Introduction
It has been long said that what goes around comes around and in the corporate world today, much can be said about business dealings with regards to their actions and stakeholders. This essay seeks to investigate the reasons behind social and environmental reporting by three companies- Sainsbury, Morrison and Tesco and the effectiveness of these practices in terms of their social contributions and environmental performance.
We have chosen to analyse our essay theoretically using the stakeholder theory and its’ components. We will analysis how the stakeholder theory has influenced and motivated the corporate social reporting of these three companies While taking into account how the modifications made to the stakeholder theory has influenced the reporting of these companies, if it has, we will also consider the criticisms of the theory to evaluate how these companies have responded to these criticisms, if they have and if so how it has affected their corporate reporting. Our aim is to find out whether these three supermarkets report have stayed with the direction of social reporting in accordance to Robert Edward Freeman’s Stakeholder Theory view or whether their corporate social reporting changed their corporate social reporting in relation to the modification made to the stakeholder theory and/ or whether they have adopted Milton Friedman’s theory which criticises the stakeholder theory.
There is not a formal official definition of supermarkets; the Concise Oxford Dictionary, 1998 defines it as “A large self-service store selling foods, household goods etc.” while Micheals in 2004 describes then to be “A self-service grocery outlet that sells food, beverages and other goods. Norberg-Hodge et al (2002) puts forward two categories of food systems: global food systems and locally adapted food systems. They claimSupermarkets are characterised as being “large-scale, highly mechanized, monoculture, and chemical-intensive methods with production oriented toward distant and increasingly global markets” and therefore fall under the global food systems.
Choosing three companies in the same industry gives us the opportunity to compare like with like; thus, making it easier to assess these companies from a theoretical perspective. Sainsbury, Tesco and Morrisons are some of the most well known supermarkets in the UK, together making up 58% of market share in their industry. It would seem that it is the corporate social reporting of these companies which has contributed to their reputation and brand loyalty that has allowed them to remain an oligopoly industry despite being one of the most profitable industries in the UK. As the supermarket industry is a major part on a regular basis of the average consumer’s life, this would have an implication on the level and regularity of corporate social responsibility that the companies choose. Unlike other industries such as the airline industry which the general public may only use on average once every two year or less. Thus, as the UK public is highly affected by the actions of the supermarket industry, they will keep a close watch on what the companies do. From viewing the companies’ corporate social reports as our starting point, we found that despite being in the same industry, they differ by using different their social reporting strategies and methods in dealing with increasing internal and external stakeholder pressures. Furthermore, these companies have diversified successfully in many other than just food. This intrigued as to why this particular industries has been able to branched out in different industries such as insurance, banking and even movies as Tesco announced on the 24th January how it has been so successful in doing so.
We decided to choose stakeholder theory because through initial research, we found that the definition of stakeholder theory even by researchers in recent years such as Piacentini et al in 2000 is similar to the definition and principals of the Corporate Social Responsibility (CSR) theory which is essentially what we are analysing in relation to the CSR of these three supermarkets. Furthermore, the supermarket industry has grown and changed considerable in the last 60 years, as Blythman, 2005 states claims that in 1950, supermarkets had 20% of the UK’s grocery market, a figure which increased to 80% by 1990. This change has been followed by with numerous scholars adopting the stakeholder theory and making modifications to it in order to meet the changing market as according to Donald and Preston (1995), more than 100 articles and a dozen books have been written regarding the topic. Therefore, making the theory ideal for what we are aiming to achieve.
Stakeholder theory was originally detailed by R. Edward freeman in the book strategic management: a stakeholder approach in 1984. He defines stakeholders as ‘a group of individuals that can affect or be affected by the realization of a company’s objectives.’ Using Freeman’s definition of stakeholder – Stakeholder would mean most groups of a given society. Therefore, managers of these supermarkets would have to take into consideration the interest of different parties of stakeholders in other to have a sustained successful business. These stakeholders under freeman theory include customers, investors, employees, supplier, government and pressure group to name a few.
Taking into account the modifications made to Freeman’s stakeholder theory, Whatever and whatever state that the stakeholder theory has developed into two branches; an ethical (moral) or normative (managerial) branch. The moral perspective of stakeholder theory is similar to freeman’s theory with the managerial theory expressing views held by scholars who adapted and changed their theory to suit the current markets such as Clarkson. Ethical branch argues that all stakeholders should be treaty equally and fairly regardless of the power they possess as stakeholder power is irrelevant. This perspective believes holds the view that all stakeholders have intrinsic rights which should not be violated. Therefore, each stakeholder group’s interests should be considered and not merely because of its ability to further the interest of some other group Donald and Preston (1995).
Clarkson (1995) modified the stakeholder theory and classed stakeholders into primary and secondary stakeholders as he states that with Freeman’s definition of stakeholder many groups can be defined as stakeholders of a company and it would be impossible to meet the interests of all these groups. A primary stakeholder is defined as ‘one without whose continuing participation the corporation cannot survive as a going concern. Secondary stakeholders are defined as ‘those who influence or affect, or are influenced or affected by, the corporation, but they are not engaged in transactions with the corporation and are not essential for its survival’
Clarkson claims that it is the primary stakeholders are the ones that must primarily be considered by management, because for the organization to succeed in the long run it must be run for the benefit of all primary stakeholders.
Clarkson’s definition of primary stakeholders would be similar to the definition of stakeholders applied by many researchers working within a managerial perspective of stakeholder theory, but this focus on primary stakeholders would be challenged by proponents of the ethical branch of stakeholder theory – who would argue that all stakeholders have a right to be considered by management.
The managerial branch of stakeholder theory argues that corporate management are more likely to put the interest of more powerful stakeholders first because like legitimacy theory, it is considered that the expectations of some stakeholders that influence and impact policies of the organisation are going to be treated more favourable and their interests put first.
From viewing the Corporate social reports of the three supermarkets, it does not seem as if they favour any particular stakeholder group. However, whether this principal is actually practiced by the companies is questionable as there is no standard definition and guidelines of CSR which make the reports lack
credibility and as they are produced by the companies themselves who would want to show themselves in a positive light, they might not be entirely accurate.
It could be that the reporting is considered a strategy to influence the organisation’s relationship with other parties with which it interacts and thus increases profits. We say this because one thing that is evident in all three reports studies is the very positive tone used as they strive to portray themselves in a as a vey social responsible business. Also, it seems very user friendly with examples of charity support and photos of friendly happy staff serving happy customers. This seems to contrast some reports from out media outlets such as newspapers. Also, the picture painted of very social responsible businesses is a contrast to Freidman’s’ theory who criticises the Stakeholder theory as he claims that businesses are there just to make profit.
Research has shown that there are many reasons as to why these powerful supermarkets choose to produce these reports and spend increasing amounts of time working on them, however it is obvious that clearly these companies have recognised that it is the stakeholders that are important to ensure that profits continue to rise and so in their opinion CSR reporting is a worthwhile investment. An indication of this importance is illustrated by Tesco employing a Corporate Responsibility Committee of 15 solely responsible for ensuring that these reports are produced, spending millions each year focussing on the community, charities and sustainability issues.
However Milton Friedman, like many free-market economists, was suspicious of any influences that caused the firm to stray from profit maximisation:
‘There is one and only one social responsibility of business – to use its resources and engage in activities designed to increase its profits so long as it stays within the rules of the game, which is to say, engages in open and free competition without deception or fraud’ (Grant, p36, 2008)
Friedman’s opposes stakeholder approach by maintaining the traditional view of the firm in that the management of the firm has a fiduciary duty to put their needs first and enhance value for them. In relation to the supermarkets, it is important to take this view into consideration as although it is obvious that the things that have been written about in these CSR reports equate to positive outcomes, these reports also serve as beneficial to the supermarkets profit margins.
According to Deegan and Unerman (2006) the reputation of any company has an economic value, and so managers will use voluntary reporting practices to seek to protect and enhance the value of the company. Therefore using corporate responsibility reporting as a tool to maintain and enhance the support of economically powerful stakeholders’. This again opposes the moral perspective of stakeholder theory, in stating that there are in fact more significant stakeholders whom should be kept happy irrespective of the rest, and also points to supermarkets focussing on their underlying profits in the long term, regarding this type of reporting merely as another means of positive publicity.
On the other hand long-term profitability is likely to require that a company gains loyalty from its employees, builds trusting relationships with it suppliers and customers and gains support from governments and communities (Grant, p36, 2008). Society today has much greater expectations of these multinational firms, particularly as globalisation has enabled supermarkets to dramatically grow in size and ultimately with that comes great power and responsibility. Therefore with improved corporate image and relations with stakeholders to think about it is arguable, contrary to the opinion of Friedman, as to whether an organisation that is preoccupied with profitability alone could maintain an existence (Deegan and Unerman, 2006). Recruitment is instrumental to success in society, with supermarkets being part of the everyday lives of millions, staffing provides a relationship between the consumer and the business therefore if this is a positive one, it enables the supermarkets able to identify and relate to both who customers are and what they want.
Furthermore it is clear when analysing the reports that the supermarkets are focussed on industry initiatives such as working conditions, equality and diversity, human and animal rights as well as food safety measures. These things relate not only to ensuring consumer boycotts do not occur as a result of negative publicity, nor to ensure that NGO’s remain content with their decision making and operations, but this takes into consideration a questionable stakeholder which is the competitors. Could these reports also be the result of competition between the supermarkets themselves to ensure that not only that they continue to make increasing profits, but also enhance their reputation as a result of winning tangible awards? For example Morrison’s declaring that they were the only supermarket to achieve the Carbon Trust Standard for managing and cutting carbon. These achievements clearly reflect kindly on supermarkets and must also serve to keep particular stakeholders at ease with the performance of the company.
Having analysed the three supermarkets CSR Reports it also quickly becomes apparent that one disadvantage is the fact that there is no standardised reporting guidelines that must be adhered to and therefore it is very difficult to make comparisons. This consequently questions whether environmental reporting systems are an effective practice in terms of those companies’ social contribution because these supermarkets have the power to include ultimately what they feel will benefit them most, and, after reading much literature around the topic it is a general consensus to as whether it may be more important to analyse what they have not written in these reports as opposed to what they have.
Conclusion
Through our analysis of stakeholder theory in relation to the reporting of environmental and sustainability by these internationally adept supermarkets we have found that opinions are very much divided. Supermarkets have obviously grown considerably both in size and power over the past 20 years and with that they have demonstrated through their increased reporting on the very much optional sustainable and environmental issues that they are well aware that the public, including all stakeholders, are keeping a watchful eye upon their performance. This clearly relates to Freemans original detail of Stakeholder theory and it appears that through these reporting methods these multinational corporations are attempting to make all of its stakeholders happy although it is also difficult to measure this, which is highlighted by Sternberg who said that the benefits to each party of stakeholders cannot truly be measured. Having said that there are also factors and opinions that have been made that although they have spent millions of pounds of their profits in order to compile these reports based upon the good things that they are doing for society, this has also allowed them to enhance their own financial returns further, as they make gains from positive publicity which enhance both stakeholder and corporate image, as well as in terms of recruitment.
All things considered it appears that there will be a continuing debate on both stakeholder theory and supermarkets reporting until it becomes a legal requirement to do so and there are formal guidelines set out that must be adhered to, this will allow a more transparent picture of just how much of their time, money and effort that these supermarkets are putting into the CSR Reporting, and in light of the stakeholders, just who, if any, that they are focussing on.
The corporation receives its permission to operate from society, and is ultimately accountable to society for how it operates and what it does (Benston 1982).