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Lovisa Kvarnström
Abstract The objective of the thesis is to analyse how stakeholder influence has transformed sustainability work from being primarily risk management into becoming an integral part of business conduct and even business identities of today. To detect this trend I gather theoretical information that elaborate on the meaning and drivers of sustainable business conduct, sustainability as corporate identity, relevant stakeholders and ways of communicating to stakeholders. A case study of Ben & Jerry’s ice cream company is conducted, as an example of a market leader on sustainable business conduct. By demonstrating the extensive sustainability work that Ben & Jerry’s do, I argue that it has had a clear bottom-up influence on the trend for sustainable business conduct. Together with recent regulatory demands as a top-down influence in markets, I argue that there is evidence of a trend where sustainable business conduct and/or sustainability as business identity is becoming the new norm. Key words: Stakeholders, sustainability identity, sustainable business conduct, CSR, sustainability reporting, Ben & Jerry’s
1. Introduction
Historically the role of business has been a simple one. Creating profit for its shareholders. Slowly this has changed and corporations are no longer only considered accountable to their shareholders but to all their stakeholders. (Grafström et al., 2008, p. 22; European commission strategy, 2011, p. 5) Creating profit is not enough any more. Stakeholders expect companies to behave socially responsible. Besides following applicable rules and regulations, companies are to a much higher degree expected not to harm the environment, respect human rights, be transparent and ethical, maintain a sustainable supply chain, and preferably be a positive force in society. This work is often referred to as sustainable business conduct or corporate social responsibility, CSR. (Lundgren, 2015; European commission strategy, 2011) This is a fascinating change with likely multiple reasons to it. Initially CSR activities primarily consisted of the voluntary actions companies take in addition to the rules and regulations they are legally obliged to take. There are a number of international guidelines available with advice on how to behave sustainable as a company and how to communicate this behaviour to your stakeholders, but they are all voluntary. (E.g. UN Global Compact, OECD multinational enterprises, ISO 260000 etc) (United Nations Global Compact, 2010, chapter 1) Recently however, there has been a regulatory development towards more legal mandatory requirements for companies of a certain size. Especially regarding how companies communicate their sustainability work to their stakeholders. (See for example the UK Modern Slavery Act and the EU Directive 2014/95/EU of the European Parliament and of the Council of 22 October 2014 amending Directive 2013/34/EU as regards disclosure of non-financial and diversity information by certain large undertakings and groups) Consequently there has been an increased push from the regulatory stakeholder on expectations on companies to behave in a socially responsible way. (United Nations Global Compact, 2010, chapter 1) The increase of socially responsible companies is not just explained by changes in relationships with, and expectations from, stakeholders. Some companies in fact have had sustainability as part of their core business strategy and even business identity. Success stories of social entrepreneurs with socially responsible business models such as Ben & Jerry’s ice cream company shows that this strategy can be a unique selling point, which gives the
company a competitive edge. Today Ben & Jerry’s are considered a global leader in sustainable business conduct and an important influence on others. (Edmondson, 2014b) Both regulatory policy changes and inspiration from success stories such as Ben & Jerry’s are likely to have influenced and keep influencing how corporations conduct its business, engage in sustainability work and communicate with its stakeholders. The question is how we see the market going forward. What should companies do to stay ahead of the curve instead of constantly having to adapt to new regulations? Are the companies with sustainability as part of their identity and core business models the leading star on the market as other corporations now have to adapt to new regulations as well as a shifting norm in business conduct? Can it be that sustainability as part of the business identity and core business strategy is moving from being primarily risk management, or certain niche companies’ unique selling point, into becoming the new normal? This is an important and on going discussion, as corporations must know how to stay current, how to engage with all stakeholders and continue to maintain the ever changing expectations on their role in society in order to stay competitive in an ever changing market.
The purpose of this paper is to analyse how stakeholder influence has transformed corporate sustainability work from being primarily risk management into becoming an integral part of business conduct and even business identities of today. The paper aims to show that stakeholder relationships are important factors for why businesses engage in sustainability work. Focus will be on how recent regulatory changes potentially act as a top-down influence for integrating sustainability into the core business model. The paper also aims to show how the success stories of niche companies who have had sustainability as part of their business identity and unique selling point work as a bottom-up influence and role model for other companies today.
2. Theoretical framework This section provides necessary and central information regarding what sustainable business conduct and CSR is, and what motivates it, in order to comprehend how this has evolved over time both in understanding and manifestation. After that, sustainability as identity is studied to illustrate its importance and potential influence on core business models. Then Freemans stakeholder theory is presented, as it is one of the most recognized models when it comes to understanding companies networks and the interdepended relationships in an organization. It also becomes especially significant to identify when taking into account the shift from simply economic growth as a business model caused by changes in stakeholders. Because of new policies being enforced, regulator as a stakeholder is described more thoroughly and lastly why sustainability reporting has become an important tool to communicate with stakeholder.
Since the 1950’s scholars have argued about the role of companies’ and if they have a social responsibility (Grafström et al., 2008, pp. 29-30). Up until the 1990’s corporate focus was to maximize profits for the owners and very few, quite niched companies were concerned with voluntary social activities. In today’s world this has changed. A company that does not reflect on its social and environmental impact and responsibility faces a lot of challenges and risk being outrun by its competitors. This section discusses the theory behind sustainable business conduct and corporate social responsibility, CSR, with a focus on the motivations for companies to engage in CSR activities. For the purpose of this paper, the terms sustainable business conduct and CSR are used interchangeably.
The theoretical framework for sustainable business conduct emanates from the concept of sustainable development. The concept sustainable development was made public and popularized by the UN initiated Report: Report of the World Commission on Environment and Development: Our Common Future (1987). The report defines sustainable development as: “development that meets the needs of the present without compromising the ability of future generations to meet their own needs”. (1987, p. 41) On a subsequent UN conference in 2002, it was further specified that sustainable development consist of three dimensions - economic, social and environmental development. (United Nations, 2002, paragraph 1)
In September 2015 the United Nations agreed on a new global and universal development agenda where 17 new sustainable development goals where identified for the world to strive towards until 2030, the so-called 2030 Agenda. (United Nations, 2015) Governments, companies, citizens and civil society will all have to act together in order to achieve the 2030 Agenda. The global sustainable development goals also function as incentive for companies to conduct their business sustainably and thereby contribute to achieving the goals.
The concept of corporate social responsibility (CSR) is complex and unlike the concept of sustainable development, there is not one definition in use. One researcher found 37 different definitions of CSR in practical use (Dahlsrud, 2008). Some researchers state that it is up to all companies to make their own interpretations of what is supposed to be included in their social responsibility (Grafström et al., 2008, p. 38), which implies that there are even more definitions are in practical use today. The European Commission Strategy of 2011 describes CSR as the “ responsibility of enterprises for their impact on society”. CSR engagement initially started out as voluntary commitments by companies to manage potentially negative consequences of their business, both on an environmental and social level. Over time this has moved towards cooperation and coordination between companies in the same line of industry, between industries and with the public sector. (Grafström et al., 2008, p. 29ff)
A highly debated issue in CSR theory is whether sustainable business conduct is profitable or not. According to Friedman, companies should be focused on profit for the shareholders and stay away from philanthropic matters. (Friedman, 1970) If CSR activities are seen as purely philanthropic activities completely separate from the core business idea, some argue that CSR only diminishes the profit for shareholders and thereby goes against the whole purpose of the company. (Lundgren, 2015) Others argue that corporate social responsibility is an essential condition for companies’ profitability. (Grafström et al., 2008, pp. 31-32) The corporate social responsibility trend can be seen as an adaptation to new market conditions as corporations and individuals alter their behaviour and consumptions because prices and salaries change. (Lundgren, 2015) In theory it is hard to prove that it is specifically the CSR activities that create profit since they are hard to isolate from all other factors that influence a company’s profitability.
Investor demand During the 21st century, the investors’ perspective has become yet another reason for companies’ interest in working with social and environmental responsibilities. (Grafström et al., 2008, p. 157) Especially for companies listed on a stock exchange looking to attract external capital. The number of sustainability ratings available is ever increasing and research indicate that a number of institutional investors are looking into moving their resources away from industries such as oil, gas, arms or alcohol, into more sustainable enterprises. (Kopnina & Blewitt, 2015, p. 175) Consequently, sustainable business conduct becomes a factor in order to attract capital. Being an attractive employer Working actively with CSR can also be a way to keep current employees, attract new and continuously motivate and stimulate employees to doing a good job. (Lundgren, 2015) Studies show that potential for voluntary work is an important factor to consider when choosing employer and that many consider societal responsibility and clear values attractive features in an employer. (Grafström et al., page 156) Favourable regulatory environment An additional driver for engaging in voluntary CSR activities and create and adhere to voluntary guidelines regarding corporate social behaviour, could be to avoid an even stricter mandatory regulatory framework with harsher requirements regarding the company’s environmental and social impact. (Lundgren, 2015)
The papers sustainability identity focus is based on Stewart Albert & David Whetten’s term Organizational Identity , originated in 1985 to describe the aspects of an organization considered to be central, enduring and distinctive. (Whetten, 2013, p. 559)
A company’s identity is made up of many different aspects, a few examples are; the activities, quality, culture, location, line of work, size and history. The identity of a company is also based on others identities, such as it’s stakeholders, and its relation to them. Balmer (2008) adds to the notion of organizational identity, by Albert & Whetten (1985), that the characteristics of a company are not static but flexible and therefore evolving over time.
Companies demonstrating a social responsible identity can gain competitive advantage through its trustworthy image and reputation. (Heikkurinen & Ketola, 2012) Heikkurinen, P. & Ketola suggests that the notions of corporate image and reputation are more shallow concepts and that corporate identity is what lies underneath (2012, p. 327). In a case study made by Heikkurinen in 2010, it said that when companies embraced a responsible identity they were also able to display a more responsible image and reputation. By doing so they could also have a competitive advantage from other companies. (Heikkurinen, P. & Ketola, T., 2012, p. 327; Heikkurinen, P., 2010)
Certain companies are founded with a different agenda than pure profit maximizing. The business idea and the founders’ – so called sustainable entrepreneurs - actual purpose with starting the company is not simply to make money, but to drive society towards a more sustainable direction. (Ottosson & Parment, 2013, p. 88) One could say that sustainability lies in the core business identity. Social entrepreneurs are a kind of sustainable entrepreneurs who have a explicit social mission with the business idea of their company. (Dees, 2011, p. 25) Sustainable entrepreneurs play an important role in providing leadership for sustainable business conduct. Leadership is for example stated to be an important factor for transforming the global economy into being more environmentally friendly. (World Economic Forum, 2016, p. 4) All corporate leaders are not ready for the changes needed for business to be sustainable, or creative enough to find ways past the quarterly report-based business approach and to integrate green and social solutions in the strategic framework of the business. (Lundgren,
Stakeholder view of Firm , seen in figure 1 below, as a way of looking at, and categorizing, central stakeholders of a company. The model gives a simplified image of a company’s network and is presented as a stepping-stone for firms when mapping the stakeholders in its network. However, the model has over time become the standard for corporations when categorizing stakeholders. (Crane & Ruebottom, 2011) The categories generalizations can assist the organizations in becoming more effective and each category can also be broken down into subgroups to display a more complicated and realistic understanding of a firm’s relationships. Fig.1 Stakeholder View of Firm Source: Freeman (1984, p. 25) The idea of stakeholder view of firm suggests that companies need to take into consideration and integrate the relationships with each and every stakeholder to be successful in the long run. It shows that a company is not independent but interdependent as others define the success of the firm, thereby the stakeholders need to be managed and integrated into the firms’ purpose. (Freeman & McVea, 2001) The stakeholder theory by Freeman (1984) was meant to provide a simplistic image of a company’s stakeholders; therefore several scholars have noted the lack of dynamics in the
model, especially during turbulent times as stakeholders shift and the understanding of the company’s network changes. (Fassin, 2010) It should be noted that since stakeholders and their relation to companies are constantly changing, the stakeholder model does not completely accurately depict the complex nature of a company’s stakeholder network. (Mitchell et al., 1997) The stakeholder theory imply there is need to create value for all stakeholders involved as they are all part of the company, this understanding correlates with Porter & Kramer’s (2011) thoughts on creating shared value. Porter & Kramer (2011, p. 66) define shared value as: “ policies and operating practises that enhance the competitiveness of a company while simultaneously advancing the economic and social conditions in the communities in which it operates. Shared value creation focuses on identifying and expanding the connections between societal and economic progress ” As time changes society and business change with it, a company’s purpose can no longer solely be on profits and must instead shift towards creating shared value and long-term goals to once again gain legitimacy and trust. (European Commission, 2011) The companies that manage for its stakeholders, and not just its shareholders, deliver additional value than originally required from its relationship. Combining this with fairness and ethical principles will lead to relationships with stakeholders that are based in trust, respect and mutually beneficial exchanges. The stakeholder theory by Freeman (1984) has often been used as a way of supporting socially responsible companies and its actions. (Harrison, 2013, p. 765)
Governmental organisations are central stakeholders for any company as they set the rules and regulations, as well as promote voluntary guidelines and standards, for business conduct. (Grafström et al., 2008, p. 77) The threat of regulations can be an incentive for corporations to make additional changes to stay one step ahead of policies. (Lundgren, 2015) When it comes to sustainable business conduct, governmental organisations and coalitions of governments have taken an increased role in trying to establish companies’ societal responsibility. (Grafström et al., 2008, p.77; United Nations Global Compact, 2010, chapter 1) There is a growing body of intergovernmental cooperation in the form of voluntary guidelines and standards with advice and recommendation on how to behave as a socially sustainable company, such as UN Global Compact, OECD MNE, ILO tripartite and UN guiding
relationships as it includes the company working proactively together with its stakeholders. The company is not only concentrated on informing or influencing its stakeholders, but is also open for the possibility of being influenced by the stakeholders. By involving stakeholders in the sustainability work, the company gains knowledge of their needs and demands and increases trustworthiness, at the same time as it gets stronger relations to the stakeholders. There are a number of ways to ensure the quality of a company’s sustainability work and communicate this to its stakeholders; two examples are certification and sustainability reporting.
To prove that a company stands for its communicated quality and values it sometimes use different types of quality- and environmental management systems, such as voluntary standards or certifications. These are often used in combination with third-party-accountants verifying its authenticity. Companies can for example use quality control system brands (like ISO 9000) and environmental control system brands (like ISO 14000 and EMAS), or guidelines for public social responsibilities and CSR - Company Social Responsibilities (like ISO 26000). (Swedish Standards Institute, 2015) They can also use ecological or environmental friendly verification brands (like the KRAV-brand in Sweden and FSC,), and socially aimed brands (like Fairtrade) (Fairtrade, 2015; FSC, 2015), where external verification organizations guarantee that the products are in compliance with certain criteria. Since those criteria are transparent and communicated, both media, NGOs, customers and other stakeholders can be sure about the inherent values of the companies’ products, regarding what is socially or environmentally branded.
Simply certifying products is not sufficient to communicate the full scale of a company’s sustainability work. One way of communication, which has become more and more common and significant today, is through sustainability reporting. (European commission, 2011) In a global and digital world where information is accessed instantly and constantly available, any immoral and unjust corporate actions are easily exposed. These technological advances also make it more important to communicate with stakeholders. (Deloitte & WBCSD, 2016, p. 6) Easy access to information through the Internet as well as the growing importance of shared value-creation, good reputation and trademark are considered motivators for
sustainability reports. (Grafström et al., 2008, pp. 36-37) Through sustainability reporting all stakeholders can fin information on what sustainability activities a company takes. The sustainability reporting also caters to the different drivers for sustainable business conduct. For example it helps the reputation, builds trust, communicate to the consumers that the companies are acknowledging their demands, as well as shows investors what makes them attractive. To make sure companies are reporting the correct things, different types of quality- and environmental management systems, such as voluntary standards or certifications, become important along with third-party authentication. In the GRI’s Combined Report 2014 - 2015: Leading for a new era of sustainability (p.11, 23), the Global Reporting Initiative reported that over 19,100 GRI Reports had been published all over the world. This in the period from June 2014 to June 2015, and it was an increase of 4203 new reports from previous year. The ISO, which is represented by one organization per country, reported a number of 162 members in their network of national standards bodies in 2015. (ISO members, 2015)
Based on the theoretical framework, I have identified and described four central factors as the analytical tool for this case study of sustainability business conduct and/or identity. They are; the sustainable business conduct, sustainability as corporate identity, the stakeholder theory and stakeholder communication efforts. The empirical findings of Ben & Jerry’s, as an example of market leader on sustainable business conduct, are analysed through these four lenses.
3. Method To gain a deeper comprehension of sustainable business conduct as identity for corporations, this paper has a large theoretical section to study the meaning and drivers of sustainable business conduct, relevant stakeholders and ways of communicating to stakeholders. The purpose was to grasp the many aspects of a company with sustainability as its business identity as well as its influence on the market. The paper also studies Ben & Jerry’s ice cream company, a market leader on sustainable business conduct.
In the study secondary data is gathered, as the purpose is to analyse the company based on its sustainability reports and “image” that is available to everyone. Interviews with an employee of Ben & Jerry’s was previously scheduled but cancelled due to subjects sudden and long sick leave. The interview subject did however say that any information he could provide on their sustainability work is presented on the website due to transparency policies. Therefor the information gathered online and in books is recognized to be the best way to find the wanted qualitative data regarding the company.
Ben & Jerry’s is an example of a company with a starting intention to integrate sustainability into its corporate identity and its founders could therefore be identified as social entrepreneurs. The company is considered to be one of the first companies in the world to successfully incorporate sustainable objectives and stakeholders, into the enterprise strategy level. (Banerjee, 1999, p. 25) Early in CSR history, Ben & Jerry’s is described as a prime example of a company with active social responsibility. (Dennis et al., 1998, p. 387) Ben & Jerry’s has experienced a dynamic process in terms of stakeholder relationships, for example through the sale to the multinational company Unilever in the year 2000, including both successful sustainability work as well as failures. (Edmondson, 2014 b) Ben & Jerry’s were also among the first companies in the 1990’s to start the trend of publishing assessment reports on its social and environmentally conducts, in efforts to display more than just financial results to its stakeholders. (Freeman et al., 2010, p. 252) Therefore it is the perfect subject company for this case study of a market leader on sustainable business conduct with sustainability at its core business model.
To gain a better understanding of Ben & Jerry’s specific situation I briefly present its history in relation to the company’s sustainability identity by studying Edmondsons (2014a) book: “ Ice Cream Social: The struggle for the soul of Ben & Jerry’s” as well as provide additional sources for validation. Describing the events leading up to the sale to Unilever in 2010 and what happened after, to depict the changing environment and stakeholder influence affecting the company’s sustainability identity over that time. The book is selected based on its knowledge of the company, recognizing the “soul” of the company, and the credibility of the author, privy to first-hand inside information directly from the relevant actors within Ben &
Jerry’s. The information on the company’s history taken from the book, and other sources, are relevant due to the nature of a company with sustainability as its business conduct and identity. It is important to know what the company actually does, how it does it and the efforts it takes to maintain and communicate the sustainability work to comprehend its bottom-up influence. The book by Edmondson (2014a) depicting Ben & Jerry’s history is read as an electronic book, meaning there are no pages available to refer to in the text. Instead there are locations as in-text references to guide the reader to the correct place in the book. When reading an electronic book through mediums, such as Kindle, searches are made from locations not pages. To show the company’s communication with stakeholders, as well as understand its sustainability work, information from their Social & Environmental Assessment Reports (SEAR Reports) are presented as its sustainability reports and tool of communication with stakeholders.
The qualitative data collected from Edmondson (2014a) has the potential to be bias, as it is presented from the company’s perspective and from an author with close linkage to Ben & Jerry’s. However that is also why the book is relevant, as the author has close connections with people involved and has made an extensive qualitative study of the company and its sale to Unilever. The potential bias is acknowledged by corroborating the data with additional sources. This paper does not study company turnover, profitability or consider any other economical aspects of the case company. Nor does it look at consumers’ purchase behaviour regarding the company’s products. The information presented in Ben & Jerry’s sustainability reports are assessed by a third-party accountant firm to make sure that certain indicators presented in the reports are in accordance with the actual facts. Still, it is a selection made by the company itself, and could be biased. However, since the company is transparently presenting both good and bad results in the reports, and the company is in close contact with NGOs and media, the risk for bias is considered small.
