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The Responsible Supply Chain Management and its effect on Corporate Reputation

supply chain(image source: Carlson School of Management, University of Minnesota)

 

Corporate reputation has often been defined as “a set of attributes ascribed to a firm, that is inferred from the firm’s past actions” (Weigelt & Camerer, 1988, p. 443). Fombrun and Shanley (1990) argued that reputation “signals publics about how a firm’s products, jobs, strategies and prospects compare to those of competing firms” (p. 233). The value of reputation has been subject to extensive research, which has highlighted that reputation influences the stakeholders’ perceptions (Money, Hillenbrand & Downing, 2011), the customers’ choices and their purchase intentions (Keh & Xie, 2009; Siegel & Vitaliano, 2007; Mohr & Webb, 2005) Therefore, corporate reputation is related to corporate financial performance (Camilleri, 2012; Flanagan, O’Shaughnessy, & Palmer, 2011). Much of the work on corporate social–financial performance also implicitly assumes that this relationship is positive, because an improved reputation facilitates revenue and profit growth (Orlitzky et al., 2003; Surroca, Tribó & Waddock,. 2010).

Extant work suggests that reputation is important because it establishes credibility (Greyser, 1999; Herbig et al., 1994). The notion that reputation is related to credibility has also been noted in the wider corporate social (and environmental) responsibility literature. McWilliams and Siegel (2001) argued that building a reputation of ‘responsibility’ can signal an improved reputation (Husted & Allen, 2007; Brammer & Millington, 2005; McWilliams & Siegel, 2001; Fombrun & Shanley, 1990). Hence, responsible corporate behaviour “builds trust and enhances the firm’s reputation, which in turn attracts customers, employees, suppliers and distributors, not to mention earning the public’s goodwill” (Lantos, 2001, p. 606). In a similar vein, Lewis (2003) also held that responsible behaviours can establish trust and ultimately develop a company’s reputation. Social and environmental activities not only can enhance the reputation of the firm, but also enhance the goodwill trust of stakeholders (Carlisle and Faulkner, 2005; Siltaoja, 2006).
Therefore, corporate reputation is fundamentally a signal to stakeholders (Ponzi, Fombrun & Gardberg, 2011) and is particularly important in markets where there is imperfect information (Hoejmose et al., 2014.; Weigelt & Camerer, 1988). The market signals, including engagement in social and environmental issues could help to improve corporate image (McWilliams & Siegel, 2001; Bagnoli & Watts, 2003).

Markley and Davis (2007) also noted that responsible behaviours could send positive market signals to a range of stakeholders. Today’s firms are expected to implement responsible supply chain practices. If they won’t they run the risk of damaging their reputation and image among their stakeholders. Hence, there is scope for firms to implement socially and environmentally responsible practices in their supply chains (Ansett, 2007). Responsible supply chain management encapsulates social issues (e.g. child labour, working conditions, human rights et cetera) and / or environmental matters (e.g. environmental protection, waste management, recycling, reusing natural resources et cetera) (Hoejmose et al., 2013; Carter & Rogers, 2008; Seuring & Muller, 2008). Such responsible behaviours shield the firms from negative media attention and consumer boycotts (Hoejmose et al., 2013). The companies’ stronger engagement in socially responsible supply chain management enables them to manage exposure to risk (Tate et al, 2010; Van De Ven & Jeurissen, 2005). Thus, the businesses’ stakeholder engagement and their responsible procurement of materials and products is linked to corporate reputation, which in turn allows them to target discerning customer groups (Phillips & Caldwell, 2005; Roberts, 2003).

Kleindorfer, Singhal, and Wassenhove (2005) suggested that responsible supply chain practices can lead to increased profitability, as customer satisfaction and loyalty will improve as a result of a stronger reputation. Therefore, firms risk losing customers to rival companies over time, particularly if they fail to be responsible in their supply chain. In fact, Harwood & Humby (2008) findings suggested that suppliers were adhering to specific corporate social responsibility (CSR) requirements in order to reduce their exposure to risk. It may appear that the real value of social and environmental management is perhaps not from its role in enhancing reputation, but more about protecting it. This reflects Burke’s (2011) argumentation as he suggested that a firm’s corporate reputation is enhanced through positive actions, the programmes they implement and the other tangible things that they do.

Therefore, the distinction between reputation protection and enhancement is subtle, but important. Corporate reputation protection is concerned with evidencing the firms’ efforts to meeting the stakeholders’ expectations, whilst reputation enhancement goes beyond a purely evidential basis to encompass embedded practice. Corporate reputation protection occurs when firms can prove to stakeholders that they took reasonable steps to prevent an incident from happening (Coombs, 2014). In fact, corporate reputations could be easily jeopardised by irresponsible supply chain practices which may “directly harm business contracts, marketing, and sub-sourcing, and damage the corporation’s brands and the trust they have established with their business customers” (Lee & Kim, 2009, p. 144). These companies’ failure to manage their supply chain in a responsible manner could result in negative repercussions for their organisational performance. Conversely, the corporations’ reputation and credentials in socially responsible supply chain management could lead them to achieve a competitive advantage (Ansett, 2007; McWilliams et al., 2006).

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Filed under Business, Corporate Social Responsibility, Corporate Sustainability and Responsibility, Shared Value, Stakeholder Engagement

Leveraging Organisational Performance through ‘Shared Value’ Propositions

Many successful businesses are forging strategic alliances in their value chain in order to run their businesses profitably. They also promote the right conditions of employment, where they can. Arguably, several businesses are doing well by doing good as they create shared value opportunities in their supply chain. At the same time, they are instrumental in improving the lives of their suppliers. They do this as they want to enhance the quality and attributes of their products, which are ultimately delivered to customers and end consumers.

Nestlé, Google, IBM, Intel, Johnson & Johnson, Nestlé, Unilever, and Wal-Mart are some of the multinational organisations who have somewhat embraced the ‘shared value’ approach. These successful global businesses have shown that they are capable of creating value for shareholders as well as for society in general. In many cases they are building partnership and collaborative agreements with external stakeholders (including suppliers) hailing from different markets. Evidently, these businesses are reconceiving their products as they are taking a broad view of their purchasing and procurement and on production activities. Several multi-national organisations are looking beyond their short-term profits for shareholders. They are also looking after their other marketplace stakeholders. Many multinational organisations are redefining productivity in the value chain and enabling local cluster developments to mitigate risks, boost productivity and competitiveness.

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Two Case Studies:

#1 Nestlé

Nestlé’s business principles incorporate the 10 United Nations Global Compact Principles on human rights, labour, the environment and corruption. It transpires that Nestlé is an active member of the Compact’s Working Groups and Initiatives. ‘Creating shared value’ has become an integral strategy of how Nestlé does its business. In a nutshell, this approach is focusing on stakeholder engagement as well as environmental sustainability. Nestlé maintains that it complies with international regulatory laws and acceptable codes of conduct, as it improves its company’s operations. Yet, at the same time it is nurturing its suppliers’ (the farmers’ in the developing countries) talents. Nestlé has revisited its numerous processes and its value chain activities. Each stage of the production process, from the supply chain to transforming resources adds value to the overall end product, for the benefit of the company itself. Nestlé sources its materials from thousands of farms; many of them are situated in poorer rural regions of the world. Nestlé provide training to their supplies  in order to encourage sustainable production whilst protecting their procurement, standards and quality of their raw materials. This brings positive, long-term impacts on the local economy. At the same time, the suppliers are running profitable farms, as they are offering their children a better education. Moreover, both Nestlé and the suppliers are committed to protecting their natural environmental resources for their long term sustainability. In their corporate site, Nestlé indicate that their key performance indicators for responsible sourcing include;

  • 89.5% of Nestlé‘s suppliers comply with the brand’s Supplier Code.
  • Nestlé’s sources 11% of its cocoa through the Nestlé Cocoa Plan, where they have trained more than 27,000 farmers and distributed more than 1,000,000 high-yield, disease-resistant cocoa plantlets.
  • Nestlé helped 14 cocoa cooperatives achieve UTZ or Fair Trade certification.
  • Nestlé purchased 133,000 tonnes of green coffee through Farmer Connect, trained more than 48,000 farmers and distributed 12 million coffee plantlets in 2012.
  • 80% of the palm oil that Nestlé purchased this year was RSPO compliant, out of which about 13% was traceable RSPO certified oil and 67% had GreenPalm certificates.
  • More than 8,000 farmers joined the Nespresso AAA Sustainable Quality™ Program in 2012 and we’ve sourced 68% of Nespresso coffee through the AAA Sustainable Quality™ Program.

#2 The Intercontinental Hotel Group

The Intercontinental Hotel Group (IHG) reaffirm that they are successful in identifying innovative opportunities within the environment as they foster closer collaboration with the community. IHG have aligned their CSR report with the Global Reporting Initiative Scorecard. The hotel chain claims that it is envisaging reductions in energy consumption of up to 10% over the next three years. IHG plans to achieve this target by using an online sustainability tool named, ‘Green Engage. IHG suggests that this tool has helped them in measuring and monitoring energy, water and waste management. The international hospitality chain prides itself of a dedicated web page entitled Corporate Responsibility Report which outlines innovation, collaboration, environmental sustainability and sustainable communities. These laudable initiatives deliver education programs to employees, diversity initiatives, and environmental protection among others issues.  According to IHG, their key ‘Green Engage’ achievements in 2012 were the following;

  • Exceeded their three-year target (2010-2012) to reduce energy per available room by between 6 and 10% in our managed and owned estate with a reduction of 11.7%
  • 50% of IHGs’ hotels (2,250 based on January 2012 hotel figures) have used Green Engage as at 14 January 2013.
  • Reduced their carbon footprint in IHG owned and managed hotels by 19% per occupied room in a year
  • Achieved an absolute reduction in global carbon footprint in IHG hotels and corporate offices by 76,000 metric tonnes in a year
  • Launched a carbon calculator within IHG Green Engage using the industry approved carbon measurement methodology
  • Launched a Green Meeting checklist for IHG hotels
  • Developed further new features within IHG Green Engage such as multi-unit reporting and a water benchmark.

Evidently, many multinational organisations have taken on board Porter and Kramer’s latest notion, “creating shared value” as they work hard to ensure a sustainable and high quality supply of their raw materials. Some of these latest corporate responsibility developments are focusing on training of suppliers, improving social conditions, buying from cooperatives and paying premiums, and working with certification programmes (such as FairTradeEcolabels et cetera). Of course, all these initiatives create value through the supply chain, particularly for the smaller businesses and sole traders. Effective communication with stakeholders is a very important element of responsible business behaviour. This contribution suggests that through stakeholder engagement, businesses are identifying emerging issues, shape their responses and continue to drive improvements in their financial performance.

This contribution was published in the TimesofMalta.com:

http://www.timesofmalta.com/articles/view/20130523/business-comment/Leveraging-organisational-performance-through-shared-value-propositions.470940

Similar contributions:

http://www.timesofmalta.com/articles/view/20130124/business-comment/Creating-shared-value-for-long-term-sustainability.454548

Additional Links:

Blogs about ‘Shared Value’

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