such as added sugars, sodium or saturated fat.
BETTER FOR YOU options can help consumers limit particular nutrients, such as added sugars, sodium or saturated fat, when
incorporated into a well-balanced diet. These options include beverages with fewer or no calories. In this category, we also include
products specifically formulated to provide a functional benefit, such as addressing the performance needs of athletes.
FUN FOR YOU options are treats for consumers to enjoy responsibly.

Welcome Products Planet People Managing ImpactOur Approach

PepsiCo Sustainability Report 2017 3

•

Skoll / UNF

Interview by Mindy Lubber, Chief
Executive Officer and President, Ceres

Q&A WITH
DR. MEHMOOD KHAN

Q How would you describe
PepsiCo’s progress against the
Performance with Purpose 2025
Agenda goals so far?

A I’m proud of our progress. We’re
continuing to transform many of the
products we make, and how we
make them. We have reformulated
certain classic products, like 7UP
and Mirinda, which now have at
least 30 to 50 percent less added
sugars in dozens of markets around
the world. And we’ve launched
some great new products, such as
Tropicana Kids, LIFEWTR and
Quaker Overnight Oats, which marry
the convenience and great taste
that consumers want with the
nutrition and hydration they need.

Nearly 80 percent of our directly
sourced crops are now grown by
farmers engaged through our
Sustainable Farming Program.

We’re helping them adopt more
sustainable practices, increase
yields and improve their livelihoods.

Yet we need to do more to lower
added sugars, sodium and saturated
fat across our portfolio, especially
outside of our biggest markets. And
plastic waste remains a challenge.

Q What are the barriers to moving
faster and at greater scale?

A The goals that take the most
work may not show the fastest
results, and much of the change we
want to see is outside of our direct
control. Take water consumption or
greenhouse gas emissions. Most of
our footprints are in our supply
chain. To have an impact there,
we have to build coalitions and
help spread best practices. That
takes time.

Q How have you integrated your
goals into your governance and
strategic planning?

A We created a Board
subcommittee focused on
sustainability. Our executive team
is accountable for our progress in
meeting our goals — and our bonus
program directly links bonus awards
to our success in achieving
sustainability goals. Sustainability is
also a key factor in decision-making.

Q How are you using
transparency and disclosure as
tools for getting results?

A Reports like this are about
allowing stakeholders to scrutinize
what we are doing and being open
to outside advice. We’re always
looking for ways to extend our
transparency — this year, we
have published a separate PwP
Performance Metrics sheet to make

it easier to understand our progress
at a glance. For more detail, our
online A–Z Topics is an extensive
and regularly updated resource.

Q What gives you hope that the
food and beverage industry will
achieve greater sustainability?

A We believe we have no choice.
Our license to operate depends on it.
Consumers and other stakeholders
increasingly demand it of the entire
food and beverage industry.

When we launched Performance
with Purpose in 2006, we were
leading our industry. Within a few
years, others had caught up. We set
ambitious new goals in 2016 and
we’re now near the top of the pack
again, but it will be difficult to
maintain that because so many of
our peers are also taking action. Our
industry is changing fast and that’s
great to see.

30–50%
less added sugars in reformulated 7UP
and Mirinda

79%
of our directly sourced crops are grown
by farmers engaged through our
Sustainable Farming Program

Skoll / UNF

Our license
to operate
depends on
achieving
sustainability.”
Dr. Mehmood Khan
PepsiCo’s Vice Chairman and Chief
Scientific Officer, Global Research
and Development

Products Planet People Managing ImpactWelcome Our Approach

For the full interview,
visit pepsico.com/live

PepsiCo Sustainability Report 20174

http://www.pepsico.com/live/story/q-a-with-dr.-mehmood-khan

Performance with
Purpose launched

Performance with Purpose
2025 Agenda launched

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

2015 2016

2017

$100

$512

$259

Since the start of the century, PepsiCo has outperformed
the S&P 500. After the introduction of Performance with
Purpose in 2006, we have continued to deliver solid
returns for shareholders.

2017 FINANCIAL PERFORMANCE

CUMULATIVE TOTAL
SHAREHOLDER RETURN*
Return on PepsiCo stock investment
(including dividends) and the

S&P 500

MIX OF NET REVENUE

PepsiCo, Inc.

NET REVENUES DIVISION OPERATING PROFIT

S&P 500

* $100 invested on 12/31/99 in stock or index,
including reinvestment of dividends.
Fiscal year ending December 31.

U.S. 58%

Outside U.S. 42%

Food 53%

Beverage 47%

North America Beverages 33%

Latin America 11%

Asia, Middle East and North Africa 10%

Quaker Foods North America 4%

Europe Sub-Saharan Africa 17%

Frito-Lay North America 25%

North America Beverages 23%

Latin America 8%

Asia, Middle East and North Africa 9%

Quaker Foods North America 6%

Europe Sub-Saharan Africa 12%

Frito-Lay North America 42%

Products Planet People Managing ImpactWelcome Our Approach

PepsiCo Sustainability Report 2017 5

PepsiCorps, a global pro
bono volunteer program,
is created by a group of
associates

OUR SUSTAINABILITY
JOURNEY SO FAR

2009

20011998

PepsiCo acquires Tropicana

Quaker Oats and Gatorade join
the PepsiCo family, adding to our
portfolio of iconic brands

2007

PepsiCo invests in growing
our nutrition business
with the acquisition of
Naked Juice Company

PepsiCo announces intent to
acquire Wimm-Bill-Dann, Russia’s
leading branded food and
beverage company and leader in
dairy and juice

PepsiCo joins Healthy Weight
Commitment Foundation to help
reduce obesity in the

U.S.

PepsiCo reaches initial goal of
providing safe water access to
more than six million people
(a year ahead of schedule)

PepsiCo named to Ethisphere Institute’s list
of the World’s Most Ethical Companies and
Fortune’s World’s Most Admired Companies
for the 11th and 12th years, respectively

PepsiCo wins the prestigious
Stockholm Industry Water
Award for leadership in
water stewardship

Launch of Food for Good, a program
that makes nutritious foods more
accessible to low-income children

PepsiCo launches the Sustainable
Farming Initiative (SFI), now known
as Sustainable Farming Program
(SFP), that aims to improve crop
yields and growers’ livelihoods,
increase environmentally responsible
practices and advance respect
for workers’ human rights

2017

PepsiCo acquires KeVita, a
leading North American creator
of fermented probiotic and
kombucha beverages

The PepsiCo Foundation
becomes the first
supporter of Water.org’s
WaterCredit program

PepsiCo introduces
Performance with
Purpose 2025 Agenda

2013

2010

2008

2015

20

16

2012

2011

2006

Performance with Purpose is
introduced by CEO, Indra Nooyi,
to position PepsiCo for long-term
success and ingraining
sustainability into our daily
business operations

Welcome Products Planet People Managing ImpactOur Approach

PepsiCo Sustainability Report 20176

PEOPLEPLANETPRODUCTS

PROGRESS AGAINST OUR GOALS

Achieved

2015 2016 2017 2020 target

22%
34%

79%

100%
100%

HUMAN RIGHTS

Achieved

12.5 MILLION

6 MILLION

6.4 MILLION

2016

2017

2025 target

% of business-critical direct third-party suppliers who completed
on-site audits as part of our Sustainable Sourcing Program

CLIMATE (SCOPE 3)
Progress toward absolute
GHG emissions reduction target

2015 2016 2017

1% 7%

2030 target

16MILLION
PEOPLE PROVIDED WITH
ACCESS TO SAFE WATER

SUSTAINABLE FARMING
% of directly sourced crops
grown by farmers engaged
through our Sustainable
Farming Program 

Achieved

25 MILLION

2015 2025 target

11 MILLION2016

(2015-2017)
2.1 MILLION
metric tonnes

Complete information on other PwP goals and
progress is in our PwP Performance Metrics sheet

16 MILLION

2017

6.4MILLION
WOMEN AND GIRLS
BENEFITED IN COMMUNITIES
NEAR WHERE WE WORK
SINCE

2015

43%
OF BEVERAGE PORTFOLIO
VOLUME WITH ≤100
CALORIES FROM ADDED
SUGARS PER 12-OUNCE SERVING*

SODIUM
% of foods portfolio volume with <1.3 milligrams of sodium per Calorie**

*In Top 10 Beverage markets
**In Top 10 Foods markets

2016:
54%

2015:
51%

2025
target:
75%

55%
2017

96%
2017

2016:
87%

2025
target:
100%

9 MILLION

2015
2016
2017

39%

40%

43%

67%

2025 target

Welcome Products Planet People Managing ImpactOur Approach
7

http://www.pepsico.com/sustainability/Sustainability-Reporting

http://www.pepsico.com/sustainability/Sustainability-Reporting

4. MARKETING & SALES
Examples: more nutritious
options, responsible marketing

We’re responding to changing
consumer preferences by
transforming our portfolio,
reformulating many of our
beverages to reduce added sugars.

30–50%
less added sugars in 7UP
and Mirinda in more than
60 markets around the world

5. CUSTOMER, CONSUMER
USE & END OF PRODUCT LIFE
Examples: packaging, waste

We’re helping consumers reduce
environmental impact through
innovations in packaging (such
as plant-based bioplastic bags
being piloted in three locations
across the globe) and initiatives
to promote recycling.

~90%
estimated PepsiCo beverage
packaging worldwide that
is fully recyclable based
on 2017 data

PWP THROUGH OUR
VALUE CHAIN

From the farm to the home, our PwP goals
touch every part of our value chain, with
an aim to enable us to maximize resource-
efficiency and improve the nutritional profile
of our products. Examples of this in our
global supply chain are illustrated below.*

1. SOURCING &
AGRICULTURAL RAW
MATERIALS
Examples: sustainable farming,
water, Scope 3 GHG emissions,
human rights, deforestation

Our Sustainable Farming Program
(SFP) aims to optimize economic,
social and environmental on-farm
practices and outcomes, including
helping decrease Scope 3 GHG
emissions during the sourcing of
raw materials, optimizing water use
and advancing respect for workers’
human rights.

97%
of our potato farmers
in North America have
achieved  our sustainable
sourcing standards

3. DISTRIBUTION
Examples: fleet efficiency,
workplace safety

Our fleet is reducing emissions by
diversifying the sources of energy
we use for our freight trucks. We are
also making improvements in fleet
efficiency through driver training,
safety technology and more
efficient routing.

63

MILLION

miles driven by Frito-Lay North
America Compressed Natural
Gas fleet in 2017 and over 211
million miles to date

2. MANUFACTURING
& PACKAGING
Examples: food safety, human
rights, operational efficiency
(including waste, water
efficiency and Scope 1 & 2
GHG emissions)

We are working toward zero waste to
landfill across all our manufacturing
through programs like ReCon
(Resource Conservation), which is a
comprehensive, global platform of
resources, tools and programs
designed to improve energy and water
and waste efficiencies in our
manufacturing processes.

95%
of waste diverted from landfill
in our direct operations in 2017

* Graphic only shows examples,
not an exhaustive list of all impacts

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PepsiCo Sustainability Report 20178

SUSTAINABLE
DEVELOPMENT
GOALS
MAPPING AGAINST THE
UNITED NATIONS SUSTAINABLE
DEVELOPMENT GOALS
The United Nations Sustainable Development
Goals (SDGs) provide an important inspiration
for our Performance with Purpose vision.
The shared challenges and opportunities that
the world faces, from hunger and disease to
climate change and clean water access,
require common action from all organizations
with the power to contribute to global
progress. PepsiCo is committed to being
part of this process.

The SDGs provide an invaluable roadmap
with which global actors can align their own
sustainability efforts. Our Performance with
Purpose 2025 Agenda set goals informed
by some of the world’s leading experts and
institutions, and we mapped our plans
against the United Nations SDGs. This allows
us to meaningfully contribute to the shared
objectives of the global community. We’re
focused on the SDGs where our strategy
is aligned so that we can have the
greatest impact.

SDG EXAMPLES OF ACTION

Zero Hunger • Since 2016, we have provided access to 475 million servings of affordable nutritious
foods and beverages to underserved consumers and communities, through products
like Quaker 3 Minutos in Latin America.

• Sustainable agricultural practices will be important to meeting the increasing demand
for food as the global population grows. As of the end of 2017, 24 percent of our direct
crops were sustainably sourced.

End hunger, achieve food security
and improved nutrition and promote
sustainable agriculture

Good Health and Well-Being • The rate of sales growth of Everyday Nutrition products outpaced the rate of sales
growth in the balance of our product portfolio in 2017.

• 43 percent of our beverage portfolio volume in our Top 10 Beverage markets contains
100 Calories or fewer from added sugars per 12-ounce serving.

Ensure healthy lives and promote
well-being for all at all ages

Gender Equality • As of the end of 2017, women and men were paid within one percent of each other in the
21 countries we have analyzed, based on base compensation and after controlling for
legitimate drivers of pay.

• In 2016 and 2017, PepsiCo and the PepsiCo Foundation invested $14.3 million to support
initiatives that benefit women and girls in communities near where we work.

Achieve gender equality and empower
all women and girls

Clean Water and Sanitation • 95 percent of wastewater from our operations met PepsiCo’s high standards
for protection of the environment in 2017.

• With the PepsiCo Foundation and its partners, we have provided access to safe water
to nearly 16 million people since 2006 in the world’s most at-water-risk areas.

Ensure availability and sustainable
management of water and sanitation
for all

Decent Work and Economic Growth • Through our Sustainable Farming Program (SFP), we work with participating growers
to promote the well-being of agricultural workers and surrounding communities,
with 79 percent of our directly sourced crops grown by farmers engaged through SFP.

• In 2016 and 2017, we enabled 6.4 million women and girls to progress through school
and be successful in the workforce.

Promote sustained, inclusive and sustainable
economic growth, full and productive
employment and decent work for all

Responsible Consumption and Production • An estimated 85 percent of our packaging worldwide was recyclable, compostable
or biodegradable in 2017.

• 95 percent of waste was diverted away from landfill through reuse, recycling or
waste-to-energy in 2017.

Ensure sustainable consumption
and production patterns

Climate Action • In 2017, we reduced Scope 3 GHG emissions by approximately 2.1 million metric tonnes
versus our 2015 baseline. This represents approximately seven percent of our 2030
target reduction amount.

• Our goal to reduce absolute GHG emissions across our value chain by at least 20 percent
by 2030 has been validated by the Science Based Targets Initiative.

Take urgent action to combat
climate change and its impacts

Products PlanetWelcome People Managing ImpactOur Approach

PepsiCo Sustainability Report 2017 9

Welcome Planet People Managing ImpactProductsOur Approach

PRODUCTS
Every day around the world, millions of people enjoy our food and beverages
— and we welcome the responsibility that brings. At PepsiCo, our global
scale means even small changes can make a big difference. So we’re
innovating to reduce added sugars, sodium and saturated fat in many of our
products and make them more nutritious in response to changing consumer
preferences — and we’re doing it while maintaining great taste. The goals
for our products are informed by and aligned to the UN’s “Good Health
and Well-being” and “Zero Hunger” Sustainable Development Goals.

27.5%
0.4 pps* vs 2016**

of our net revenue comes
from products containing one
or more ingredients delivering
positive nutrition, like grains,
fruits and vegetables, or
protein, plus those that are
naturally nutritious like water
and unsweetened tea

43%
3 pps* vs 2016

of our global beverage
portfolio volume contains
100 Calories or fewer
from added sugars per
12-ounce serving (Top 10
Beverage markets)

SUSTAINABLE
DEVELOPMENT
GOALS

See page 9 for more
information

55%
1 pp* vs 2016**

of our global foods portfolio
volume contains less than
1.3 milligrams of sodium
per Calorie (Top 10
Foods markets)

66%
vs 2016

of our global foods portfolio
volume contains less than
1.1 grams of saturated fat
per 100 Calories (Top 10
Foods markets)

*pp(s) = percentage point(s)

**Prior period results for this metric have been adjusted to reflect currently available information

More information on other
PwP goals and progress
is in our PwP Performance
Metrics sheet

PepsiCo Sustainability Report 201710

http://www.pepsico.com/sustainability/Sustainability-Reporting

http://www.pepsico.com/sustainability/Sustainability-Reporting

PERSPECTIVES

Global health continues to be affected by
noncommunicable diseases like heart
disease and diabetes. Because of the role
overall diet can play in these diseases,
we seek to positively impact the future
of food around the world while responding
to local tastes and preferences.

Improving the nutritional quality of our
products will help provide consumers with
more choices to fit into their overall diet.
And we believe it will also help us to adapt
to consumer preferences over the long term,
positioning us to continue to deliver strong
business results.

with Anne Ferree
Chief Strategy & Partnership Officer,
Alliance for a Healthier Generation

and Clémence Ross
President, Choices International
Foundation

Q What role do you think the food
and beverage sector can play in
responding to concerns about
dietary health?

A Anne: By partnering proactively with
community-supporting public health
organizations like Healthier Generation,
ingrained barriers to dietary health such
as availability, access and affordability
can be tackled. This is especially
important to better serve those families
facing health inequities.

A Clémence: The food and beverage
sector can make a substantial contribution
by giving priority to nutritious food in
reformulation and innovation and by using
its power and expertise in consumer
communication to guide consumers
to healthier choices.

Q What progress have you seen
PepsiCo make on this agenda in the
last few years?

A Anne: In addition to pioneering a
partnership with Healthier Generation to
transform the way in which schools offer
drinks and snacks, PepsiCo’s aggressive
approach to bring nutritious products

to the marketplace and promote them
is a bold step. This serious commitment
to global health and well-being
demonstrates the importance of
leadership across the industry.

A Clémence: The progress in
reformulating to reduce saturated fat,
sodium and added sugars in products,
as driven by PepsiCo’s goals, is highly
appreciated. I also welcome PepsiCo’s
partnership with the Choices International
Foundation. The Foundation is engaged
in a dialogue with national healthy food
initiatives in many countries. By working
with PepsiCo, we can add more substance
to these dialogues.

Q What do you think is needed to
help more consumers embrace more
nutritious options?

A Anne: Consumers represent a wide
range of views about the definition of
“more nutritious.” It’s paramount for all
sectors to join together and help declutter
the landscape where consumers make
their purchasing decisions. We need more
product shifts, more effective placement
and pricing, and more targeted marketing
to both support and steer families toward
greater nutrient density.

A Clémence: Consumers want healthy
products for themselves and their
families. The problem is determining
which products are healthier. So the first
requirement is reliable and unequivocal
information that can be understood at a
glance, even by people with low literacy.

Welcome Planet People Managing ImpactProductsOur Approach

SEEKING TO POSITIVELY
IMPACT THE FUTURE
OF FOOD AROUND
THE WORLD

PepsiCo Sustainability Report 2017 11

OUR STRATEGY

While we are continuing
to transform the nutritional
profile of many of our
products by reducing
added sugars, sodium
and saturated fat, we are
also growing our portfolio
of nutritious products.

By embedding a focus on nutrition into
our business strategy, we can use our
scale to build a portfolio of new products.
So we’re applying nutrition science and
product development expertise to create
products that support specific health and
wellness goals while delivering great
taste and convenience — critical
attributes in achieving progress.

To meet our 2025 goals and further
accelerate PepsiCo’s product
transformation, we use a set of
science-based nutrition guidelines
called the PepsiCo Nutrition Criteria

(PNC). These criteria are based on
dietary and nutrient recommendations
from leading global and national
nutrition authorities, including the World
Health Organization (WHO), the U.S.
Department of Agriculture (USDA), the
National Academy of Medicine and
dietary guidelines from numerous
countries. The PNC establishes
standards for nutrients to limit, and
nutrients and food groups to encourage
that are based on the latest science and
country-specific dietary guidelines.

CREATING A POSITIVE
RELATIONSHIP BETWEEN
PEOPLE AND FOOD IS
INTEGRAL TO OUR BUSINESS

EVERYDAY NUTRITION
Another important part of our portfolio
transformation is growing the proportion
of nutritious choices we offer consumers
while proving that nutrition and hydration
don’t need to be boring. Our innovative
Everyday Nutrition products taste great
and are good for you. We believe that
continuing to grow our Everyday Nutrition
portfolio is vital to the strength of our
business — today and tomorrow.

PHA SAYS A-OK
In 2017, Partnership for a Healthier
America (PHA) independently verified for
the first time PepsiCo’s U.S. 2016 reported
progress against our goals to reduce added
sugars, sodium and saturated fat in our Top
10 markets. We will continue to have our
progress verified annually.

RECIPE FOR SUCCESS
As part of the transformation
of our portfolio of foods and
beverages, we’re reviewing our
recipes and reformulating many
of our products to improve their
nutritional profiles by
incorporating new seasonings
and ingredients and leveraging
technological advances.

Planet People Managing ImpactWelcome ProductsOur Approach

More information on PepsiCo’s
work in these areas can
be found in A–Z Topics on
pepsico.com

PepsiCo Sustainability Report 201712

http://www.pepsico.com/sustainability/A-Z-Topics

PORTFOLIO TRANSFORMATION
IN ACTION

REDUCING ADDED SUGARS
2025 Goal for Added Sugars:
At least 2/3 of our global beverage portfolio volume
will have 100 Calories or fewer from added sugars
per 12-ounce serving.

From 2016 to 2017, we increased by three
percentage points our beverage portfolio volume
with 100 Calories or fewer from added sugars per
12-ounce serving in our Top 10 Beverage markets.

As consumer demand for more nutritious beverage
choices grows, we’re responding with a number
of transformed or new products with lower or no
calories. We continued to roll out reduced- and
no-calorie versions of our iconic brands into global
markets: Pepsi Black, Mirinda and 7UP. (Read more
on page 16). In addition, we recently introduced
or expanded:

• Tropicana Kids, an all-new line of premium organic
fruit juice drinks, and Tropicana Coco Blends, with
a splash of coconut water, in the U.S., both with
no added sweeteners and no artificial flavors

• Bubly, our new sparkling water in the U.S. with
no artificial flavors, no sweeteners and no calories

• KeVita, our probiotic-based products in the U.S.,
with new Master Brew Kombucha flavors

• LIFEWTR, our premium bottled water brand in
the U.S. and Canada (where it’s known as ARTO
LIFEWTR) that generated approximately $200
million in estimated annual retail sales in 2017

• Drinkfinity, now in Brazil, the U.S. and certain
European countries, lets consumers create their
own delicious beverages — without any artificial
flavors or artificial sweeteners and less packaging

REDUCING SODIUM & SATURATED FAT
2025 Goal for Sodium:
At least 3/4 of our global foods portfolio
volume will not exceed 1.3 milligrams of sodium
per Calorie.

2025 Goal for Saturated Fat:
At least 3/4 of our global foods portfolio volume
will not exceed 1.1 grams of saturated fat per
100 Calories.

Our snack transformations continued around
the world. In 2017, in our Top 10 Foods markets,
55 percent of our snacks portfolio did not
exceed 1.3 milligrams of sodium per Calorie,
and 66 percent did not exceed 1.1 grams of
saturated fat per 100 Calories.

Recent reformulations include:

• Cheetos in Mexico, most of which complies
with our sodium target, and 100 percent
of which complies with our saturated fat target

• Lay’s Max Mexican Chili in Saudi Arabia,
which currently complies with our sodium target

Recent launches include:

• Multigrain Kurkure in India, with 21.5 percent
less sodium than Kurkure Masala Munch

• Off the Eaten Path, vegetable- and legume-
based products like Veggie Crisps, Hummus
Crisps and Sweet Potato Crisps in the U.S.

• Lightly Salted Lay’s in the U.S., which contain
50 percent less sodium than Lay’s Classic potato
chips: Lay’s Lightly Salted Barbecue and Lay’s
Kettle Cooked Lightly Salted Olive Oil and Herbs

• Simply branded products in the U.S.,
which contain no artificial flavors, colors or
preservatives: Simply Organic Doritos White
Cheddar and Simply Lay’s Barbecue

REDUCING ADDED
SUGARS, SODIUM
& SATURATED FAT

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13

CREATING TOMOROW’S
PORTFOLIO TODAY

INNOVATION

The R&D Fruit and
Vegetable Centre is an
important strategic hub
for PepsiCo, offering great
potential for cross-platform
synergies and talent
development”.
Jan Weststrate
Senior Vice President, R&D Nutrition

Tomorrow’s food begins as today’s
innovations. From new R&D centers
to our nutrition company incubator,
we’re continually exploring new
ways to make great tasting nutritious
food and beverages.

INNOVATING NUTRITIOUS
PRODUCTS
Last year, we introduced our new R&D
Nutrition Fruit and Vegetable Centre in
Cork, Ireland, expanding on an existing
hub of R&D expertise in Cork. The center
is driving innovation for global and local
brands such as Tropicana, Naked Juice
and Alvalle.

BUILDING A NUTRITION
GREENHOUSE
In 2017, we launched a nutrition
incubator program called Nutrition
Greenhouse, designed to support
European nutrition food and beverage
entrepreneurs. We provide opportunities
for the entrepreneurs behind these
brands to collaborate with experts within
PepsiCo — and we award cash prizes to
the most promising companies. Erbology
London, named the 2017 Nutrition
Greenhouse winner, offers nutrient-rich,
plant-based products and achieved
more than 400 percent growth during
the six-month initiative. The incubator
program will expand this year as it looks
for more ways to collaboratively deliver
innovations to the market with retailers.

400%
growth during the six-month
initiative for Erbology London

EXPANDING GOODNESS
We continue to innovate on our nutrition
journey to meet consumer demand.
In 2017, we partnered with operators
who  understand the growing demand
for healthier choices. During the year,
we significantly expanded the presence
of Hello Goodness vending machines,
coolers and racks, offering more
nutritious on-the-go snacks and
beverages across the U.S., with nearly
40,000 units sold into the market.

40,000
units sold into the market

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14

GLOBAL ACTION

Given the increasing preferences for more nutritious options by
consumers around the world, we believe growing our Everyday
Nutrition portfolio contributes to the strength of our business.
Everyday Nutrition includes products containing nutrients like
grains, fruits and vegetables, or protein, plus those that are
naturally nutritious like water and unsweetened tea. As part of
our Everyday Nutrition portfolio, in markets all over the world,
we work to create products that are suited to local needs in
terms of both taste and nutrition, with brands that consumers
trust. This approach appears to be working: In 2017, 27.5
percent of our net revenue came from Everyday Nutrition.

As we continue to expand our range of nutritious offerings,
we expect the rate of sales growth of our Everyday Nutrition
products to outpace the rate of sales growth in the balance
of our product portfolio.

QUAKER NUTRITION AROUND
THE WORLD
In 2017, we continued to introduce new Quaker
products across the globe. And by tailoring
Quaker products to local preferences and routines,
we’re making oats relevant to local needs while
providing consumers with the nutrition they want.

Recent Quaker introductions around the world:

1 Quaker Good Start Oatmeal Pots
in Saudi Arabia

2 Quaker Cups Flavored Instant Oatmeal
in the Philippines

3 Quaker Overnight Oats in the U.S.
4 Quaker Breakfast Flats in Mexico
5 Quaker Porridge to Go in the U.K.
6 Quaker Oats+Milk in India
7 Quaker Crispy Fruit Oats in China

EXPANDING
GLOBAL NUTRITION
We continue to grow our portfolio of nutritious products to meet
rising consumer demand for products that are at once nutritious,
convenient and great tasting. Developing and delivering products
with these attributes is a priority for PepsiCo.

U.K.

PHILIPPINES

CHINA

INDIA

U.S.

MEXICO SAUDI ARABIA 1

76
2
5
4
3

NAKED
We recently introduced
Naked Fruit, Nut & Veggie
Bars, extending the brand
beyond juices and
smoothies for the
first time.

J7
In early 2017, we
launched an innovative
new apple pomace juice
product in Russia under
our J7 brand that gives
consumers the same
amount of fiber per
serving as a whole apple.

R&D INVESTMENT
Our long-term investment in R&D
— from product reformulation
to sweetener and ingredient
discovery — has enabled a shift
in our portfolio by producing many
foods and beverages with fewer
calories, less sodium and reduced
saturated fat, all without sacrificing
great taste.

Welcome Planet People Managing ImpactProductsOur Approach

27.5%
of total revenue from Everyday
Nutrition in 2017

PepsiCo Sustainability Report 2017 15

A WORLD OF
BETTER CHOICES

Pepsi Black, with maximum cola
taste and zero sugar, expanded to
73 markets by the end of 2017

73
MARKETS

As we look across our beverage
portfolio, there are a number of
ways we intend to make progress
on our goal of reducing added
sugars — including reformulating
many of our existing beverages
and creating new products —
while keeping the taste
consumers love.

We have continued to strengthen and scale
our distinctive Pepsi Black, with maximum
cola taste and zero sugar, from 28 markets in
2015 to 73 by the end of 2017. In 2017, Pepsi
Black delivered Retail Sales Value growth
of 26.5 percent compared to the prior year. *

We have also rolled out 7UP and Mirinda
with at least 30–50 percent less added
sugars in more than 60 markets around the
world, replacing the full-sugar versions.
In key markets like Poland and Romania,
Mirinda Orange has continued double-digit
volume growth annually and gained market
share since its reformulation in 2016.

And we recently introduced Mountain Dew
Ice in the U.S., which has 100 Calories per
12-ounce serving.

Whether we’re reformulating our most iconic
brands to better fit with consumers’ lifestyles
or creating exciting new products to delight
and nourish them, we intend to continue to
expand our nutritious and delicious options
into more and more global markets.

Partners like PepsiCo will
help ensure there are
healthier options at the
grocery store. We know
PepsiCo’s plans have the
potential to reduce an
enormous number of
calories from the market.”
Partnership for a Healthier America *ex-North America

Planet People Managing ImpactWelcome ProductsOur Approach
16

As resources become scarcer and the global population
grows, it’s increasingly important to make our
agriculture practices more sustainable. That’s especially
true since our work in agriculture touches other big
environmental issues, such as climate and water. We are
in a position to contribute to solutions that we believe will
sustain our planet for future generations, and we align
our approach with the UN’s “Clean Water and Sanitation,”
“Responsible Consumption and Production” and
“Climate Action” Sustainable Development Goals.

PLANET

~16MILLION
~5 MILLION vs 2016

people provided access
to safe water since 2006

95%
2 pps* vs 2016

of waste across all our direct
operations was diverted away
from landfill through reuse,
recycling or waste-to-energy

7%
6 pps* vs 2016

progress against goal to
reduce absolute Scope 3
greenhouse gas emissions

79%
45 pps* vs 2016

of crops sourced directly
were grown by farmers
engaged through our
Sustainable Farming Program

SUSTAINABLE
DEVELOPMENT
GOALS
See page 9 for more
information

Welcome People Managing ImpactOur Approach PlanetPlanetProducts

1717

More information
on other PwP goals
and progress is in our
PwP Performance
Metrics sheet

1717

*pps = percentage points

PepsiCo Sustainability Report 2017 17

http://www.pepsico.com/sustainability/Sustainability-Reporting

http://www.pepsico.com/sustainability/Sustainability-Reporting

with Mark Tercek
CEO,
The Nature Conservancy (TNC)

Q What is the imperative to
act to improve water security?

A More than 30 percent of
the earth’s water sources are
over-tapped, but water security
is achievable. Investments in
natural infrastructure are
among the most cost-effective,
sustainable solutions to restoring
water resources. Now is the
time to mobilize capital toward
those investments.

Q What role can food and
beverage companies play
in creating solutions?

A They’re natural partners in
mobilizing society to invest in
nature-based solutions. TNC has
worked with the sector to establish
water funds — payment schemes
in which downstream water users
and cities invest in nature upstream
to protect water at its source.

Q How important are
cross-sector partnerships
to achieving progress?

A They are critical to addressing
water issues. We need corporations
to help underwrite complex
nature-based solutions, we
need brands to raise awareness
among consumers, and we need
companies’ operational expertise
to help us scale solutions. Our
partnership with PepsiCo checks
all those boxes.

Q How optimistic are you that
the world can continue to
meet demand for fresh water?

A We are cautiously optimistic.
Our water security challenges are
daunting, to be sure. But science
tells us that we can have a future
with both economic development
and environmental sustainability
— if we act now. Investing in

PERSPECTIVES

Environmental issues have a direct impact
on our business, and we must adapt to
resource scarcity and improve productivity.

For example, water scarcity can negatively
affect our crops, the communities where
we operate, our employees and our
operations. Because our business depends
on water, we have a vested interest in
conserving and protecting it. We also
believe climate change will affect crop
availability. Because of this, along with our
desire to be good environmental stewards
in the communities where we operate,
it’s vital that we find solutions to water
scarcity, greenhouse gas emissions, waste
and sustainable sourcing by collaborating
within and beyond our sector.

ENVIRONMENTAL
ISSUES ARE A
PRIORITY FOR
OUR BUSINESS

nature for water security can help
us get there. It helps communities
become more resilient and, by
offering cost-effective solutions,
it creates value for companies
and investors.

Investing in nature
for water security
is simply good
for everyone.”

18
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PepsiCo Sustainability Report 201718

AGRICULTURE

Spreading sustainable sourcing
Agriculture is one of the world’s most
important industries, feeding the planet and
employing a quarter of its workers.1 Food
availability will need to increase by 70 percent
by 2050 to feed a growing and more
prosperous global population.2 And we must
achieve this in a way that is resource-efficient
and respects local agricultural communities.
That’s why PepsiCo has put developing and
implementing sustainable agricultural
practices at the heart of our sourcing
approach. We’re using our scale and
expertise to work with farmers around the
world to help rethink how agriculture works.

We aim to use our scale to make a global
impact. Sustainable agriculture practices
are important to the continued growth of our
business, food safety and crop resilience for
continued and localized supply. Through our
Sustainable Farming Program (SFP), PepsiCo
helps farmers and farming communities
improve livelihoods, preserve the
environment and support the sustainable
growth of PepsiCo’s brands.

CLIMATE
Taking a collaborative approach to
seeking and developing solutions
To achieve our goals, we’re working with our
suppliers, business partners and customers to
reduce emissions associated with agriculture,
packaging and transportation; adopting
lower-carbon solutions in our product
development; and reducing fossil fuel
consumption through energy efficiency.
So as our business grows, our aim is that
our carbon footprint will shrink.

Our GHG emissions reduction goal covers our
entire value chain and includes reductions in
emissions from our current corporate carbon
footprint as well as additional emissions that
we expect to result from anticipated business
growth between now and 2030. Our goal has
been approved by the Science Based Targets
Initiative, which means that PepsiCo is doing
its part to limit global temperature increase
to 2˚ Celsius.

WASTE

Working to minimize our impact in
everything we do
Packaging plays an essential role in safely
delivering our products to consumers and
customers, and we have a responsibility to
contribute to the quality of life in communities
and to protect the health of our oceans and
environment through sustainable packaging.
We aim to achieve this by continually improving
our packaging design and supporting
increased recycling, composting and other
environmentally friendly approaches.

In every community where we operate, we
are working to minimize the amount of waste
that we send to landfill. This is a journey that
we have been on as a company since the very
beginning of Performance with Purpose.

WATER
Working to enable long-term,
sustainable water secur

ity

We use water for our products and operations,
and we take an integrated approach to
watershed management. We have set a
number of interconnected goals that aim
to contribute to our Positive Water Impact
— meaning our efforts and partnerships will
be designed to enable long-term, sustainable
water security for our business and others who
depend on water availability.

PepsiCo achieved a 25 percent efficiency
improvement between 2006 and 2015 in
our legacy operations and we aim to do the
same by 2025, with a focus on facilities in
high-water-risk regions. We are progressing
against our PwP 2025 goal, achieving an
efficiency improvement of two percent
in 2017, compared to 2016, across our
company-owned manufacturing locations.

Improving water efficiency in direct
manufacturing operations is important.
But water impact needs to be considered in a
more holistic way. Our goal to achieve Positive
Water Impact by 2025 includes aiming to:

• Improve water-use efficiency in our direct
agricultural supply chain in high-water-risk
areas by 15 percent

• Replenish as much water as we consume
in PepsiCo-owned manufacturing sites in
high-water-risk areas by returning it back
to the same watershed from which it
was extracted

• Ensure that 100 percent of wastewater
from our operations meets PepsiCo
standards, which can be more stringent
than local regulations

Fresh water is a shared resource, and it is
limited. PepsiCo advocates for strong local
water governance in the communities and
watersheds where we operate. In any
watershed, particularly those in areas that
experience water scarcity, good water
stewardship requires collaboration between
the businesses, farmers, local communities
and governments that together rely on the
same local source. We believe that it is only
through this approach that the needs of all
local users — and the natural environment
— can be met in a sustainable way.

We have a tremendous opportunity to use
our global scale, expertise and resources to
influence positive change across our entire
value chain — from the way ingredients are
grown and sourced, to when a product is
purchased and consumed, to when its
packaging is discarded. Through our
Planet  goals, we aim to minimize our
environmental impact while growing
our business and helping meet the food,
beverage and natural resource needs of
both our business and our changing world.

We’re focused on the areas where we can
make the greatest impact: agriculture,
climate, waste and water.

HOW WE’RE
HELPING BUILD
A SUSTAINABLE
PLANET

OUR STRATEGY

1 The World Bank: Employment in agriculture (% of total
employment), accessed June 15, 2018, https://data.
worldbank.org/indicator/SL.AGR.EMPL.ZS

2 World Resources Institute: Creating a Sustainable Food
Future, 2013-14, https://www.wri.org/sites/default/files/
wri13_report_4c_wrr_online

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PepsiCo Sustainability Report 2017 19

AGRICULTURE

PARTNERING WITH
LOCAL FARMERS

PepsiCo works with farmers for our directly sourced
crops — such as potatoes, oats, whole corn and
oranges — to increase adoption of environmentally
responsible agricultural practices, improve crop yields
and growers’ livelihoods, conserve water and advance
respect for workers’ rights.

HELPING FARMERS REALIZE
THE ECONOMIC POTENTIAL
OF POTATOES
By the end of 2017, globally nearly 80
percent of our crops sourced directly were
from farmers that had been engaged
through PepsiCo’s Sustainable Farming
Program. We provide education on field
agronomy, fertilizers, irrigation, plant
protection techniques and new
technologies, supporting farmers to
adapt best practices to fit the crop
and local circumstances.

Take potatoes. In the U.S., we work with
approximately 115 growers to source our
chipping potatoes. With PepsiCo’s support,
each supplier assesses its performance
against our sustainable sourcing principles,
which include environmental, social and
economic factors.

Based on this assessment, PepsiCo
engages directly with these farmers to
help them build capability and address
risks, and we encourage them to make
continuous improvements to meet our
rigorous standards.

Already, over 97 percent of our North
American potato farmers have achieved
our sustainable sourcing standards.

In other producing countries such as
Vietnam, pictured here, PepsiCo partners
with farmers to pass on the skills and
information needed to boost productivity
and comply with our sustainable farming
principles. For example, introducing
modern irrigation techniques for dry season
cultivation can reduce water use and
increase full-year production. Already,
by working directly with PepsiCo,
farmers’ incomes in Vietnam have been
enhanced and their vulnerability to
market volatility reduced.

34%
of cane sugar sustainably
sourced in 2017

SOURCING SUSTAINABLE
PALM OIL
In 2017, we achieved 32 percent RSPO
(Roundtable on Sustainable Palm Oil)
physically certified sustainable palm oil,
exceeding our interim target of
30 percent for the year. This performance
has improved from 16 percent in 2016
and eight percent in 2015. For 2018, we
have set an interim objective to achieve
50 percent on our journey to 100 percent
by the end of 2020. We recently
published additional information about
our palm oil sourcing and approach in
Indonesia, including how we manage
grievances raised by third parties. We
also published our list of direct palm oil
suppliers and our list of palm oil mills.

CANE SUGAR
Having focused on capacity
building in key markets over the
previous two years, we made
significant progress on our goal
to source 100 percent of our
cane sugar sustainably, with
34 percent of cane sugar
sustainably sourced in 2017.

Our aim

50%
RSPO certified sustainable
palm oil by end of 2018 and
100% by 2020

PlanetPlanet People Managing ImpactProductsWelcome Our Approach

Our most recent Palm Oil Action
Plan Progress Report is available
on pepsico.com

PepsiCo Sustainability Report 201720

http://www.pepsico.com/sustainability/palm-oil

http://www.pepsico.com/sustainability/palm-oil

CLIMATE

SCOPE 1 & 2:
WITHIN OUR FOUR WALLS
In these early years of our goal, we are
focusing on investing in capability and
upgrading equipment to more efficient and low
carbon options. This has enabled us to deliver
a 2.2 percent decrease in emissions in 2017
against the 2015 baseline, which represents
11 percent progress to our 2030 goal.

SCOPE 3: INDIRECT EMISSIONS
THROUGHOUT OUR VALUE CHAIN
While we continue to progress on reducing
GHG emissions within our operations, we know
that our greatest opportunity for progress lies in
reductions outside of our direct operations. Our
Scope 3 emissions account for approximately
92 percent of our carbon footprint. For PepsiCo,
these emissions originate from farming,
packaging manufacture and third-party
transportation, among other sources.

In 2017, we reduced Scope 3 emissions by
approximately 2.1 million metric tonnes
versus our 2015 baseline. This represents
approximately seven percent of our 2030
target-reduction amount. These reductions

TAKING A LEAD
ON CLIMATE

GOING ELECTRIC ON
THE HIGHWAY
We’re focused on finding innovative
ways to minimize our impact on the
environment while reducing our operating
costs. Delivering products using a more
efficient fleet is a key component of
achieving our goal to reduce absolute
GHG emissions across our value chain
by at least 20 percent by 2030.

As part of this effort, in 2017 we placed
one of the largest reservations for Tesla,
Inc.’s new electric Semi trucks, reserving
100 of the all-electric trucks. This initial
reservation will allow us to deploy the
trucks across both our snacks and
beverage businesses and help us
evaluate how best to leverage the
technology moving forward.

In 2017, we continued to
reduce GHG emissions
across Scopes 1, 2 and 3.

were driven by improvements in our vending
and cooler equipment, where we reduced GHG
emissions by 19 percent in 2017. We did it by
replacing less energy-efficient models with
more efficient ones, all compliant with latest
standards of DOE2017 and e-star3, saving
approximately 1.2 billion kWh of energy.
Transitioning to hydrofluorocarbon (HFC)-free
equipment has been a major focus for us — all
of our company-owned units in Europe are now
HFC-free, with those in North America expected
to follow by 2020, and globally by 2025.

In 2017, we reduced
Scope 3 emissions
by approximately

2.1MILLION
metric tonnes versus
our 2015 baseline

At least

20%
reduction in absolute
GHG emissions by 2030

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PepsiCo Sustainability Report 2017 21

PACKAGING

PACKAGING, WASTE
AND HOW WE’RE
WORKING TO
REDUCE BOTH

EXPLORING THE POTENTIAL
OF PLANT-BASED BAGS
We’re focused on finding better, more
responsible ways to package our products.
That’s why we’re excited to be piloting our
use of plant-based, bioplastic bags in three
locations across the globe. In 2017, we began
packaging Tostitos in these bags for food
service accounts in the U.S. This year we’re
launching pilots in Chile and India using the
same bag for select lines of our Lay’s potato
chips. The bags are produced from renewable
resources and can be composted in industrial
composting facilities.

We’re also collaborating with biotechnology
firm Danimer Scientific to develop our
next-generation snacks packaging: truly
biodegradable film resins that break down
in any end-of-life environment.

BETTER PACKAGING
Our key initiatives to increase sustainability in our
packaging include developing solutions to flexible
films, improving the environmental footprint of our
beverage containers, providing consumer
activation and education on recycling, and
increasing recycling rates. In 2017, an estimated
85 percent of our packaging worldwide was
recyclable, compostable or biodegradable.

BUILDING BETTER
BEVERAGE BOTTLES
We’ve worked diligently to ensure that much of our
beverage packaging is recyclable. Yet, because we
recognize that some components of our packaging
inhibit recyclability, we’re replacing some materials
such as labels to make our packaging more
recycling-friendly. We’re also looking to reduce
the volume of materials used in each package.

100%
2025 Goal: Strive to design 100 percent
of our packaging to be recyclable,
compostable or biodegradable by 2025.

ZERO WASTE TO LANDFILL
2025 Goal: Strive to achieve zero waste to
landfill in our direct operations by 2025.

By the end of 2017, we had reduced the
amount of waste our operations sent to landfill
to five percent of total waste versus seven
percent of total waste by the end of 2016.

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INCREASING rPET USAGE
We continue to increase our use of rPET (recycled
PET) in our beverage containers. In 2017, we were
one of the largest users of food-grade rPET in the
U.S., resulting in an average of approximately nine
percent rPET use across our company-owned
beverage portfolio in the U.S. And in our
company-owned beverage operations in Europe,
our rPET use was approximately 16 percent in 2017.

More information can be found
in the Packaging section of A–Z
Topics on pepsico.com

PepsiCo Sustainability Report 201722

http://www.pepsico.com/sustainability/packaging

http://www.pepsico.com/sustainability/A-Z-Topics

http://www.pepsico.com/sustainability/A-Z-Topics

GETTING TO ZERO WASTE
When all the confetti had been cleared,
91 percent of the trash generated by
67,612 fans was responsibly recovered
through composting, recycling and
reuse. That’s the highest diversion rate
ever achieved at a Super Bowl, and the
benchmark for future large-scale events.
The key to this successful effort was
preparation. It all started years before
kickoff, with our work to make our
packaging increasingly sustainable,
along with our investments in recycling
programs around the world. In the
weeks leading up to the game,

we showed fans how to make recycling
fun and easy in the stadium and at Super
Bowl parties.
At the stadium, a team of PepsiCo
zero-waste ambassadors greeted fans
and showed them the correct bins for
recycling, composting and waste-to-
energy. Overall, nearly 63 tons of the
69 tons of waste were recovered,
decreasing disposal costs and providing
several environmental benefits,
including reductions in landfill use
and the greenhouse gas generated
by the landfill process.

*All gameday waste recovery calculations were
provided by the NFL and venue management
company SMG.

Last February, we teamed
up with the NFL and other
partners to create the
first-ever near-zero waste
Super Bowl.*

Nearly

63 TONS
of the 69 tons of gameday waste were
recovered, reducing waste disposal
costs while providing several
environmental benefits.

GETTING TO ZERO
AT SUPER BOWL LII

WASTE

The NFL is proud that this
program was not only
successful at Super Bowl
LII, but will also serve as
a permanent installation
at the stadium and leave
a lasting impact on the
community.”
Jack Groh
Director, NFL Environmental Program

91%
of the waste generated on
gameday from 67,612 fans was
responsibly recovered through
composting, recycling and reuse

Super Bowl gameday

Ahead of gameday,
we showed fans
how to make
recycling fun and
easy in the stadium
and at Super Bowl
parties across
the country.

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PepsiCo Sustainability Report 2017 23

WORKING TO EXPAND OUR
POSITIVE WATER IMPACT

GLOBAL ACTION
U.S.
5

GUATEMALA

2

BRAZIL

1
INDIA

3

MEXICO

4

SUPPORTING THE HUMAN
RIGHT TO WATER
In Latin America, our work with
The Nature Conservancy includes
a $3 million investment aimed
at contributing to the long-term
sustainability of five watersheds from
which PepsiCo and other users source
water. Our goal is to help both the
communities where we operate and
our own manufacturing facilities
improve water sustainability.

415LITERS
of water replenished in the
Verde River

DELIVERING ON OUR WATER
REPLENISHMENT GOAL
We focus on improving efficiency of the water
we use in our high-water-risk agricultural and
manufacturing operations because healthy
watersheds are important to the continuity of our
business, our license to operate and the health of
our communities. That’s also why we have set a
goal to replenish 100 percent of the water we
consume in company-owned manufacturing
operations located in high-water-risk areas in
the same watershed where the water was
extracted by 2025.

In 2017, we replenished 22 percent of the water
we consumed in company-owned high-water-risk
manufacturing operations through projects in

1 Brazil, 2 Guatemala, 3 India, 4  Mexico
and the 5 U.S.

Water stewardship has been one of our top priorities
since the establishment of Performance with Purpose
in 2006. We’ve teamed up with organizations that
share our concern about water to preserve this
vital resource. We’re working with The Nature
Conservancy to protect several watersheds,
including Arizona’s Verde Valley (pictured here). In
2017, PepsiCo’s support helped enable 415 million
liters of water to be replenished in the Verde River.

MILLION

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A CRITICAL RESOURCE
Water stewardship is among the most
important strategic initiatives we have
as a company. Water is a critical
resource for our business at all points
along our value chain — from the farms
where we grow the fruits, vegetables
and grains that make up our product
portfolio, to our manufacturing
processes where water is used to
ensure we meet the highest quality food
safety standards, and as one of the key
ingredients in many of our products.

We believe that water is also a
fundamental human right,
indispensable to every community
around the world. Through our seven
Performance with Purpose water goals,
we intend to dramatically expand our
Positive Water Impact by 2025. That
means rethinking, replenishing and
reusing water to support long-term
water security for our business and for
others who depend on water availability
in communities around the world.

More information on our water
strategy can be found in the
Water section of A–Z Topics
on pepsico.com

PepsiCo Sustainability Report 201724

http://www.pepsico.com/sustainability/water

http://www.pepsico.com/sustainability/A-Z-Topics

Using less, conserving more.
That’s how we’re striving to have
a Positive Water Impact across
the globe, especially in water-
stressed communities.

In India, which has 16 percent of the world’s
population but only four percent of the
world’s fresh water, we are focused on
driving water-use efficiency in our
operations and in our potato and corn
agricultural supply chains, delivering
replenishment, providing safe water access
to communities and advocating for good
water governance.

It all starts with our own operations, where
we’re increasing efficiency in water used to
make our products. We’re accomplishing
this through diligent water conservation
efforts and effective use of technology
advancements.

In communities where we operate, we’re
also training local farmers on practices
such as sustainable cropping and water
and land conservation. Community members
have learned how to maintain rainwater
harvesting ponds, building an improved
understanding of groundwater resources.

Since we know we’re more effective when
we work with expert partners, the PepsiCo
Foundation recently made a $4.2 million
grant to WaterAid, a leading international
water and sanitation non-governmental
organization, to provide clean water access
to communities in Palakkad, Nelamangala
and Sri City in southern India, which are
facing extreme water shortages.

5BILLION
LITERS TOTAL
RECHARGE POTENTIAL

After the pond rejuvenation
that PepsiCo supported,
farmers who were previously
only able to do single cropping
are now growing multiple crops
because of the availability of
water for irrigation.”

T. Kuppe Karivaradaiah
Former President of Budihal Village
in Nelamangala

WATER RECHARGE PROJECTS
In 2017, we scaled up our water recharge
projects in India to cover additional plant
sites, creating a total recharge potential
of more than five billion liters with
average rainfall across seven states
impacting more than 60,000 people.

TURNING
THE TABLES
ON WATER
SCARCITY

Planet People Managing ImpactWelcome PlanetOur Approach Products

PepsiCo Sustainability Report 2017 25

96%
9 pps* vs 2016

of required business-critical
direct third-party suppliers
completed on-site audits
as part of our Sustainable
Sourcing Program

6.4MILLION
0.4 MILLION vs 2016

women and girls benefited
in communities around the
world near where we work
(since 2015)

39%
1 pp* vs 2016

women in
management roles

We aim to sustain a world-class workforce by empowering
all of our associates. Diversity, a core PepsiCo value since our
inception, has helped propel our company forward for decades.
In a time of persistent income inequality, we play an important
role in contributing to prosperity and our global reach gives us
a platform for positive impact in the communities where we
work. We’re committed to economic development and the
highest standards of human rights and diversity, and align with
the UN’s “Gender Equality” and “Decent Work and Economic
Growth” Sustainable Development Goals.

PEOPLE

SUSTAINABLE
DEVELOPMENT
GOALS
See page 9 for more
information
*pp(s) = percentage point(s)

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People

More information on other
PwP goals and progress is
in our PwP Performance
Metrics sheet

PepsiCo Sustainability Report 201726

http://www.pepsico.com/sustainability/Sustainability-Reporting

http://www.pepsico.com/sustainability/Sustainability-Reporting

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PERSPECTIVES

with Chloe
Christman Cole
Senior Advisor,
Land Rights and Markets,
Oxfam America

Q What is the biggest human
rights challenge for the food and
beverage industry to address?

A A core challenge for the
industry is how to get down to the
local level, at scale, and quickly.
Companies like PepsiCo need to
know what affected communities
and workers themselves define as
the most pressing human rights
issues. While there will be trends,
this will differ from place to place.
Addressing issues and mitigating
risks require local interventions,
developed in consultation with the
people who live and work there.

SEEKING TO BE A
POSITIVE FORCE IN
THE COMMUNITIES
WHERE WE OPERATE
We believe in building a workforce that reflects
the diverse consumers and communities we
serve. To operate as a global corporate
citizen — and as a positive force in the
community — we need to conduct business
fairly in the global economy, advancing
economic well-being and human rights
across our supply chain. That’s not only the
right way to do business, it’s the way we
uphold our values as a company.

Any steps taken to improve our global food
system must prioritize improving all people’s
livelihoods and working conditions. Protecting
and supporting the safety, wellness and
professional development of our global
workforce and those across our value chain
is important to our success as a company.

Q What would you like to see
the industry do next?

A One of the most important
steps that food and beverage
companies can take is to use their
influence to get others moving.
This includes doing more to
economically incentivize suppliers
— including local suppliers —
to address and prevent human
rights violations, encourage
peer companies to engage in
meaningful collaboration and
engage with governments on
creating enabling environments
for respect for human rights.

Q What progress has PepsiCo
made in addressing challenges
in its supply chain and where
should it focus?

A PepsiCo has taken significant
steps to strengthen its human
rights and related policies and
implementation plans. It now has
the foundation it needs to take this
work to the next level. And there’s a

lot of work ahead, from using all leverage
possible to address known grievances
— such as a land conflict in Brazil — to
ensuring that its suppliers also have the
necessary policies and implementation
plans in place to mitigate risks to people.

Addressing issues and
mitigating risks require
local interventions,
developed in consultation
with the people who
live and work there.”

OUR STRATEGY

Creating change in a complex
industry requires trust and
collaboration among many
diverse stakeholders with
different needs, experiences
and perspectives.

Often, it’s the organizations with the
strongest relationships that have the greatest
leverage for change. By harnessing both our
business and the PepsiCo Foundation, we
seek to leverage our scale and external
partnerships to support women, increase
prosperity in the communities where we
work and ensure that the human rights
of all people in our business, value chain
and communities are respected.

WORKING TO CREATE
POSITIVE CHANGE

PepsiCo and the PepsiCo
Foundation are investing

$100MILLION
toward women’s
economic success

$14.3MILLION
invested to date

ADVANCING RESPECT FOR
HUMAN RIGHTS AROUND
THE WORLD
We continue to advance respect for
human rights in our direct operations,
with our third-party suppliers and with
our other business partners. We track
our progress in a variety of ways,
including annual assessments of our
company-owned manufacturing
operations, ongoing monitoring of
direct third-party supplier compliance
with our Supplier Code of Conduct, and
expanding our Sustainable Farming
Program to thousands of smallholder
farmers around the world.

DIVERSITY
Diversity, a core PepsiCo value since
our inception, has helped propel
our company forward for decades.
We define diversity broadly, including
personality, lifestyle, ways of thinking,
work experience, ethnicity, race,
religion, gender, gender identity, sexual
orientation, marital status, age, national
origin, disability and veteran status.

SEEKING GENDER PARITY IN
MANAGEMENT ROLES AND
PAY EQUITY FOR WOMEN
We continue to support diversity and
working caregivers globally through
gender parity in management roles and
pay equity for women. The percentage
of women in management roles
increased to 39 percent in 2017
globally, and in the 21 countries where
we have measured pay equity, women
and men were paid within one percent
of each other in 2017, based on base
compensation and after controlling
for legitimate drivers of pay.

WORKING TO FACILITATE
WOMEN’S ECONOMIC
SUCCESS
PepsiCo and the PepsiCo Foundation
are investing $100 million by 2025 as
part of our Performance with Purpose
Agenda toward women’s economic
success, with a focus on education and
workforce training, with $14.3 million
invested to date.

More information on PepsiCo’s
work in these areas can be found
in A–Z Topics on pepsico.com

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PepsiCo Sustainability Report 201728

http://www.pepsico.com/sustainability/A-Z-Topics

HUMAN RIGHTS

PROMOTING
HUMAN RIGHTS
AROUND
THE WORLD

Our approach is guided
by the UN Guiding
Principles on Business
and Human Rights, and
it is centered on:

• Embedding respect for human
rights throughout our business

• Conducting due diligence to
proactively identify, address and
track potential human rights
impacts in our value chain

• Engaging with stakeholders,
including rights holders, to
inform our programs and
approach

• Providing effective grievance
mechanisms and access to
remedy in the event we may
have caused or contributed to
adverse human rights impacts

STANDARDS
Our Global Human Rights & Salient
Issues Statement sets out our overall
approach to respecting human rights
in our own operations and in our
relationships with suppliers and other
business partners throughout our value
chain. It’s complemented by a number
of underlying policies and commitments
that we manage in our operations with
our direct suppliers and other business
partners. In our operations, for example,
we have a Global Code of Conduct and
Global Human Rights Workplace Policy
that apply to all PepsiCo employees,
members of the Board when they act
in their capacity as directors and
Joint Ventures over which we have
management control. Our Supplier Code
of Conduct (SCoC) applies to all suppliers,
vendors, contractors, consultants, agents
and other providers of goods and services
who do business with PepsiCo entities
worldwide.

Concerns related to human rights can
be raised through our Speak Up! Hotline,
as well as through our enhanced
agricultural grievance mechanism that
we launched in 2017. The new process
allows third parties, such as international
non-governmental organizations (NGOs),
to raise concerns about environmental
and social issues in our value chain —
including potential human rights, forest
stewardship and land rights issues — for
PepsiCo to review in a transparent and
credible way. The process also has
guidelines that create a path to
successful resolution.

We have established programs to assess
potential risks, independently audit sites,
and help safeguard human rights found
along these areas of our value chain.

.

Global Labor Human Rights
Assessment Program (GLHR)
Our GLHR assesses potential human
rights impacts at all of our nearly 300
company-owned manufacturing sites.
GLHR assessments are conducted by
third-party auditors and conform to the
Sedex Members Ethical Trade Audit
(SMETA) protocol requirements.
The program takes steps to identify
and address the root cause of non-
compliances, including by implementing
on-site corrective action plans.
Approximately 80 percent of our direct
operations have completed GLHR
assessments, and we anticipate
achieving 100 percent completion by
the end of 2018.

Sustainable Sourcing Program
(SSP)
Our SSP assesses risk and monitors
supplier compliance with our Supplier
Code of Conduct through scored
self-assessments and third-party
auditing of our most business-critical
direct suppliers and contract
manufacturing and co-packing locations
across 68 countries. SSP audits leverage
SMETA 4-Pillar requirements. In 2017,
96 percent of required business critical
direct third-party suppliers completed
on-site audits as part of our SSP.

Sustainable Farming Program (SFP)
Our SFP helps us assess our direct
growers, identify potential non-
compliances and implement corrective
action plans to safeguard human rights
and improve agricultural practices at
the farm level.

PepsiCo is committed to respecting
the human rights of workers and local
communities throughout our operations
and value chain. Our aim is that all rights
holders that might be affected by PepsiCo
directly or through our value chain enjoy
the human rights described in the
International Bill of Human Rights and
the ILO Declaration on Fundamental
Principles and Rights at Work.

96%
of required business critical
direct third-party suppliers
completed on-site audits as part
of our SSP

More information is available in
the Human Rights section of A–Z
Topics on pepsico.com

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PepsiCo Sustainability Report 2017 29

https://www.pepsico.com/sustainability/human-rights

http://www.pepsico.com/sustainability/human-rights

SUPPORTING SMALLHOLDER
FARMERS
Mexico is one of PepsiCo’s largest
sourcing regions for palm oil. In Mexico,
palm oil is grown predominantly by
smallholders and in states that have few
drivers for economic development.
PepsiCo identified that boosting
sustainable palm production in the
country can help to support livelihoods
and contribute to economic development
while protecting the environment. We
have taken a leading role in bringing
together companies, civil society,
government and associations to develop
and implement a holistic program to
achieve this.

The program operates at three different
levels: at the sector level (with
Femexpalma, the national palm oil
federation), in the PepsiCo Supply Base
(with our supplier, Oleofinos) and with
smallholders (with Oleopalma, which
includes smallholders in its supply base).

We provided scholarships to local
people to train them as experts to
identify High Conservation Value (HCV)
land. Mexico has around 82,000
hectares dedicated to palm cultivation.
The 50,000 hectares of that total that are
in our supply base will have undergone
HCV assessment by the end of this year.

The first RSPO Smallholders Support
Fund grant for Mexico was launched in
February 2018, supported by PepsiCo.
This three-year program is expected to

benefit more than 2,200 people and their
communities over the next three years.
Smallholders will be supported to obtain
the RSPO Certification, improve incomes
and protect local forests and biodiversity.
The aim is for it to serve as a model for a
sustainable palm oil industry in Mexico.

Indonesia and Malaysia represent
the majority of global palm oil production
and we recognize there are significant
environmental and human rights
challenges, often systemic ones.
Acting alone is not an effective way to
bring about transformational change,
which makes increasing the level of
collaboration particularly important.
In Indonesia, PepsiCo is working with
expert NGOs to implement impact
programs that support sustainable
change among farmers.

Earlier this year, PepsiCo committed to
participate in Oxfam’s FAIR Company-
Community Partnerships project in
Indonesia. The project promotes a model
for sustainable palm oil that benefits
women, smallholder farmers, local
communities, the environment and
participating companies. FAIR
Partnerships address sustainability,
human rights and economic
development issues holistically through
a multi-stakeholder, inclusive and
landscape-based approach. The
initiative will operate as a multi-
stakeholder platform that brings
together companies across the palm
oil value chain, local communities,
local governments and a range of civil
society organizations.

ECONOMIC GROWTH FOR GROWERS

Through our Sustainable Farming Program (SFP), we engage with
growers on farms of all sizes and types around the world to encourage
continuing improvement in sustainable farming practices, expand
respect for workers’ human rights, enhance growers’ capabilities
and address risks. We work with our direct growers to optimize
economic, social and environmental on-farm practices and outcomes.

WORKING TO ACHIEVE
SUCCESS WITH GROWERS
AROUND THE WORLD

SUSTAINABLE FARMING
PROGRAM
Through the SFP, we encourage and
support best practices that benefit
growers, their workers and our
business. As part of the larger SFP
Framework, which comprises
additional environmental and
economic goals, we work with
participating growers to promote the
well-being of agricultural workers
and surrounding communities. As
of 2017, SFP was implemented in
38 countries with active programs
representing over 40,000 growers.

As of the end of 2017, SFP has
active programs representing

>40,000
growers

And was
implemented in

38
countries

Our most recent Palm Oil Action Plan
Progress Report is available in
A-Z Topics on pepsico.com

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For more details on our sustainable
farming protocol and Scheme Rules
visit the A-Z Topics on pepsico.com

PepsiCo Sustainability Report 201730

http://www.pepsico.com/sustainability/palm-oil

http://www.pepsico.com/sustainability/palm-oil

http://�www.pepsico.com/sustainability/A-ZTopics

http://www.pepsico.com/sustainability/agriculture

DIVERSITY AND INCLUSION

At PepsiCo, we’re working to
expand women’s participation
in the workforce and actively
increasing diversity across the
company, including more women
in management. We believe that
empowering women in our
current workforce — and the
next generation — is good for
women and good for business.

EMPOWERING
WOMEN

READY TO RETURN
Ready to Return supports caregivers
who have taken a career break of more
than two years and are looking for
opportunities to return to the workforce.
We provide participants in this paid
10-week program with mentoring and
coaching support, training to refresh
skills and opportunities to network and
learn about working at PepsiCo, easing
the transition back to full-time work.
We are expanding the program into
Brazil and the U.K.

LEAD NETWORK
In March 2017, PepsiCo’s Europe and
Sub-Saharan Africa sector signed a
partnership with influential gender
equality network LEAD — Leading
Executives Advancing Diversity. LEAD is
dedicated to advancing, retaining and
attracting women across Europe’s
Consumer Goods and Retail industry
through education, leadership and
business development. PepsiCo is a
Gold Sector Partner, giving associates
access to their Europe-wide network
and local chapters. As of the end of
2017, five local chapters were launched
in Spain, the U.K., Turkey, Switzerland
and Germany. We will continue to
expand LEAD chapters to other countries
and look to leverage the cross-company
mentoring program.

PEPSICO EMPLOYEES SHARE
STEM KNOWLEDGE
As part of our support for women, we
created the PepsiCo STEM Council in
2014 to attract and retain STEM talent
and to educate and prepare students for
STEM careers. Million Women Mentors
and Career Accelerator Day leverage
the passion of PepsiCo STEM
employees to increase the number
of underrepresented minorities and
women in STEM fields through
education and mentorship. The Million
Women Mentors program at PepsiCo
has thriving chapters in Canada, Ireland
and the U.S. PepsiCo STEM employees
have pledged more than 12,400
mentoring hours with over 600 female
students and early-career professionals

with the goal of connecting 2,200
mentorship pairs by 2022. This global,
multi-company movement has
already surpassed the original goal
of one million completed mentoring
relationships by 2020.

STEM employees have pledged

>12,400
mentoring hours

OUR GIRLS ARE GOING
TO SCHOOL
Seeing that young girls were
dropping out of school at higher
rates than boys, employee
volunteers in Turkey raised funds
to create the Our Girls Are Going
to School scholarship program
(pictured here). The program was
launched in 2009 with a goal of
encouraging girls living in
Southeastern Anatolia to
continue their education after the
age of 14. The project, now
supporting 74 girls, is sustained
through funds donated by
PepsiCo employees, which are
matched by PepsiCo.

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PepsiCo Sustainability Report 2017 31

GLOBAL ACTION

PROSPERITY FOR
COMMUNITIES

THE PEPSICO FOUNDATION
HELPS STRENGTHEN OUR
COMMUNITIES
We want to see positive change in the
world. That’s how the PepsiCo Foundation
was born, and it’s still working to increase
access to nutritious food and safe water,
help young women progress through
school to work, make it easier to recycle,
support communities in times of greatest
need through disaster relief support —
and much more. Here are some of the
ways the Foundation helped last year.

Disaster Recovery. The PepsiCo
Foundation has a long-standing history
of working with relief partners to help
communities that have suffered as a
result of natural disaster. In the aftermath
of Hurricanes Harvey and Irma in the

1  U.S. and Hurricane Maria in
5  Puerto Rico, PepsiCo and Food for

Good worked with local partners like the
Salvation Army to provide more than one
million meals to people affected by the
disasters. We were humbled to support
recovery efforts in the aftermath of
flooding in 6 Peru, wildfires in 7

California and the rebuilding of 180
earthquake-devastated homes in
Morelos, 8 Mexico in partnership
with Habitat for Humanity.

FOOD SECURITY
Akshaya Patra. The PepsiCo Foundation
is “adopting” 35,000 school children (50
percent girls) in Surat and Vadodara,
Gujarat 4  India. These children will
receive school meals for a full year. This
hunger-free education is expected to lead
to a significant increase in school
attendance and enrollment, notably for
girls. The grant will provide eight million
meals and benefit 17,500 young women.

The Global FoodBanking Network
(GFN). The PepsiCo Foundation is
partnering with GFN to expand access
to millions of nutritious meals for hungry
people in a number of countries including

9  Colombia, 10  Dominican Republic
and 11  South Africa, among others.

Our work to help underserved people with
nutritious meals and affordable nutrition
spans the globe from 7  California to
12  Massachusetts and from 13 Egypt

to the 14 Philippines.

WORKFORCE READINESS
Robin Hood Foundation. The PepsiCo
Foundation made a $4 million grant to the
Robin Hood Foundation — 15  New York
City’s largest poverty-fighting organization
— to support high-quality education and
workforce training programs for local
young women and girls. The grant will
fund initiatives to help 20,000 Bronx
women increase their earning potential,
addressing an acute need in New York
City’s poorest borough in which one in
three women is living in poverty.

Women with Purpose. PepsiCo’s
women’s empowerment program in
16 Argentina, 17  Chile, 18  Venezuela,
19  Brazil, 9  Colombia and 8 Mexico

(featured on the following page) is one
powerful example of how the PepsiCo
Foundation supports local, culturally
relevant solutions to prepare women and
girls to enter the workforce in countries
around the world – work enabled by the
company’s global partnership with the
International Youth Foundation, a leading
NGO specializing in preparing young
people to be engaged, productive citizens.

People

EGYPT

SOUTH AFRICA
PHILIPPINES

MEXICO

CALIFORNIA

PERU

INDIA

CHINA

U.S. NEW YORK

MASSACHUSETTS
1

15
12
9
16
19
2
18
10
17
7
6

8 13

11
14
4
3

LATIN AMERICA

ARGENTINA

CHILE

COLOMBIA
BRAZIL

VENEZUELA

PUERTO RICO5
DOMINICAN REPUBLIC

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EXPANDING SAFE
WATER ACCESS
The PepsiCo Foundation has
expanded access to safe water to
nearly 16 million people since 2006
in some of the world’s most
water-stressed areas across the
1 U.S., 2 Latin America,

3  China and 4 India with a
portfolio of partners. As part of its
Performance with Purpose vision and
goal to support a total of 25 million
people with safe water access by
2025, the company has already
invested more than $40 million to
help communities effectively
conserve, manage and distribute
water locally.

$40MILLION
invested to help
communities manage
and distribute water

PepsiCo Sustainability Report 201732

EMPOWERED
WOMEN POWER
ECONOMIES

$1.5MILLION
INVESTMENT SUPPORTING WOMEN IN LATIN
AMERICA THROUGH EDUCATION, EMPLOYMENT
AND ENTREPRENEURSHIP OPPORTUNITIES

When more women work,
economies grow. That simple fact
is why we launched Women with
Purpose, a program designed to
expand women’s economic
horizons by providing the training
and skills they need to compete
effectively for jobs.

To date, Women with Purpose has begun
creating more opportunities for women in
seven Latin American countries. Working
in partnership with the International Youth
Foundation and Fundes, a non-governmental
organization focused on economic
empowerment, Women with Purpose plans
to support at least 12,000 women through
education, entrepreneurship and
employment opportunities over the next
five years. In Brazil, for example, we’re
working with Fundes to train 2,000 women
over the next five years and integrate them
into the local economy, where they’ll
benefit themselves, their families and
their communities, either as employees
or entrepreneurs.

PepsiCo is supporting the program with
a $1.5 million investment, part of our
Performance with Purpose goal to invest
$100 million to support at least 12.5 million
women and girls worldwide by 2025. Our
goal is to build a more diverse, more
inclusive, and more engaged workforce
that reflects and supports the communities
where we do business.

Managing ImpactWelcome Our Approach Products Planet People

I learned a lot of new
information, and other
ways of approaching
projects. The Women
with Purpose program
enriched my life.”
Nadia Bretto
Women with Purpose
Argentina participant

WOMEN WITH PURPOSE
Women with Purpose empowers
women working throughout our
value chain, enabling them to
contribute to improve business
productivity and further their own
development.

PepsiCo Sustainability Report 2017 33

GRI MATERIALITY TOPICS
ASSESSMENT PROCESS

* In this communication and in our other sustainability reports and
statements, when we use the terms “material,” “materiality” and
similar terms, we are using such terms to refer to topics that reflect
PepsiCo’s significant economic, environmental and social impacts or
to topics that substantially influence the assessments and decisions
of stakeholders in what the GRI Sustainability Reporting Guidelines
define as “material topics.” We are not using these terms as they
have been defined by or construed in accordance with the securities
laws or any other laws of the U.S. or any other jurisdiction, or as
these terms are used in the context of financial statements and
financial reporting, and nothing in this communication or other
sustainability reports and statements should be construed to
indicate otherwise.

1
IDENTIFICATION

2
PRIORITIZATION

3
VALIDATION

HOW WE DETERMINE GRI
MATERIALITY TOPICS*
Year-round engagement with diverse
stakeholders informs our sustainability reporting
and overarching sustainability strategy. We
publicly report on topics that are priorities for
both our business and our key stakeholders.

In 2017, we completed our second formal
assessment to identify Material Topics, defined
by the Global Reporting Initiative (GRI)
Sustainability Reporting Guidelines as those
topics “that reflect an organization’s significant
economic, environmental and social impacts;
or that substantively influence the assessments
and decisions of stakeholders.” In addition,
GRI recommends that qualitative analysis,
quantitative assessment and discussion be
used to determine if a topic is material.

Our 2017 assessment of Material Topics included:

Identification, Prioritization and Validation

We will continue to monitor emerging issues
and changes in topics and priorities through
internal discussions, our bi-annual forums with
Ceres and through other external opportunities
as they arise.

Welcome Our Approach Products Planet People Managing Impact

IDENTIFICATION
We identified 28 industry-specific topics for
prioritization, based on industry research and
a benchmarking analysis of competitors and
peers. This includes priorities for not only our
business but also for key stakeholders.

PRIORITIZATION
We prioritized the 28 industry-specific topics
based on feedback from key internal and
external stakeholders through interviews,
surveys and review of source materials.
We interviewed knowledgeable internal
and external stakeholders to gather diverse
insights into topics where PepsiCo has
significant impact, and topics that influence
stakeholders’ view of PepsiCo. We
supplemented these interviews with
internal and external prioritization surveys.

VALIDATION
After analyzing stakeholder input, we
narrowed the list of 28 industry-specific
topics for prioritization to 17 topics specific
to our business across the product, planet,
people and company and governance pillars.
We validated the results in a workshop
with members of our Sustainability,
Communications and Public Policy and
Government Affairs leadership teams.
We then shared results for validation by
members of the PepsiCo Executive
Committee (PEC) before disseminating them
more broadly, both internally and externally.

PepsiCo Sustainability Report 201734

COMPANY &

GOVERNANCE

PEOPLE

PRODUCTS

PLANET

GRI MATERIALITY TOPICS
ASSESSMENT RESULTS

THE RESULTS OF OUR PROCESS TO IDENTIFY
GRI MATERIAL TOPICS
Through our process to identify Material Topics, we reconfirmed that our
identified Material Topics align with our corporate priorities, support our
2025 Performance with Purpose agenda and reinforce the integration of
sustainability throughout our business. The results of this assessment
largely reaffirmed our current Material Topics with only slight changes
from the Material Topics we reported in our 2016 Sustainability Report.

This list of 17 Material Topics comprises issues that we intend to manage,
measure and report on. These are the topics that our stakeholders have
said are the most relevant to PepsiCo, and those that they are most
interested in understanding our management of and progress on. Our
Material Topics may change in accordance with future assessments,
which may result in adopting new Material Topics, should they rise in
importance, or removing current Material Topics, should they no longer
be considered of significant importance.

PepsiCo has an impact on most of these topics through our direct
operations. However, we recognize that for many of these topics,
the most significant impacts occur within our value chain. We seek to
manage these impacts regardless of where they reside through direct
management or through working relationships with partners in our value
chain and industry.

The GRI Material Topics assessment process identifies sustainability-
related topics that are most frequently prioritized in conversations with
external stakeholders focused on sustainability-related topics and that
are important to PepsiCo in achieving our PwP 2025 Agenda.

More information is available in A-Z Topics and the
GRI Index on pepsico.com

PRODUCTS
Food Quality & Safety
Marketing & Labeling
Nutritional Product
Profile

PLANET

Agriculture

Deforestation
Energy & Climate
Change
Operational Waste &
Food Waste
Packaging
Water

PEOPLE
Community
Engagement
Employee Talent &
Diversity
Human Rights
Workplace Health &
Safety

COMPANY &
GOVERNANCE
Ethics & Corporate

Governance

Financial

Performance
Public Policy
Engagement

Supply Chain

Management

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Fo

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Water

Packaging

Agriculture

D
eforestation

O
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Workplace

Health & Saf
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Public Policy Engagement

Supply Chain

Management
Ethics & Corporate

Governance
Financial

Perform
ance

Energy &Climate Change

Welcome Our Approach Products Planet People Managing Impact

PepsiCo Sustainability Report 2017 35

http://www.pepsico.com/sustainability/A-Z-Topics#Materiality

http://www.pepsico.com/sustainability/Sustainability-Reporting

GOVERNANCE

Governance as a driver of performance
We believe strong sustainability governance is the
foundation for delivering on Performance with Purpose
(PwP). At PepsiCo, sustainability topics are integrated
into, and not separate from, our business.

Role of the Board of Directors
As stewards of PepsiCo, our Board plays an essential
role in determining strategic priorities and considers
sustainability issues an integral part of its business
oversight. In addition, to align with our PwP 2025
Agenda, our Board redefined the roles of its Committees
by creating a Public Policy and Sustainability
Committee in 2017. The Committee assists the Board
in providing more focused oversight for the Company’s
policies, programs and related risks that concern key
public policy and sustainability matters.

Role of PepsiCo’s senior leadership
In 2016, PepsiCo reviewed its sustainability
governance structure to identify opportunities to
strengthen the integration of PwP into its business
agenda and processes. Beginning in 2017, the PepsiCo
Executive Committee (PEC) assumed direct oversight
of the sustainability agenda, strategic decisions and
performance management. The PEC is made up of the
Chairman and CEO, Sector CEOs and top functional
leaders, ensuring that sustainability is a key
accountability for every member of our senior
leadership team.

Strategy and progress against our PwP goals are
discussed during meetings of the full PEC four times
per year. In between these meetings, PEC members
remain actively engaged in executing against our PwP
goals, driving the agenda with their teams.

Dr. Mehmood Khan, Vice Chairman and Chief Scientific
Officer, Global Research and Development, oversees
the Company’s implementation of PwP 2025 goals.
Dr. Khan brings deep science-based knowledge and

insights to guide the Company’s product portfolio
transformation, as well as an intimate understanding
of the challenges and opportunities that lie at the
intersection of food, the environment and people.

Thematic and geographic leadership
The PEC has empowered select Senior Vice Presidents
and Vice Presidents within the Company, referred to as
Theme Leads, to create and oversee global strategy
and execution for each of the PwP goals. These Theme
Leads, selected for their subject-matter expertise,
work with teams comprising representatives from
key functions and all geographic sectors to ensure
successful implementation of processes across
our businesses.

Sustainability Office
In 2016, PepsiCo formed a Sustainability Office
to drive governance and delivery of the Company’s
sustainability agenda. The Sustainability Office works
closely with Theme and Functional Leads from across
the business to ensure continued performance
progress against our PwP 2025 Agenda. It also plays
a key role in bringing a sustainability lens to long-term
corporate strategic planning and key business
processes, ensuring that PwP is always embedded
into the fabric of what we do as a company.

Another key role of the Sustainability Office is
managing the integrity of the data on which we
report. A team within the Sustainability Office leads
development of the robust data governance structure
underpinning each of our PwP 2025 goals, ensuring
accuracy and consistency of the data, while driving
accountability among our teams.

ROLES & RESPONSIBILITIES OUR GOVERNANCE STRUCTURE

PE
PSI

CO E
XECUTIVE COMMITTEEPU

BL
IC

PO
LICY

AND S
USTAINABILITY COMMITTEE

BOAR
D OF DIRECTORS

THEMATIC LEADS
• PwP goal roadmap ownership
• Subject matter expertise
• Thought leadership and insights

SECTOR GOAL LEADS
• Execution management
• Local monitoring
• Best practice sharing

SUSTAINABILITY OFFICE
• Strategic framework
• Performance management
• Data integrity

Welcome Our Approach Products Planet People Managing Impact

PepsiCo Sustainability Report 201736

MORE INFORMATION

FORWARD-LOOKING STATEMENTS
This PepsiCo, Inc. (“PepsiCo” or the “Company”) Sustainability Report contains statements reflecting our views about
our future performance that constitute “forward-looking statements” within the meaning of the Private Securities
Litigation Reform Act of 1995. Forward-looking statements are generally identified through the inclusion of words such
as “aim,” “anticipate,” “believe,” “drive,” “estimate,” “expect,” “goal,” “intend,” “may,” “plan,” “project,” “strategy,”
“target” and “will” or similar statements or variations of such terms and other similar expressions. Forward-looking
statements inherently involve risks and uncertainties that could cause actual results to differ materially from those
predicted in such statements, including changes in demand for PepsiCo’s products , as a result of changes in consumer
preferences or otherwise, changes in, or failure to comply with, applicable laws and regulations, imposition or
proposed imposition of new or increased taxes aimed at PepsiCo’s products, imposition of labeling or warning
requirements on PepsiCo’s products, changes in law related to packaging and disposal of PepsiCo’s products, PepsiCo’s
ability to compete effectively, political conditions, civil unrest or other developments and risks in the markets where
PepsiCo’s products are made, manufactured, distributed or sold, the ability to protect information systems against,
or effectively respond to, a cybersecurity incident or other disruption, damage to PepsiCo’s reputation or brand image,
loss of any key customer or disruption to the retail landscape, including rapid growth in hard discounters and the
e-Commerce channel and the other factors that may adversely affect the price of PepsiCo’s publicly traded securities
and financial performance. For additional information on these and other factors that could cause PepsiCo’s actual
results to materially differ from those set forth herein, please see PepsiCo’s filings with the Securities and Exchange
Commission, including its most recent annual report on Form 10-K and subsequent reports on Forms 10-Q and 8-K.
Investors are cautioned not to place undue reliance on any such forward-looking statements, which speak only as of the
date they are made. PepsiCo undertakes no obligation to update any forward-looking statements, whether as a result
of new information, future events or otherwise.

This publication contains many valuable trademarks owned and/or used by PepsiCo, Inc. and its subsidiaries and
affiliates in the U.S. and internationally to distinguish products and services of outstanding quality. All other trademarks
featured herein are the property of their respective owners.

This Sustainability Report was
printed with Forest Stewardship
Council® (FSC®)-certified paper
made from post-consumer recycled
fiber, using sustainable energy and
fully recyclable toners. PepsiCo
continues to reduce the costs and
environmental impact of
sustainability report printing and
mailing by utilizing a distribution
model that drives increased online
readership and fewer printed
copies. You can learn more about
our environmental efforts at
pepsico.com.

PEPSICO WEBSITE
For more information about our company,
our sustainability priorities, our policies and
the awards we’ve received, please see our
corporate website at:

www.pepsico.com

For greater detail on our sustainability
performance, download our PwP Performance
Metrics sheet and see our A–Z Topics on:

www.pepsico.com/sustainability/
Sustainability-Reporting

For additional information about PepsiCo,
please see our latest annual report at:

www.pepsico.com/investors

We also welcome any inquiries on this report or
our Performance with Purpose journey through
email at: performancewithpurpose@pepsico.com

Detailed information on our policies and performance
is in our online A-Z Topics. Topics include, among others:

• Advertising and marketing

• Animal welfare

• Corporate governance

• Deforestation

• Diversity and engagement

• Ethics and integrity

• Health and safety

• Nutritional labeling

• Product safety and quality

• Public policy and political engagement

• Stakeholder engagement

• Sustainable sourcing

• Talent and employee well-being

Welcome Our Approach Products Planet People Managing Impact

PepsiCo Sustainability Report 2017 37

http://www.pepsico.com/sustainability/sustainability-reporting

http://www.pepsico.com/sustainability/sustainability-reporting

CORPORATE HEADQUARTERS
PepsiCo, Inc.
700 Anderson Hill Road
Purchase, NY 10577

Welcome
Our Approach
About Pepsico
CEO Letter
Vice Chairmans Q&A
2017 Financial Performance
Our Sustainability Journey So Far
Progress against our goals
PwP through our VALUE CHAIN
Sustainable Development
Goals
Products
Perspectives
Our strategy
Portfolio transfromation in action
Innovation
Global action
CS – Reformulation
Planet
Perspectives
Our strategy
Agriculture
Climate
Packaging
Waste
Global action
CS – Access to water
People
Perspectives
Our strategy
Human rights
Economic growth for growers
Diversity and inclusion
Global action
CS – Women with purpose
Managing Impact
GRI materiality topics assessment process
GRI materiality topics assessment results
Governance
More information

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