Caesars Entertainment: What the Experts Say

MIT Sloan Management Review asked two professors who are sustainability experts to comment on Caesars’ progress thus far — as well as possible next steps for the company.

Here are the experts’ perspectives.

Michael W. Toffel

Associate professor of business administration at Harvard Business School in Boston, Massachusetts.

Caesars Entertainment’s experience reminds me of many sustainability programs I’ve seen evolve at companies. Often started by enthusiastic employees who create environmental initiatives in their spare time, such programs typically begin with projects that are highly visible to employees and provide both environmental improvements and cost savings (“win-wins”). Picking this low-hanging fruit first makes a lot of sense to gain traction, build momentum and achieve some quick successes. And Caesars went beyond its behind-the-scenes facility operations to also focus on customer-facing activities, cleverly leveraging the power of defaults by switching off refrigerators in guest rooms and requiring customers to opt in if they wanted their linens changed daily.

Caesars’ CodeGreen scorecard incorporates some outcome metrics (such as carbon emission reductions) as well as some process metrics (such as employee engagement) that presumably are meant to be leading indicators of improved outcomes. While environmental indicators should be reported as both total and normalized rates, some of the rates being used — like waste costs and water usage per facility square foot — might not be the most meaningful rates. For example, if daily water usage is a function of the outside temperature and the number of customers and operating hours that day, each of these factors should be incorporated when reporting normalized water usage. Only then can you discern the extent to which improvement programs, whether equipment- or behavior-based, are actually improving performance.

While I believe Caesars needs to embed sustainability program responsibilities into job descriptions and move away from relying on employees’ volunteer efforts, I agree with Loveman’s opposition to using the CodeGreen scorecard as an input to manager compensation. There’s a big difference between a benchmarking tool meant to help managers identify potential opportunities — some of which won’t be relevant or feasible across all facilities — and an assessment tool meant to rate the extent to which managers are effectively leading their facilities to reach their environmental performance targets. Equally aggressive improvement targets will differ across facilities, depending on their most salient environmental issues, their location and age, business growth, customer concerns and available budget. Managers’ effectiveness should thus be judged based on their ability to achieve their customized goals, and not based on a contest that likely would compare facilities facing very different situations.

What should Caesars do next? Caesars’ management appears to be considering how to identify more opportunities in internal operations. It’s hard to know whether this is the best place to focus. I think Caesars should conduct a comprehensive analysis of the environmental impacts of its business, perhaps by engaging an experienced consultant. This analysis should include not only the internal operations, but also the impacts of employee travel, customer travel and the company’s supply chain. For many companies that have already picked their internal low-hanging fruit, shifting their focus to procurement and suppliers can bring about more substantial environmental performance improvements than further incremental investments in internal operations.

Would implementing a series of win-win projects in their internal operations and supply chains be enough to say that Caesars has won its “bet on sustainability”? If Caesars continues investing in environmental initiatives until it exhausts its positive net present value opportunities, the company might well win sustainability awards and perform well in corporate environmental rankings. But would the company be environmentally sustainable? Not if its pollution levels continue to exceed the assimilation capacity of the ecosystems its operations depend on, and not if its uses of renewable resources like water exceed their replenishment rates. As climate change manifests around the world, it is just not good enough to continue to refer to companies as sustainable if they merely slow the pace at which they diminish ecosystems and deplete renewable resources.

Because sustainability issues like aquifer depletion and climate change are too big for individual companies to solve, companies have to leverage their efforts by, for example, publicly supporting a progressive climate policy and insisting that their industry associations do so as well, partnering with nongovernmental organizations promoting low-carbon initiatives, and educating and engaging their customers about environmental issues. Caesars can seize the opportunity to leverage its impressive efforts to scale its impact, which can help bring about the system-level changes that are actually required to achieve sustainability. That would be an impressive Phase 4 for Caesars.

Gregory Unruh

Professor of global business and director of The Lincoln Center for Ethics in Global Management at Thunderbird School of Global Management in Glendale, Arizona.

We often think of sustainability in manufacturing operations with big environmental footprints, but the majority of the U.S. labor force is engaged in service industries like Caesars Entertainment, making this case a valuable counterexample. Caesars has successfully gone after the tangible gains from its sustainability efforts and, as is usually the case, the concrete improvements have been found primarily in the environmental realm. Measures of energy use, water use, waste generation and so on lend themselves to quantifiable and measurable targets that most managers trained in traditional financial accounting methods find comfortable and familiar.

Caesars has also gone after the intangibles of sustainability, which include reputation, brand equity and employee productivity. Caesars’ sustainability efforts clearly improved employee loyalty and motivation and probably lifted the company’s reputation with conference planners. But while improving tangible assets and increasing efficiencies tends to improve sustainability-related intangibles like corporate reputation and employee enthusiasm in the short term, it is likely that future announcements of an additional 10% reduction in water use or another LEED Silver certification will generate diminishing returns in intangible assets like brand loyalty — something Caesars’ management should be prepared for.

Since what’s measured influences managerial behavior, the choice of specific metrics is not only an important motivational question but is also an inherently political decision within an organization. Because Caesars has so many properties in diverse geographies, it’s not surprising that managers at different properties would lobby for metrics that favored their facilities. The CodeGreen scorecard reflects this in that it continues to be weighted toward tangible environmental performance metrics: energy, carbon and recycling. Because these lead to efficiency improvements and thus tangible financial gains, the emphasis on physical facilities may be right for Caesars. But labor costs and marketing are also important expenses, and it may be that a scorecard that emphasizes to a greater degree the intangible benefits of sustainability for employees and customers could foster greater indirect financial gains in terms of employee recruitment, retention, loyalty and motivation along with customer goodwill and brand enhancement. The challenge, of course, is that these benefits are harder to measure and thus more difficult for a scorecard approach.

Caesars has made substantial progress on its own internal operations and can now also begin to focus on opportunities beyond the company’s property lines. Exploring sustainability gains that can be had by reaching into the business ecosystem and engaging with suppliers and other business partners can demonstrate sustainability leadership and extend impacts. For example, encouraging sustainable design thinking in gaming equipment such as slot machines can benefit Caesars as well as the entire industry.

There is an opportunity, and perhaps a responsibility, for executives to lead not just their own company, but their partners and peers as well. Though not mentioned in the case, Caesars is already doing just this through its Commitment to Responsible Gaming. Here, Caesars is recognizing the adverse consequences of gambling on society and is publicly working to mitigate them. This type of leadership is arguably in the long-term interest of Caesars and the industry, as well as society.