Fair and Ethical Trade Initiatives in the Food Industry

Fair and Ethical Trade Initiatives in the Food Industry

By

Annejet Pette

Fair and Ethical Trade Initiatives in the Food Industry

A study carried out for the Organisation for Economic Co-operation and Development

Author: Annejet P. Pette

Supervisor OECD: Dr. L. Fulponi

Supervisors University: Prof. Dr. L. Karsten

of Groningen Dr. H.C. van der Blonk

Amsterdam August 2003

Preface

This thesis is the result of a research conducted for the Department for Food Agriculture and Fisheries of the Organisation for Economic Co-operation and Development, written as a final assignment for obtaining my Masters degree in International Business at the University of Groningen. (Faculty of Management & Organization). My research has been conducted to find out in what way the department can contribute to support further developments in the field of fair and ethical trade in the Food Industry.

I would like to thank Mr. Loek Boonekamp for giving me the opportunity to do an internship at the OECD. It has been a very interesting experience to work in an International Organization for a while and to get a grip on the way the relations between International Organizations and business and industry are being organized. Furthermore I would like to thank Dr. Linda Fulponi, who came up with the idea for this assignment, for her guidance, her useful feedback during my time at the OECD and ultimately for her friendship. Also I would like to thank the participating companies, SaraLee/DE, Ahold, Auchan and Malongo for their time and cooperation.

Finally, I would like to thank my supervisors at the University of Groningen, Prof. Dr. L.

Karsten and Dr. H. van der Blonk for their time and valuable remarks regarding this thesis.

Annejet Pette

Amsterdam, August 2003

Table of Contents

PREFACE

CHAPTER 1 INTRODUCTION... 6

1.1 I

NTRODUCTION TO THE RESEARCH

... 6

1.2 R

EADER

... 7

CHAPTER 2 THE OECD ... 8

2.1 I

NTRODUCTION

... 8

2.2 T

HE

OECD ... 8

2.3 C

ORPORATE

S

OCIAL

R

ESPONSIBILITY

: H

ISTORY

... 9

2.4 C

ORPORATE

S

OCIAL

R

ESPONSIBILITY

: D

EFINITION

... 10

2.5 T

HE

OECD G

UIDELINES FOR

M

ULTINATIONAL

E

NTERPRISES

. ... 11

2.6 T

HE

G

UIDELINES COMPARED TO OTHER

CSR I

NSTRUMENTS

... 13

CHAPTER 3 RESEARCH DESIGN ... 14

3.1 I

NTRODUCTION

... 14

3.2 B

ACKGROUND

... 14

3.3 P

RIVATE

I

NITIATIVES

... 14

3.4 C

ONCEPTUAL

D

ESIGN

... 15

CHAPTER 4 METHODOLOGY... 18

4.1 I

NTRODUCTION

... 18

4.2 S

ELECTION

C

RITERIA

... 18

4.3 C

OUNTRIES REPRESENTATIVE FOR CONTINENTAL

E

UROPE

... 19

4.4 T

YPIFICATIONS OF THE RESEARCH

... 21

4.5 D

ATA GATHERING

... 21

4.6 D

ATA

A

NALYSIS

... 22

CHAPTER 5 FAIR AND ETHICAL TRADE... 23

5.1 I

NTRODUCTION

... 23

5.2 D

EFINITIONAL CONCEPTS FAIR TRADE AND ETHICAL TRADE

... 23

5.3 C

RITERIA FAIR TRADE AND ETHICAL TRADE

... 24

5.4 OECD

GUIDELINES ON

E

MPLOYMENT

C

ONDITIONS

... 25

5.5 W

HY IS THIS AN ISSUE FOR COMPANIES

? ... 27

5.6 W

HY IS THIS IMPORTANT FOR SUPPLIERS IN THE

S

OUTH

? ... 27

CHAPTER 6 THEORETICAL FRAMEWORK ... 29

6.1 I

NTRODUCTION

... 29

6.2 A

N INTEGRATED APPROACH TO

CSR... 29

6.3 T

OTAL

R

ESPONSIBILITY

M

ANAGEMENT

... 30

6.4 I

NSPIRATION

: T

HE

R

ESPONSIBILITY

V

ISION

... 32

6.5 S

TAKEHOLDER MANAGEMENT

... 33

6.6 I

NTEGRATION

... 35

6.7 L

EARNING

, I

MPROVEMENT AND

I

NNOVATION

... 37

6.8 A

N

I

NSTRUMENT FOR

TRM

ASSESSMENT

... 39

CHAPTER 7 RESULTS... 40

7.1 I

NTRODUCTION

... 40

7.2 I

NSPIRATION

... 42

7.3 S

TAKEHOLDERS

... 50

7.4 I

NTEGRATION

... 54

7.5 L

EARNING

, I

MPROVEMENT

, I

NNOVATION

... 57

CHAPTER 8 ANALYSIS ... 59 CONCLUSIONS AND RECOMMENDATIONS ... 61

BIBLIOGRAPHY

APPENDIX: BSR STUDY

Chapter 1 Introduction

1.1 Introduction to the research

As the globalization of the economy has accelerated, companies have extended their business into every corner of the world making them real global players with an enormous amount of power and influence on the markets in which they operate. At the same time companies are no longer seen as mere producers and providers of goods and services and profit maximization is no longer their only concern. Certain expectations of our society are being pressed on organizations by a wide variety of stakeholders. Organizations are increasingly expected to go beyond their narrow economic and legal responsibilities by helping society in a broader way.

In relation to this we often talk about Corporate Social Responsibility (see §2.3).

The OECD has been involved in research in the area of corporate social responsibility since the 1970s and they have developed a set of guidelines, the OECD Guidelines for Multinational Enterprises, which aim to encourage responsible business conduct (also see

§2.4). These Guidelines apply to all companies operating in and from OECD countries and all types of industry. On the basis of these guidelines companies often formulate their own strategy in the field of corporate social responsibility. This usually means that they formulate a corporate code of conduct setting forth commitments in such areas as labour relations, environmental management, human rights etc. Through these private initiatives companies show their different stakeholders that they acknowledge their responsibility to society and that they are committed to improve the company’s conduct.

Recently, the OECD Committee for International Investment and Multinational Enterprises has published a report on Corporate Social Responsibility (CSR) that provides an analysis of these private initiatives taken by companies in the OECD member countries. It sheds light on various questions like what are firms and business associations doing? What contributions, if any, have these initiatives made to improve the business sector’s ability to comply with law and regulation and to respond to broader societal expectations?

While this report gives a profound analysis of the industry on the whole, hardly any research exists that addresses the different CSR challenges faced by companies in specific industry sectors.

The Department for Food, Agriculture and Fisheries, for whom I’m conducting this research, is interested in exploring potential fields of interest for the future. There has been a growing awareness that the department should focus more on the food industry in its research. Most research relates to the fields of primary agriculture and fisheries but hardly any research covers topics specifically related to food industry issues. The department is now evaluating what could be potential research areas to work on in relation to food and the food industry.

Corporate social responsibility is at present one of the major topics the food industry is dealing with. Therefore the department is interested in a study on how the industry is dealing with CSR and what way the department can contribute to support further developments.

The reasons mentioned above form the driving force behind this research and have led to the formulation of the following research assignment.

“To find out for the Department for Food, Agriculture and Fisheries what they can do in the

field of CSR in relation to their activities for the food industry.”

1.2 Reader

In the short introduction above the driving forces behind this research were explained. The Department for Food, Agriculture and Fisheries wants to find out what they can do with CSR in relation to their activities for the food industry. The next chapter starts out with a short introduction of the OECD. The concept of Corporate Social Responsibility will be defined and discussed in relation to the work of the OECD. The focus will mainly be on the OECD Guidelines for Multinational Enterprises, which provide a framework for good business conduct. A comparison of the OECD Guidelines to other instruments for CSR will show that the OECD Guidelines provide relatively little detail on social aspects. The third chapter provides the research design. The broad topic of CSR will be further specified to the food industry. One of the important topics is fair and ethical trade, this will be the focus of this research. The aim is to find out what the approach of the food industry is in the field of fair and ethical trade in order to identify future work/policy for the Department. Therefore I will do a case study among four food companies in France and The Netherlands. This chapter further presents the relevant research questions, the research model and the definitional concepts. In the fourth chapter, the methodology will be discussed. The choice for the companies researched (retailers and coffee roasters) will be explained based on two criteria;

‘sectors of concern’ and ‘global operations’. Further this chapter describes the choice of

countries, the typifications of the research and the research method. Chapter 5 is devoted to

the two main concepts in this research; fair trade and ethical trade. It is hard to distinguish

between the concepts, therefore several definitions will be discussed. Ethical trade deals with

working conditions in mainstream production chains and fair trade is primarily focused on

strengthening the economic position of marginalized producers in trading chains. Criteria for

both concepts are defined and the OECD Guidelines are discussed in relation to fair and

ethical trade. The Guidelines appear to only cover topics related to ethical trade. Chapter six

presents the literature study that was conducted to find out what systems companies should

develop to back up their voluntary commitments. A framework for Total Responsibility

Management was developed and specified to fair and ethical trade issues. Four main aspects

were identified: ‘inspiration’, ‘stakeholders’, ‘integration’ and ‘learning’. The framework

developed in this chapter served as an instrument to study the four companies. The results for

each of the companies are presented in chapter 7 and chapter 8 provides a brief analysis. The

results show that each of the companies has a very different approach to fair and ethical trade,

but they all try to position themselves. Not all of the approaches meet the criteria for fair and

ethical trade as set out in chapter 5. Further the cases demonstrate that the commitments made

often aren’t backed up by the management systems described in the TRM framework. This

indicates that it is possible that commitments made contain empty promises or ungrounded

statements. The conclusions and recommendation are presented in the final chapter.

Chapter 2 The OECD

2.1 Introduction

In this chapter I will give a short description of the OECD, the history of the organization and the type of work that it does. I will also discuss the concept of Corporate Social Responsibility, in a historical as well as a contemporary context, the definition applied by the OECD, and the different aspects of which the concept consists. Further I will elaborate on the OECD Guidelines for Multinational Enterprises as a tool for Corporate Social Responsibility and I will finish by comparing these Guidelines to other instruments for Corporate Social Responsibility.

2.2 The OECD

The OECD is the international Organisation for Economic Co-operation and Development. It grew out of the Organisation for European Economic Co-operation (OEEC), which was formed to administer American and Canadian aid under the Marshall plan for the reconstruction of Europe after World War II. Since it took over from the OEEC in 1961, the OECD’s vocation has been to build strong economies in its member countries, improve efficiency, hone market systems, expand free trade and contribute to development in industrialized as well as developing countries.

The OECD’s mission is to promote policies designed:

- to achieve sustainable economic growth and employment and rising standards of living in member countries while maintaining financial stability, so contributing to the development of the world economy

- to assist sound economic expansion in member countries and other countries in the process of economic development

- to contribute to growth in world trade on a multilateral non-discriminatory basis.

¹

Today the OECD groups 30 member countries

²

sharing a commitment to democratic government and the market economy. With active relationships with some 70 other countries, NGOs and civil society, it has a global reach. Their aim is to discuss, develop and refine economic and social policies. They compare experiences, seek answers to common problems and work to co-ordinate domestic and international policies to help members and non- members deal with an increasingly globalized world. These exchanges can lead to agreements to act in a formal way, for example by establishing legally binding agreements, but they can also lead to ‘soft law’, non-binding instruments on difficult issues such as its Guidelines for Multinational Enterprises. In this research the focus will be on ‘soft law’.

Two related areas of research in the OECD are Corporate Responsibility and the Guidelines for Multinational Enterprises. The OECD works together with governments, business society and NGOs to promote Corporate Responsible conduct in its member countries. In this light they have developed the Guidelines for Multinational Enterprises, which provide voluntary principles, and standards for responsible business conduct in a variety of areas. The guidelines can be seen as a tool to encourage corporate responsibility.

1

Article 1 of the OECD Convention

2

Member Countries: Australia, Austria, Belgium, Canada, Czech Republic, Denmark, Finland, France,

Germany, Greece, Hungary, Iceland, Ireland, Italy, Japan, Korea, Luxembourg, Mexico, Netherlands, New-

Zealand, Norway, Poland, Portugal, Slovak Republic, Spain, Sweden, Switzerland, Turkey, United Kingdom,

United States.

I will now shortly discuss the concept of CSR, following I will further elaborate on the OECD Guidelines in relation to corporate responsibility and in relation to other guidelines.

2.3 Corporate Social Responsibility: History

The Concept of Corporate Social Responsibility has a long history; it is possible to trace writings about the role of business in society for centuries.

Claude Henri de Rouvroy, Compte de Saint-Simon (1760-1825) was a French philosopher who was devoted to the study of science and society. He was passionate about the science of

“le bien public” or the common good and foresaw a great role for business or “l’industrie” to play. Saint-Simon heavily criticized the establishment of noble men, priests, military and the like who gave direction to society and exploited the much larger group of workers “la classe industrielle”. According to Saint-Simon it was the elite of the working class (the entrepreneurs and scientist) who brought real wealth to France and thus they were the ones who should govern. He found that this industrial class had sufficient supremacy and capacity to take control of the direction of society.

³

In this industrial society the entrepreneurs should take responsibility for the fate of the workers and the goal of economic development was to improve the moral and physical condition of the majority of the people:

“Le but du développement économique est en effet d’améliorer le sort des prolétaires des villes et des champs, de transformer le sort de la classe qui n’a point d’autres moyens d’existence que le travail de ses bras, ce qui revient à améliorer le plus possible, et, en premier lieu, la condition ‘morale et physique’ de la majorité de la population.”

⁴

Saint-Simon’s writing on the reform of society and the role of “l’industrie” can clearly be marked as an early writing on corporate responsibility. Looking at more recent history, president Franklin D. Roosevelt’s New Deal can be identified as one of the roots of Corporate Social Responsibility. In the 1920s the thought that business interests and national interests were aligned predominated in the United States. The notion was that government should not interfere with economic matters, this politics of ‘laissez faire’ resulted in a concentration of economic and political power in the hands of an exclusive group of businessmen and bankers.

Many considered this growing concentration of wealth and power in the hands of big business as one of the main causes for the Great Depression that started in 1929. To fight the crisis of the Depression the Roosevelt Government took several measures during the 1930s that were meant to submit business to stronger regulations.

In 1933 The National Recovery Administration (NRA) was set up to try to stimulate companies to adopt company or industry codes regulating things as minimum wages, working hours etc. In ’35 the work of the NRA was declared unconstitutional by the Supreme Court, however in the same year the Wagner Act did pass legislation. The Wagner act (1935) regulated the right to association and collective bargaining. Later in 1938, the fair Labor Standards Act established minimum wages and maximum working hours for workers in interstate trade, prohibited child labor under sixteen and hazardous occupations for children under eighteen.

Roosevelt’s New Deal was not an overall success but it did bring about some very meaningful reforms. As the American historian Degler writes in this respect: “Much of what is taken for

3

Taken and translated from: Saint-Simon, sa vie et ses travaux par M.G. Hubbard, 1857, Guillaumin et Cie, Librairies, Paris.

4

http://www.denistouret.net/ideologues/Saint-Simon.html

granted today as the legitimate function of government and the social responsibility of business began only with the legislation of these turbulent years” (Degler, 1970)

While the examples of Saint Simon and Roosevelt’s New Deal are clearly precursors of the discussion on corporate social responsibility, formal writings on corporate social responsibility didn’t occur until later. According to Archie Carroll (1999), formal writings on the topic are largely a product of the 20

^th

century, beginning in the 1950s, which marks “the beginning of the modern era of CSR”.

2.4 Corporate Social Responsibility: Definition

The last decades have been marked by numerous writings and discussions about what CSR actually is and what can be expected of business society in this field. The rise of corporate activity has resulted in an increase in public concern at the effect of businesses on the people and the environment of countries where they operate. The OECD gives the following description of the concept:

“Corporate responsibility involves the search for an effective “fit” between businesses and the societies in which they operate. If the actions of both business sectors and societies are successful, then the “fit” between the two helps to foster an atmosphere of mutual trust and predictability that facilitates the conduct of business and enhances economic, social and environmental welfare. ‘Corporate Responsibility’ refers to the actions taken by businesses to nurture and enhance this relationship with society.” (OECD 2001b)

This definition clearly underlines that business and society are interwoven and should not be seen as distinct entities. Because of this relationship between business and society, society has certain expectations for appropriate business behavior. Donna Wood (1991) distinguishes between three distinct though related types of expectations: expectations placed on all businesses because of their roles as economic institutions (institutional level), expectations placed on particular firms because of what they are and what they do (organizational level), and expectations placed on managers and others as moral actors within the firm (individual level). This research deals mainly with expectations at the organizational level. According to Preston and Post (1975), businesses are responsible for outcomes related to their primary and secondary areas of involvement with society. This means that they are responsible for solving problems that they have caused, and for helping to solve problems and social issues related to their business operations and interests. So, for example, a primary area of involvement is when a company causes environmental damage because of its dumping practices and an example of a second area of involvement is working conditions at suppliers, since the company buys from these suppliers they at least share some of the responsibility for the conditions under which the people have to work.

Secondly the OECD definition points out that the “fit” between business and society will

“enhance economic, social and environmental welfare”. This is also known as the Triple P Bottom Line principle:

- Profit: the production of goods and services; profit as a benchmark for public esteem;

- People: the consequences for people, inside and outside the enterprise;

- Planet: the effects on the natural environment. (SER, 2001)

In the discussion of the definition above I have mentioned many times the words ‘business’,

‘society’ and ‘expectations’. But what constitutes ‘society’ and who have these ‘expectations’

of business? In relation to this we often talk of stakeholders. Freeman (1984) has defined

stakeholders as “Any group or individual who can affect, or is affected by, the achievement of a corporation’s purpose”. In this broad definition we could say that stakeholders constitute the society in which companies operate and thus it is also these stakeholders who have certain expectations of companies.

The OECD tries to help and stimulate companies to improve their overall performance on the three dimensions of Corporate Social Responsibility and thus the relationship with society.

For this purpose, the OECD Guidelines for Multinational Enterprises are very important because they set forth recommendations for company behavior in all different areas of business.

2.5 The OECD Guidelines for Multinational Enterprises.

The OECD has been involved in research in the area of corporate responsibility since the 1970s. In 1976 the initial OECD Guidelines for Multinational Enterprises (further referred to as the Guidelines) were formulated.

The Guidelines are “recommendations addressed by governments to multinational enterprises operating in or from adhering countries which provide principles and standards for responsible business conduct consistent with applicable law” (OECD annual report 2001).

At the outset the Guidelines were intended to provide a framework for good business conduct and, as part of the wider OECD Declaration on International Investment and Multinational Enterprises, to improve the climate for foreign direct investment.

In 2000 the Guidelines were revised to bring them up to date in the rapidly changing global economy. Whereas corporate responsibility used to be seen as a local issue, the renewed guidelines deal more with the social and ethical issues that come with crossing borders. The revised Guidelines for the first time included references to protection of human rights, combating bribery and protecting consumers. Further, the business community was actively involved in the revision of the Guidelines, which has brought added value to the Guidelines for business.

There are 36 countries that adhere to the Guidelines; these include the 30 OECD member countries plus Argentina, Brazil, Chile, Estonia, Lithuania and Slovenia. The Guidelines have been translated into nearly all of the languages of these countries. The common aim of the governments adhering to the guidelines is to encourage the positive contributions that multinational enterprises can make to economic, environmental and social progress and to minimize the difficulties to which their various operations may give rise.

I will now give a short description of the ten main issues addressed in the OECD Guidelines for Multinational Enterprises

⁵

;.

I. Concepts and Principles: sets out the principles, which underlie the Guidelines, such as their voluntary character, their application world-wide and the fact that they reflect good practice for all enterprises.

⁶

5

For full text of the OECD Guidelines for MNEs see www.oecd.org

6

Governments wish to encourage the widest possible observance of the Guidelines, MNEs as well as Small and

Medium sized companies are encouraged to observe the Guidelines recommendations to the fullest extent

possible.

II. General Policies: contains the first specific recommendations, including provisions on human rights, sustainable development, supply chain responsibility, and local capacity building, and more generally calls on enterprises to take full account of established policies in the countries in which they operate.

III. Disclosure: recommends disclosure on all material matters regarding the enterprise such as its performance and ownership, and encourages communication in areas where reporting standards are still emerging such as social, environmental and risk reporting.

IV. Employment and Industrial Relations: addresses major aspects of corporate behaviour in this area including child and forced labour, non-discrimination and the right to bona fide employee representation and constructive negotiations.

V. Environment: encourages enterprises to raise their performance in protecting the environment, including performance with respect to health and safety impacts. Features of this chapter include recommendations concerning environmental management systems and the desirability of precaution where there are threats of serious damage to the environment.

VI. Combating Bribery: covers both public and private bribery and addresses passive and active corruption.

VII. Consumer Interests: recommends that enterprises, when dealing with consumers, act in accordance with fair business, marketing and advertising practices, respect consumer privacy, and take all reasonable steps to ensure the safety and quality of goods or services provided.

VIII. Science and Technology: aims to promote the diffusion by multinational enterprises of the fruits of research and development activities among the countries where they operate, thereby contributing to the innovative capacities of host countries.

IX. Competition: emphasizes the importance of an open and competitive business climate.

X. Taxation: calls on enterprises to respect both the letter and spirit of tax laws and to co- operate with tax authorities.

The OECD Guidelines are a non-binding instrument, which means that observance of the recommendations mentioned above is voluntary for businesses. However adhering governments are committed to promoting them and to make them influential among companies operating in or from their territories. Every adhering government was obliged to set up a National Contact Point (NCP). These are often government offices, but many countries use a tripartite structure involving government, business and labour. The NCP is responsible for encouraging observance of the Guidelines in its national context and for ensuring that the Guidelines are well known and understood by the national business community and by other interested parties.

The national Contact Points use the Guidelines to improve understanding of the meaning of

corporate responsibility within national business communities and to encourage the

development of the management expertise that permits norms for responsible conduct to be

translated into firms’ daily operations. When issues arise concerning implementation of the

Guidelines in relation to specific instances of business conduct, the NCP is expected to help

resolve them. Any person or organisation is allowed to approach a NCP to enquire about a

matter related to the Guidelines. The different NCP’s meet every year to share their

experiences and to report to the Committee on International Investment and Multinational

Enterprises (CIME), which is the OECD body responsible for over seeing the functioning of

the Guidelines. These annual meetings of the NCP’s, together with contributions by

International Organizations, Businesses, Trade Unions and NGOs, helps the CIME to take

steps to further enhance the effectiveness of the OECD Guidelines.

2.6 The Guidelines compared to other CSR Instruments

Companies use the OECD Guidelines and other such instruments as guidance to understand their responsibilities and to formulate public commitments related to various aspects of business conduct. These voluntary commitments of companies are often referred to as, codes of conduct.

In 2000, Business for Social responsibility

⁷

(BSR), a non-profit organization that promotes sector collaboration and contributes to global efforts to advance the field of corporate social responsibility, has conducted a review of the prominent initiatives shaping individual company initiatives. In addition to the OECD Guidelines, the following instruments are reviewed in the research: the Caux Principles for Business, the Global Reporting Initiative, Global Sullivan Principles, the Principles for Global Corporate Responsibility: Benchmarks, Social Accountability 8000 (SA8000) and the United Nations Global Compact. The BSR study identifies eight broad issue areas of corporate responsibility – accountability, business conduct, community involvement, corporate governance, environment, human rights, consumer protection and labour relations. The BSR report then provides detail on treatment of these eight broad areas in the form of 54 specific issues. The general impression from this research is that there are major differences among the different instruments in terms of coverage, concepts and style. For an overview of the results of each of the instruments on the various topics I refer to appendix I, here I will only discuss the results in relation to the OECD Guidelines.

The OECD Guidelines address a wide range of issues; they deal with all eight of the major issues mentioned in the review. In addition to this, the Guidelines also address topics that are not covered in the BSR review such as the recommendations made in the “taxation” chapter of the OECD Guidelines. Further, the Guidelines treat each of the eight issue areas to a relatively detailed extend. Of the 54 more specific corporate responsibility issues identified in the BSR research, 38 are covered by the Guidelines. So, in general, the Guidelines make quite specific recommendations, however there is one issue area that isn’t treated to the same extend. The Guidelines’ treatment of human rights issues provides relatively few details and does not deal with issues such as working hours and indigenous peoples’ rights (see table).

Table 1: A brief summary of issues referenced. Information prepared by BSR November 2000

7

BSR advises companies on the design of their corporate responsibility programmes. See www.bsr.org Corporate Social Responsibility

issues referenced

OECD Guidelines for Multinational Enterprises

Human Rights

Broad/General reference X

Health and Safety X

Child labor X

Forced Labor X

Freedom of Association/

Collective bargaining X

Wages and benefits (including

"living wage")

Indigenous peoples' rights

Appoint designated person with

responsibility for human rights

Discipline/Use of security forces

Working hours/Overtime

Chapter 3 Research Design

3.1 Introduction

In this chapter I will start by outlining the background for the research, which follows from the discussion in the previous chapters. Next, the conceptual design will be formulated which deals successively with the research objective, the research model, the research questions and the relevant definitions and demarcations.

3.2 Background

In chapter 1 it was explained that the OECD Department for Food, Agriculture and Fisheries is interested in industry specific research on CSR and topics of special interest for the food industry.

The food industry has been described as ‘a minefield of cultural and economic sensitivities’

(Financial Times, 2001). For many reasons people have very strong-held views about what they eat and drink. This creates a very complex set of responsibilities for companies in this sector. Prescott et al. (2002) come up with four major CSR challenges, which food companies have to face. These are Sustainable agriculture, Ethical trade, Food safety and Nutrition, lifestyle and marketing. While these four groups of CSR challenges certainly don’t give a complete picture of all the CSR issues facing the food industry, they do give a good view of some of the major challenges facing multinational food companies.

In the second chapter the concept of Corporate Social Responsibility has been explained and in relation to this the role of the OECD Guidelines for Multinational Enterprises. A discussion of the Guidelines in comparison to other instruments for CSR showed that, although the Guidelines cover all three dimensions of CSR (profit, people, and planet), the treatment of Human Rights issues wasn’t as extensive as the treatment of other issues. Ethical trade deals with human rights issues in working conditions, it aims to ensure that conditions within mainstream production meets basic minimum standards. In relation to ethical trade Prescott et al. also mention fair trade. Fair trade aims to strengthen the economic position of marginalized producers in trading chains. (Definition fair and ethical trade at end of chapter, more thorough discussion in chapter 5)

So this research focuses on fair and ethical trade in the food industry first of all because it is one of the major CSR challenges food companies have to face in the globalized economy and secondly because of the thinner coverage of these issues in the OECD Guidelines.

3.3 Private Initiatives

I explained before that the OECD Guidelines are an instrument to help companies improve their overall social performance in relation to society. Companies often use the Guidelines, and other such instruments, to formulate their own policy in the field of CSR often referred to as private initiatives or voluntary commitments. These initiatives involve the issuance of corporate codes of conduct setting forth commitments in such areas as labour relations, environmental management, human rights, consumer protection and fighting corruption.

According to the OECD, over the past years, there has been a major increase in the amount of

companies issuing such a code. Yet there is little agreement about what these initiatives mean

or how effective they are. It is important to stress that the issuance of a code of conduct is

only of any meaning when it is backed up by concrete systems, and it is exactly the lack in

concrete systems that is often the focal point of criticism. Companies should be able to assure

their stakeholders that they are living up to their commitments. Therefore in this research I will look at some specific cases to find out what it is that companies do in reality.

3.4 Conceptual Design

Thus this research focuses on the social dimension of CSR and more specifically on fair and ethical trade. I want to know what kind of commitments food companies are making in the relation to fair and ethical trade. Further I want to know what companies do to back these commitments up with concrete actions. This research will help me to define what might be areas where the Department for Food, Agriculture and Fisheries could do some industry specific work in addition to the Guidelines.

Research Objective:

“To give the OECD Department for Food, Agriculture and Fisheries insight into the food industries’ approach to fair and ethical trade by finding out what actions food companies are taking to meet their voluntary commitments, with the ultimate goal to enable the Department to decide on future policy in this area.”

Research Model:

Explanation to the model:

A study of the literature on total responsibility management and stakeholder management, as well as previous research on the management of fair and ethical trade initiatives in companies will determine what companies should do to translate their voluntary commitments into practice. Using this information I will develop a framework, which should help me to assess whether a company indeed has integrated its commitments. I will then use the framework to examine the fair and ethical trade practices of four food companies in France and The Netherlands. The results of these four companies will be evaluated in relation to the

Theory Total Responsibility

Management

Theory Stakeholder Management

Previous Research

Framework Ahold

SaraLee/

DE

Auchan

Malongo

Results

Results

Results

Results

Future policy OECD Conclu-

sions

framework. On the basis of the insight gained through the case studies I will recommend the Department for Food, Agriculture and Fisheries on possible work areas for the future.

Research Questions:

1. What is fair trade and what is ethical trade and why is it important?

In this chapter I will discuss the concepts fair and ethical trade and I will formulate the definitions of the concepts as they are applied in this research. Further I will discuss the OECD Guidelines, which refer specifically to subjects relating to fair and ethical trade.

Finally I will explain why it is so important that companies take initiatives in the field of fair and ethical trade. This will be discussed in relation to the suppliers in third world countries but also from a business perspective. The information for this question will be derived mainly from desk research. Writings from different organizations on fair and ethical trade have been examined, as well as websites, discussion forums and academic articles. Further I have talked to an expert from Max Havelaar, the Dutch fair trade organisation, who has explained me a bit more the importance of fair and ethical trade.

2. What should companies do to enforce their voluntary commitments in the field of fair and ethical trade?

Here I will try to answer what it is that companies should do to ensure that what they say they do is actually being done. In other words how should they make the translation from commitments to practice? Commitments in the area of csr cannot be dealt with in isolation of other organizational decisions or as a stand-alone project; they have to be incorporated in the company’s strategy to have any meaning. That is why I will look at the literature of strategic management to find out what kind of strategy fits companies who really are involved in csr. Secondly, as I have mentioned before stakeholders are very important in relation to csr; they often are the ones who got companies to get engaged in fair and ethical trade and they are also the ones who are influenced by the company’s policy in this field. That is why I will look at the literature on stakeholder management to find out how the relationship with the stakeholders should be designed. Finally I will look at previous research on csr in companies and databases provided by ethical investment funds to find out what the other criteria of importance are.

3. What management systems have the food companies researched developed to meet their voluntary commitments?

I will examine four food companies in France and The Netherlands to find out what

commitments they have taken in fair and ethical trade. But more important I will examine

what concrete actions they are taking to meet these commitments. My main source of

information to answer this question will be based on primary data gathering. I will conduct

interviews with the csr manager of each of the four companies. But I will also use

secondary data such as social- and annual reports, web sites, company documents, and

newspaper articles.

Conditions

The results of this research should help the OECD Department for Food, Agriculture and Fisheries to make decisions on future policy/research in this area.

The research has to give an insight in the management approach of food companies.

The results have to apply to food companies in continental Europe.

Definitional concepts:

Code of Conduct:

“A chart of moral duties and rights defining the ethical and social responsibility of employees and sometimes other stakeholders (e.g. suppliers) in an organisation.” (New Economics Foundation, 1999)

Corporate Social Responsibility:

“Corporate responsibility involves the search for an effective “fit” between businesses and the societies in which they operate. If the actions of both business sectors and societies are successful, then the “fit” between the two helps to foster an atmosphere of mutual trust and predictability that facilitates the conduct of business and enhances economic, social and environmental welfare. ‘Corporate Responsibility’ refers to the actions taken by businesses to nurture and enhance this relationship with society.” (OECD 2001b)

Ethical trade:

“Ethical trade aims to ensure that conditions within mainstream production chains meet basic minimum standards and to eradicate the most exploitative forms of labour such as child and bonded labour and ‘sweatshops’. Criteria are generally based on core ILO conventions.” (New Economics Foundation, 1999)

Fair trade:

“Fair trade aims to strengthen the economic positions of marginalized producers in trading chains. The criteria for Fair Trade marked products differ between products but cover issues such as guaranteed prices, pre-payment and direct payment to growers or their co-operatives.” (New Economics Foundation, 1999)

OECD Guidelines for Multinational Enterprises:

“Recommendations addressed by governments to multinational enterprises operating in or from adhering countries which provide principles and standards for responsible business conduct consistent with applicable law” (OECD, 2001)

Stakeholder Management

“The necessity for an organization to manage the relationships with its specific stakeholder groups in an action oriented way” (Freeman, 1984)

Total Responsibility Management

“Systems approaches for managing the companies responsibilities to stakeholders and the

natural environment” (Waddock et. al. 2002)

Chapter 4 Methodology

4.1 Introduction

In this chapter I will discuss the methodology used for this research. I will first explain which were the selection criteria used to select the companies for my research. In the following paragraph I will explain why I chose to include companies from France and The Netherlands in my research and I will explain why believe these two countries can be considered representative for continental Europe. In the fourth paragraph I will give a typification of my research after which I will go into the methods of data gathering and in the final paragraph I will explain how the data was analyzed.

4.2 Selection Criteria

I have based the selection criteria for the companies in my research on the methodology of the Ethical Investment Research Service (EIRIS). “The Ethical Investment Research Service provides independent research into corporate behaviour, needed by ethical investors to enable them to make informed and responsible investment decisions”

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The two criteria are that the company operates in a sector of “concern” and that it has global operations. The sectors identified by EIRIS as being “of concern” are the sectors that have the

“greatest concentration of activities involving global supply chains and have been the subject of significant public concern in relation to working conditions.”

⁹

They are retailers (including general food, drugs, apparel and household goods); apparel manufacturers (clothing, textile, footwear), sports goods manufacturers, food producers and processors and tobacco.

Since my research is only focused on the food industry I have decided to base my research on general food retailers and on food (coffee) processors/roasters. These companies often source products from all around the world and have a high degree of leverage over their suppliers due to their purchasing power. General food retailers are involved in fair and ethical trade in two ways, first of all they sell fair trade labeled products such as Max Havelaar but also they have increasingly been promoting their corporate brand products as fair or ethical products. In this way they have become actively involved by setting up their own codes of conduct for the suppliers of their own-brand products. I also chose to include coffee roasters/processors in this research. Coffee is the first product that was introduced under a fair trade label in the 1980s in The Netherlands because of the terrible conditions under which the farmers in third world countries were producing. Today, the coffee sector is still a major sector of concern and conventional coffee roasters are often under fire by non-governmental organizations, consumers and the press.

The companies that participated in this research are listed in the table below.

Sector/

Country Retailer Coffee Roaster

France Auchan Malongo Café

The Netherlands Ahold SaraLee/DE Table 2: Companies researched

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http://www.eiris.org

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Guide to EIRIS Research on Global Sourcing Standards

4.3 Countries representative for continental Europe

I have chosen to look at two countries for my research; France and The Netherlands. Because of the timeframe for the research I could only examine a limited amount of countries and France and the Netherlands can be considered as representative for continental Europe. I will explain this discussing different typologies of management systems based on national differences as they have been proposed by a range of researchers.

The French insurance specialist Michel Albert in his book “Capitalisme contre Capitalisme”

(1991) explains that the economic geography of the world can be divided into two main parts.

He bases this on observations from his own profession, the insurance business. In the insurance branch there is a clear distinction between two different insurance systems, the Alpine system and the Maritime system. He goes on to explain that these two insurance systems correspond exactly to the two different and competitive capitalistic models. On the one side “le modèle anglo-saxonne” which is based on short-term financial profit and, more general, on individual financial success. On the other side “le modèle rhénan”, which is more long term oriented and considers the enterprise as a community, which brings together capital and labour. The Anglo-Saxon model is also characterized as a stockholder model, in the tradition of this model business is seen as a commodity and its main concern is to increase profits. In the tradition of the Rhenan model, also typified as stakeholder model, businesses are seen as community as well as commodity and they have a variety of responsibilities to different stakeholders.

The Anglo-Saxon model has been mainly developed in the United States, and in Europe it is most present in Great Britain. The Rhenan model is centered on continental Europe and it has many national variances within Europe. It is strongest present along the valleys of the Rhine, from Austria to The Netherlands. According to Albert, France and Italy are the two continental European countries that don’t belong to the Rhénan model and which are most perceptive for the Anglo-Saxon capitalism.

The theory proposed by Michel Albert already helps to make a distinction between the different continental European countries. On the one hand there are the countries from the Rhenan model such as The Netherlands, Germany, Austria and Switzerland and on the other hand a set of more Anglo-Saxon oriented countries can be identified such as France and Italy.

The problem however with his theory is that he doesn’t define the other countries of continental Europe.

Roland Calori (1994) also researched the diversity of management systems in Europe. He discusses several typologies based on existing literature and a research on top managers’

views. He finally comes up with three types of management in Europe:

1. Anglo-Saxon 2. Latin

3. Northern Europe

I won’t further consider the Anglo-Saxon type here since the focus of this research is on

continental Europe. Thus in Continental Europe a distinction can be made in Latin and

Northern Europe. Northern Europe Includes the countries typified in the Rhénan Model (The

Netherlands, Germany, Switzerland and Austria) plus Belgium and Luxembourg, while Latin

Europe includes France, Italy, Spain and Portugal.

The Northern model can according to Calori be characterized by the following components:

1. The system of co-determination, which creates intense communication flows.

2. The loyalty of managers and employees in general to the firm

3. The collective orientation of the work-force, which includes dedication to the company, team spirit and a sense of discipline

4. The long-term orientation that appears in planning, in the seriousness and stability of supplier-client relationships and in the priority of industrial goals over short-term financial objectives. (Also mentioned by Albert)

5. The reliability and stability of shareholders, influenced by a strong involvement of banks in industry.

The Latin (or southern) Europe model has the following characteristics:

1. More state intervention and protectionism

2. More hierarchy in the firm which shows from a higher number of hierarchical, organizational levels and a lower degree of participation by personnel

3. More intuitive management, management is more personalized and the concept of leadership is better accepted. Heads of firms tend to manage by pressure, intuition and chaos.

4. More family business (especially in Italy)

5. More reliance on an elite (especially in France). The elite, which is educated at the Grandes Ecoles, is believed to be able to manage any firm when they come out of school whereas in Northern Europe abilities and success in the firm are considered more valuable.

I chose to include companies from both France and The Netherlands in my research since they both represent one of the models as described above. Philippe d’Iribarne (1989) in his book

“La Logique de l’honneur” made a similar kind of comparison as Calori did. He studied an American (Anglo-Saxon), a French (Latin) and a Dutch (northern or rhenan) plant within the same multinational company. His descriptions of the French and Dutch plant correspond on several dimensions with the characteristics of the two models described above. The Netherlands can be typified as a consensual society moved by continued discussion and conciliation where every individual is respected and has a say and with an aversion for any form of pressure from external authority. French business, according to d’Iribarne can be typified as “la logique de l’honneur’ or the logics of honor. The French organisation is much more hierarchical in a sense that every level has its own tasks and responsibilities but also it own honor. You don’t change levels easily and there is not much interaction or communication between different hierarchical levels, participation by personnel in decision- making or consultation is far less likely.

I feel that the choice of countries for my research will increase the analytical generalisability.

This is to say that the results found in my research situation, the four companies in France and

The Netherlands, will be transferable to other similar or comparable situations that I haven’t

researched, in this case other general retailers and coffee processors in the rest of Continental

Europe.

4.4 Typifications of the research

In order to explain how I designed my research I will define my research using two different kinds of typifications. The first is a typification based on the characteristics of the research product and the second is based on the differences in research methods (De Leeuw, 1996) Looking at the characteristics of the research product, this research can be typified as policy- supporting research. This research tries to provide concrete information about the commitments that food companies are making in the field of fair and ethical trade and about the systems they have developed to back up their commitments. This information should add to the OECD’s knowledge in the field of corporate social responsibility. Further this information should be of use to the OECD department for Food Agriculture and Fisheries in defining their future policy in this area.

Based on the second typification, differences in research methods, this research can be defined as a case study research. A case study is a probing/penetrating study of a case or several cases with the intention to generate more general conclusions from the study.

¹⁰

In my research I will study several cases, namely the four companies mentioned before, in order to be able to gain insight into the food industries’ approach to fair and ethical trade. I have studied the literature and previous research on the management of CSR initiatives to develop a framework (see chapter 6) which can help me to assess what kind of systems a company has developed to back up its commitments in the field of fair and ethical trade. I have used this framework as an instrument to analyze the different cases in my research. The findings of these cases will help me to define future work areas for the OECD. It is important to note that when it concerns case studies it is not statistical generalisability that we are looking for but analytical generalisability (Van der Zwaan, 1995). In the first paragraph of this chapter I have discussed the selection criteria for the cases.

4.5 Data gathering

I used primary as well as secondary data in each of the phases of the research. However in the first phases the use of secondary information resources dominated and in the final parts primary information gathering took the overhand.

The first stage of the research was mainly based on desk research, gathering secondary data from a wide range of sources. I had access to all internal OECD documents, reports and publications. Further I looked into documents and reports published by other international organizations, NGO’s and government bodies on corporate social responsibility in general and fair and ethical trading in specific. Finally I used many books, publications and websites as a source of information. At the OECD I had access to an online database of published journals, which was very helpful in my search for information. At the same time, in the early stages of my research I tried to gather primary information as well. I talked to people within the OECD who had knowledge about the subject, but I also contacted the Director of Max Havelaar Holland Ms. Fenny Eshuis, as well as the former director, Mr. Hans Bolscher, who both were able to provide me with helpful information by pointing out recent developments in the area, as well as interesting articles, conferences etc. Further I contacted different Ethical Investment Funds such as Triodos bank and Eiris research center that were kind enough to provide me with internal databases on their own research into ethical sourcing, human rights issues and other topics.

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Translated from De leeuw, 1996 p 96 “Een case study is de indringende bestudering van een geval of enkele

gevallen met de bedoeling daaraan algemenere conclusies te verbinden”.

After the framework for the research was clear and I had a good idea of relevant variables, previous research and writings, the focus shifted to primary data gathering in the form of semi-structured interviews. I chose to use interviews because of the often sensitive character of the information I wanted from the four participating companies. “Semi-structured interviews are non-standardized. In semi-structured interviews, the researcher will have a list of themes and questions to be covered although these may vary from interview to interview.”

(Saunders et. al., 2000).

The topic list used for the interviews was formulated on the basis of literature, previous research and conversations with experts. During the interviews the predetermined topics each got addressed by formulating an opening question after which each topic was explored in- depth through questioning and answer. Overall, the topics addressed in each interview were the same, however there were slight differences due to the different organizational contexts.

The unit of analysis for the research was the CSR manager or another manager who was responsible in his or her function for the formulation and integration of the company policy in relation to CSR or fair and ethical trade.

The managers interviewed for my research all received a copy of the notes of the interview and it was agreed that I could contact them again if other relevant questions came to mind. I found that sometimes after conducting an interview with one company, I had gained additional knowledge of the subject and I had to contact previous interviewed companies again.

At this stage of the research, besides the gathering of primary data, I also gathered secondary data. This was mainly in the form of non-personal secondary information about the companies researched. For each of the companies I tried to gather as much information as possible in the form of annual reports, social reports, web sites, publications, newspaper articles and information gathered from pressure groups or ranking organizations. Finally I gathered information obtained from the companies themselves in the form of supplier codes, company codes, guidelines and internal communications on csr when possible.

4.6 Data Analysis

After the data was gathered from the different sources and I had a map of information on each

of the cases (companies), I had to find a way to structure the data so that it would be possible

to analyze and compare the cases on the different relevant topics. The first activity was to

classify the data into meaningful categories. Based on the framework that resulted from the

literature research (chapter 6) I developed a coding scheme, which I used to label the units of

data with the appropriate category (or categories). After I had labeled all the information

gathered in the interviews and from secondary sources, I re-arranged my data putting together

related units of data for each of the cases. In the end I had a separate file for each company

that covered all the topics from the theoretical framework in the same order, which made it

easier to grasp. After the information for each of companies was structured I started to

approach the information again topic by topic (still based on the same framework). I then

looked at each of the topics to find out what the different companies did in this area. This

information I presented in a chart (see chapter 7). The chart made it possible to get an

overview of what each of the companies did and to analyze for each of the topics how

advanced the companies were.

Chapter 5 Fair and Ethical Trade

5.1 Introduction

In this chapter I will discuss the concepts fair trade and ethical trade and I will formulate the definitions of the concepts as they are applied in this research. Further I will discuss the OECD Guidelines that refer specifically to subjects relating to fair and ethical trade. Finally I will explain why it is so important that companies take initiatives in the field of fair and ethical trade. This will be discussed in relation to the suppliers in third world countries but also from a business perspective.

In paragraph 3.2 I have explained why this research focused on food companies’

commitments in the field of fair and ethical trade. I mentioned two reasons, the first being that the coverage of human rights issues in the OECD Guidelines for MNEs wasn’t as extensive as the coverage of other CSR topics and secondly because fair and ethical trade are two of the major challenges food companies have to face in the globalized economy. In this chapter I will discuss the concepts of fair trade and ethical trade and I will formulate the definitions used in my research, thereby providing an answer to my first research question.

5.2 Definitional concepts fair trade and ethical trade

It is hard to define what fair trade or ethical trade really mean especially since neither one of the concepts is strictly defined or legally protected. The two concepts are often mixed up and different organizations, companies and writers give different meanings to the concepts. I looked at multiple sources to find out what exactly is the difference between fair trade and ethical trade.

The international Fairtrade Labeling Organization, FLO, sets the standards for the different Fairtrade certified products, such as Max Havelaar. On the FLO website I found the following explanation of the difference between fair trade and ethical trade:

Ethical trading means companies are involved in a process of trying to ensure that the basic labor rights of the employees of their third world suppliers are respected. (www.fairtrade.net)

Fairtrade Labeling aims to give disadvantaged small producers and workers more control over their own lives. It addresses the injustice of insufficient income for a decent living and insufficient market access by guaranteeing that producers receive fair terms of trade and fair prices or wages – however unfair the conventional market is. On top of the Fair trade minimum price, the Fairtrade labeling system guarantees a premium for producer organizations or workers bodies to enable them to invest in social, economical or environmental improvements. (www.fairtrade.net)

What becomes clear from the explanation given by FLO is that fair trade deals primarily and

traditionally with financial issues and ethical trade with working conditions. This also clearly

follows from the definitions given in the report “Social labels: Tools for Ethical Trade” (New

Economics Foundation, 1999), published by the New Economics Foundation (NEF) for the

European Commission. The New Economics Foundation (NEF) is an independent research

institute based in the UK. NEF works to identify, design and encourage the take-up of socially

just and environmentally sustainable approaches to economics and business.

The NEF report gives the following definitions of fair trade and ethical trade:

“Fair trade aims to strengthen the economic positions of marginalized producers in trading chains. The criteria for Fair Trade marked products differ between products but cover issues such as guaranteed prices, pre-payment and direct payment to growers or their co- operatives.” (New Economics Foundation,1999)

“Ethical trade aims to ensure that conditions within mainstream production chains meet basic minimum standards and to eradicate the most exploitative forms of labor such as child and bonded labour and ‘sweatshops’. Criteria are generally based on core ILO conventions.”

(New Economics Foundation,1999)

So comparing these two definitions it seems that fair trade deals mainly with payment and income issues, with the goal to redistribute wealth in favor of the marginalized producers in the South. Ethical trade on the other hand deals with working conditions in mainstream production. In the following paragraph I will identify the criteria for these two definitional concepts.

5.3 Criteria fair trade and ethical trade

In the NEF definition of ethical trade it says that criteria for ethical trade are usually based on core ILO conventions. The ILO conventions are formulated by the International Labour Organization (ILO), a United Nations specialized agency, which seeks the promotion of social justice and internationally recognized human and labor rights. It was founded in 1919 and formulates international labor standards in the form of Conventions and Recommendations setting minimum standards of basic labor rights. By the end of June 2001, the ILO had adopted 184 conventions and 192 recommendations covering a broad range of subjects. Eight ILO conventions have been identified by the ILO’s governing body as being fundamental to the rights of human beings at work, irrespective of levels of development of individual member states. The eight fundamental ILO Conventions are the following:

Freedom of association

- Freedom of Association and Protection of the Right to Organize Convention, 1948 (No. 87)

- Right to Organize and Collective Bargaining Convention, 1949 (No. 98) The abolition of forced labour

- Forced Labour Convention, 1930 (No. 29)

- Abolition of Forced Labour Convention, 1957 (No. 105) Equality

- Discrimination (Employment and Occupation) Convention, 1958 (No. 111) - Equal Remuneration Convention, 1951 (No. 100)

The elimination of child labour

- Minimum Age Convention, 19734 (No. 138)

- Worst Forms of Child Labour Convention, 1999 (No. 182)

So every company should at (the very) least comply with the eight conventions mentioned

above. Usually it is expected that companies take into account other key conventions such as

conventions on Hours of work and occupational Health and Safety and Living wages.