CSR For Nestle And MTN

Nestle (a high-income company) and MTN (a low-income company) have different approaches regarding CSR. This report will describe and evaluate those approaches.

Introduction

This is a brief description of each company highlighting some facts concerning their development.

Section one

Identifies the different types of stakeholders that the company should consider while mapping its local/global activities.

Using the Stakeholder Saliency Model, allocates those stakeholders for both companies, taking into account two things: who has the most/least power in steering the company’s decisions and whether or not this stakeholder is interested in CSR initiatives.

Two differences have been identified:

Nestle: firstly, host governments in developing countries are Dangerous Stakeholders and do not show much interest in CSR; secondly, social organizations, NGOs and the media are Dangerous Stakeholders and in favour of CSR.

MTN: firstly, host governments in developing countries are Dominant and show interest in CSR; secondly, social organizations such as NGOs and the media are Demanding and in favour of CSR.

The reasons behind this include:

Host government in developing countries: corrupt government may find the high-income corporation (Nestle) an enticing opportunity to seize unlike MTN. Moreover, MTN which originated in a developing country, has a great deal of experience with such governments.

Social Organization: MTN does not have a negative direct impact on people’s lives, unlike Nestle. Also MTN is not recognized globally while Nestle is since MTN operates only in developing countries while Nestle operates globally.

Section two

In this section the report answers the following: whether CSR initiatives adopted by both companies increased/decreased over time, and also who was behind the changes and why they occurred.

It was found that both companies have increased their CSR initiatives especially in the globalization era for Nestle, and particularly since the 1970s as many social organizations emerged and FDI occurred in that period.

Section three

The report shows how authors classify the stakeholders’ perspective in different ways: some classify them according to the local economic situation; others in a developing country’s context; others classify the social and environmental issues depending on regions.

A Ponte et al typology using four approaches (engaged/disengaged, proximate/distant) is applied to the above classifications.

An analysis was made with the following results:

There are many perspectives which support CSR initiatives and argue that those initiatives are good for business, especially the engaged approaches, and they support their argument with evidence. They are also good for society whether the approaches are engaged or disengaged.

At the other end of the spectrum, there are many who do not agree with the benefits brought by CSR initiatives and believe it is bad for business and useless for society.

II. Introduction

The purpose of this report is to analyse, compare and contrast the socially responsible approach of two multinational companies (Nestle and MTN). This will be approached in the following order: firstly, a brief description for each company will be provided; secondly, the report will allocate the stakeholders using the stakeholder saliency model for each company showing the similarities and differences. This will be followed by a brief description regarding the changes of CSR approach for both companies and the reasons for these changes. The third section includes a critical analysis of both approaches using Ponte et al typology and two contrasting viewpoints. Finally, a conclusion sums up the findings showing the future of CSR for both companies.

III. Brief History with some facts regarding CSR,

Nestle [1] ,

It was in the 1860s when a pharmacist Henri Nestle developed a food formula for those infants who experienced problems in breastfeeding. This welcome innovation from Nestle is now sold all over the world (Nestle History, 2009).

Some facts about the company include:

1905-to date: Healthy growth in general with some periods of struggle with a lot of mergers and acquisitions, one of the most important being with Movenpick Ice Cream.

1970s-1980s: Heavy attacks from social organizations and individuals for the unethical marketing activities encouraging mothers in the developing world to use its products instead of breastfeeding. (Douglas,1986)

1998 “Nestlé Corporate Business Principles” was produced and updated to include the principles of the UN Secretary General’s Global Compact: Labour Standard, Human rights, the Environment (Nestle report, 2001)

Creating the Shared Value scheme for a healthier world in the 21st century. (CSV mission, 2009)

MTN Group [2] ,

Founded in 1994, MTN Group is a telecommunication company; it services in 21 countries across Africa and the Middle East. (MTN Report 1 and 2, 2009).

2007: MTN was the best tax payer for the year ending 2005/2006 in many African countries.(MTN History, 2007)

2007: Established the Corporate Social Responsibility Foundation. .(MTN History, 2007)

2009: According to management consulting firm Oliver Wayman’s annual State of the Industry report, MTN achieved the fourth place among the top 60 global performers in terms of its shareholder performance index (SPI) at the end of 2008 with total revenue of 102,526 million rand [3] , (MTN Report 1and 2, 2009 ).

IV. Section one:

Corporate social responsibility: CSR is the commitment by the company to behave ethically with its stakeholders and to fulfil all obligations of minimizing any harm and maximizing the benefits for society, humanity and the environment and that includes commitments by companies to contribute to social development and enhance the standard of people’s lives [4] .

Stake holder Identification: According to many authors Mercier (1999), Freeman (1984), Donaldson and Preston (1995), stakeholders are usually all those groups or individuals that may affect or be affected by the organization’s daily working process, and also include all those who could have shares or interests in the same organization (Cited in Perqueux, 2004.P:6).

From the definition given above it could be interpreted that organizations should classify their stakeholders’ interests and power in a way that brings satisfaction because they will be assessed and evaluated by them in the future, and that what Rossouw and Sison (2006, p41) argued for when they described the corporations as a nation state is that they must be honest with its citizens otherwise they will be overthrown.

From the two definitions mentioned above and by using the Stakeholder Saliency Model, this report will now show two things at the same time. The first is to show who stakeholder has the most or least effect in mapping the business activities, and second to what extent this allocated stakeholder is CSR driver for both companies showing the similarities and differences. An explanation for these will be provided.

Nestle

Power

Discretionary Stakeholder: other inter-national institutions e.g. IMF, World Bank

Dominant Stakeholder.

Dangerous Stakeholder:

Governments in developing countries, social organizations, NGOs, media.

Demanding Stakeholder: people

Definitive Stakeholder:

Main Shareholders

Dormant Stakeholder:

Shareholders (Minority interest)

Depending Stakeholder

Legitimacy

Urgency

MTN

Power

Discretionary Stakeholder: other Inter-national Institutions such as IMF, World Bank

Dominant Stakeholder:

Government in developing countries

Dormant Stakeholder:

Shareholders (Minority interest)

Demanding Stakeholder:

Social organizations, NGOs, media.

Dangerous Stakeholder

Definitive Stakeholder:

Main Shareholders

Depending Stakeholder

Legitimacy

Urgency

.

The main similarities:

Main Shareholders (Definitive Stakeholders with fake CSR ): As they supply the organization with the funds needed to build up capital, thus they have the right to vote, control and change the corporate structure if required, Mantyssari (2005), and that would have a substantial influence in mapping the company’s business activities and other activities related to CSR.

The following example shows how Nestle’s first priority is its shareholders and how Nestle manipulates the CSR approach. This happened when it announced the intention to transform Nestle into the world’s leading wellness organization to promote healthy eating by people through providing functional food instead of its ordinary range, spending SFr 2 billion on research and development in 2008. However, many experts point out that there is no substantial evidence that eating functional food makes people healthier. Lausanne and Vevey (The Economist, 2009. p39-95) indicate also to the reasons behind that by showing that in America the growth of functional foods between 2002-2007 was 15.8% a year while ordinary foods was only 2.9% suggesting profit was the main driver nothing else.

The same is applicable in MTN regarding definitive shareholders, especially when looking closely at their annual report (2008 p172), showing the percentage of share capital, equal to 25%, was owned only by 8 shareholders, so this group of 8 has the majority portion of power to direct the company activities in the way they prefer, which is making profits.

Minority interest Shareholders (Dormant Stakeholders with no effects on CSR): they do not have the enough power to steer the company in the responsible direction nether on its policy

IMF, World Bank, WTO (Discretionary Stakeholders with a neutral position regarding CSR): through their regulation and requirements and conditionality they open new routes for investing. However, that does not oblige the MNCs to invest nor to participate in social responsibility initiatives.

The main differences:

Host governments in developing countries are Dangerous Stakeholders and do not show too much interest in CSR for Nestle, while they are Dominant and show interest in CSR for MTN)

Jones (2005, p:9) pointed out that host governments use a lot of subsidies to attract foreign organizations, such as low custom tariffs or free capital movement in order to overcome difficulties (poverty, diseases, death…)

Applying this to the selected companies:

Nestle: this type of stakeholder should be allocated under ‘Dangerous’ for many reasons. Nestle lacks experience in dealing with developing governments’ policies. Another reason is that kleptocratic government may find the high-income corporation (Nestle) an enticing opportunity to seize. For example: the BBC announced in December 2002 that Nestle was trying to persuade the Ethiopian government to pay USD 6 million instead of 1.5 million as compensation for nationalizing one of its subsidiaries in Ethiopia. This example shows how the Ethiopian government took possession of Nestlé’s subsidiary without any previous notice or consultation.

MTN: originally from SA, and all of its investments are located in Africa and the ME (developing countries). It has a great deal of experience with such governments so do not need to put it under ‘Dangerous’ stakeholders unlike Nestle. But even though MTN has put governments under the ‘Dominant’ category MTN has to comply with the King codes in South Africa [5] which include very strict rules regarding CSR initiatives in order be listed in JSE securities exchange and to be accepted by the government and society. (Institute of Directors in South Africa, 2009)

Social organizations, NGOs, Media are Dangerous Stakeholders and in favour of CSR for Nestle, while Demanding and in favour of CSR for MTN:

Nestle: Because of the nature of the business of Nestle (covering world-wide and working in the field of nutrition), it may be found that a lot of social organizations along with the media always attack it aggressively, especially if they discover the unethical approach of its social responsibility, pushing it to make more and more effort in the field of CSR. For example: the General Synod of the Church of England called for a ban on Nestle and asked Church commissioners to disinvest their GBP 1.1 million in it. Moreover in 1974 the British charity War on Want released a leaflet “The Baby Killer” criticising Nestle for the bad effects of its marketing strategies in Africa. (Kotler et al. 2009)

MTN: However, there are many examples showing MTN has a good reputation among those organizations who praise its efforts to serve the people and bring prosperity to society. For example, South Africa media (South Africa info, 2008) praised MTN when it declared its intention, along with other operators, to establish a fibre network across the Sub Saharan centres in an effort to meet the soaring needs of their subscribers and connect the African continent with the rest of the world. The reason for this approval is because MTN does not have a negative direct impact on people’s lives, unlike Nestle. Also MTN is not recognized globally as Nestle is since it operates only in developing countries.

V. Section two:

This report will now answer the following question – which way is the CSR changing and what are the main causes for this?

In 1869 Henri Nestle said: “During the first few months, the mother’s milk will always be the most natural nutriment,” put promoted Nestle products as a substitute. However, in 2007 Nestle stated that “Nothing is a substitute for or equivalent or superior to breast milk” Kotler et al. (2009). These two statements raise two questions: the first one is ‘Did Nestle admit the guiltiness about its previous promotion?’; secondly, ‘If yes, then who was behind it?’

Actually to answer these questions, we have to consider that through Nestle growth, a lot of pressure and outside forces have pushed the company to change its attitude towards satisfying its stakeholders and make responsible efforts rather than only profit. Blowfield and Murray (2008, p:41-66) claim that the relationship between business and society changed through three eras: the industrial revolution, the mid-twentieth-century welfare state and globalization. Furthermore, through these eras there was a shift in corporate social responsibility, from a theoretical concerned with normative behaviour of the organization, to CSR as management practice, especially in the 1970s. Ackerman and Bauers (1976 cited in Blowfield et al, 2008) argue also that what a company ‘can’ do to respond to social expectation rather than theoretical ideas of what it ‘should’ do is what matters. This is reflected in public confidence over the years (see Appendix 1) which suggests public confidence began to increase in the late 1970s with a slight decrease in 1991. (Source: Frederick 2006)

In relation to the two companies in this study, it may be that Nestle actually took into consideration social responsibility after the harsh boycott in the 1970s when it learnt a lot from that lesson and started to increase its commitment to society and allocated social organizations and media as ‘dangerous’ stakeholders. MTN is a relatively new company established only in the 1990s, which could be viewed as the globalization era so has a high standard of CSR knowledge (King I, II, III code). Thus, it could be concluded that there was an increase in CSR initiatives owing to greater awareness among stakeholders, especially over the last three decades, and that increase was related directly to globalization and its characteristics such as free trade, rises in FDI in developing countries, soaring demands of the media and the NGOs.

VI. Section Three:

This section will be divided into three parts:

Analysis of the different stakeholders’ perspective approaches,

Depending on the outcome of the first part, the report will use Ponte et al typology to allocate the approach of both companies.

A further analysis of these approaches will be conducted using two contrasting viewpoints.

Many authors classify the stakeholders’ perspective in different ways. Some classify them according to the local economic situation such as Cannon (1994) by giving five types of societies which need different reactions from the business to help the economy out of the crisis: the high-stress environment (suffering from long time economic downturn), structurally disadvantaged areas (business in remote areas), the crisis zone, the transitional zone (change of the importance of industry in same area), and the powerhouse industry that used to drive the main local growth and now facing high competition from others.

Other authors such as Hamann et al (2005) explore the stakeholders’ perspective in a developing country’s context when they pointed out some realities to be considered in achieving a successful CSR in South Africa: first, a long history of poverty and inequality: second, the need for effective CSR to destroy the bad image of exploitation and racism created by companies over a long period in those countries; third, the suppression of black economic empowerment which mostly comes from corruption: fourth, the need to enhance social aspects such as human rights and democracy.

Others classify the social and environmental issues depending on the regions, showing the different CSR requirements among countries and they emphasise that

each region needs its own CSR initiatives. For example, the USA needs to address renewed calls for nuclear power and to deal with air pollution, while some African countries need more concentration in improving the infrastructure and solving the conflicts between tribes and governments (PWC, 2006; Ethical Corporation, 2006 cited in Blowfield & Murray,2008) (see appendix 2 for more details).

Using the above mentioned methods, now Ponte et al typology can be used to allocate initiative approaches used by Nestle and MTN:

Company

– Engaged CSR activities – the factory and farmer scheme in China which has direct impact on company operations since it eliminates the suppliers and at the same time gives the farmers technical support. (Nestle China, 2009)

– Disengaged CSR initiatives: Nestle Nigeria along with the Red Cross started an initiative, an educational programme in 2003 to increase the awareness of HIV among people in Nigeria (Nestle Nigeria, 2009)

– Distant CSR activities – the factory and farmer example in China, because the farmers are not one of Nestlé’s workforces – they are a separate entity and might be paid low prices for their milk supply. (Nestle China, 2009)

– Proximate CSR activities: Nestle creates job opportunities. It has now more than 265,000 employees worldwide from 100 different countries. (Nestle, 2009)

– Engaged and Proximate: the EcoShape bottle produced by Nestle North America in 2007. This example could be regarded as an engaged activity since it reduces the bad effects on the environment (will reduce the CO2 emission by 356,000 tons within three years) and at the same time it is proximate because it is closely related to the company operations (since it impacts on the environment in the same location as its operations). (Nestle America, 2009)

-Engaged CSR activities: the Environmental Management System is one of MTNs policies to reduce the production waste by recycling and encouraging the employees to act socially responsible. (MTN Environmental Policy, 2009)

– Disengaged CSR initiatives: Arts and Aids awareness educational program for communities, conducted by the MTN foundation and regarded as a totally disengaged scheme carried out by MTN. (MTN SA foundation, 2009)

– Distant CSR activities: No distant CSR initiatives found.

-Proximate CSR activities: the Arts and Aids awareness educational program could be regarded as a proximate CSR scheme since MTN originally operated in Africa and the Middle East. (MTN SA foundation, 2009)

– Engaged and Proximate: the 21 days of Y’ello care started in 2007. This scheme of 21 days gives the opportunity for MTN’s employees to directly engage with the CSR initiatives programme with a prize as a reward at the end of this scheme for the best team. One team was rewarded for building a small pedestrian bridge. (MTN Y’ello, 2009)

Now, the report will analyse the Ponte et al typology mentioned above showing two contrasting viewpoints:

In favour of CSR:

Good for business when (Engaged whether Proximate or Distant): Porter and Kramer (2006, p:83) indicate that working in a healthy society will keep the company healthy (health care for the workforce) and also supply it with a competitive advantage (efficient use of resources: water, land…) and all of these will be achieved by “Integrating Business and Society” through CSR activities. Other authors praise the role of CSR in marketing and this could be applied in bringing a bright image to the company and to some extent increase its sales Hardeep and Sharma (2006). For example, Ogrizek (2002) said:

“There are clear and concrete market-driven benefits and competitive advantages for companies, which integrate their business policies with CSR”.

In respect of the two companies in question there are a lot of initiative approaches for both companies from their websites which all could be regarded as marketing tools and green sheen attempts (the new brand of Nestle: Nescafe Green blend).

Good for society when (Engaged whether Proximate or Distant): advocators of this model argue that governments in the developing countries on their own cannot meet the increasing demands of the society and development requirements and this is actually what Samuel et al (2009.p394) found when they conducted research in Nigeria showing how CSR initiatives being carried out by 22 organizations complement government efforts to build up a stable economy. Furthermore, this perspective is also supported by the neo-liberalism theory in which many authors stress that only business and free markets can sustain the individual rights, society and the environment (Burchell, 1996, Barry et al 1996, Peter and Olssen 2002 cited in Zajda, 2009 p:15). No one could deny that Nestle creates job opportunities for 265,000 employees worldwide from 100 different countries and also that MTN donated about 1.5 Rand million to buy clothes with the help of the Red Cross in South Africa in response to attacks by foreign nationals in 2008 (MTN SA foundation, 2009). At the economy level, The Economist (1999) emphasized the contribution of MTN as a mobile company in “bringing the poor and isolated into the global economy”.

Opposed to CSR:

Bad for business when (Disengaged): advocators for this approach are usually those who argue in favour of shareholder interests and indicate that the main objective of any company is only to maximize the shareholder’s value and minimize any kind of expense. That becomes very clear when Lawrence (1999) describes how the company should create a value management system in five steps in order to achieve the shareholder value, neglecting any component related to non-profit activities because it just an expense. Also, as mentioned earlier in this report, Mantyssari (2005) describes the shareholders as the heart of the business who supply it with the funds needed for the daily operations, so managers have to keep them satisfied by a high level of yield.

Furthermore, some say that CSR is not only waste of money but also it distracts the managers from focusing on their real duties since effective CSR, which is not only a charity cheque, needs special talent and efforts, and that is also emphasized by Porter and Kramer (2006, p:91) when they argue that organizational adjustment that matches good CSR initiatives is what matters more than kind intentions.

Useless for society and development (Criticizing all Ponte et al approaches): many protestors criticise the effects caused by MNCs’ activities all over the world since their negative effects outweigh their CSR initiatives. They think whatever the companies do for the societies is only a green sheen. For instance, Nestle is proud of itself, saying it always provides work opportunities for people, indicated that 97% of their workforces are distributed all over the world The Economist (1997.p153). However, for Corpwatch (2005) the truth is it exploits the workers in an awful manner and Corpwatch complained that 286,000 children work as slaves in the Ivory Coast’s cocoa farms (90 hours a week with very low wages) and point out that Nestle is the third largest importer of cocoa from the Ivory Coast. Also it could be argued from ‘bad for business’ angle as there is general agreement that if CSR is not focused and organized it will often come to nothing or may sometimes have harmful results.

VII. Conclusion:

From this report, a lot of findings can be drawn by analysing the corporate social responsibility approaches for Nestle and MTN. This report started by showing the importance of the different types of stakeholders that try to steer the company’s activities in the way they desire, whether in a business or CSR approach. Using the Stakeholders Saliency Model these stakeholders have been allocated and two major differences were found. The first one is, Governments in developing countries where Nestle operate should be put under Dangerous stakeholder since they lack experience in dealing with such governments and the high-income corporation could also be seen an enticing opportunity to be seized. However, MTN (a low-income company) is the opposite case since it originated in such an environment. The other main difference between them is the danger of social organizations for Nestle such as NGOs and the media since it works globally and works in the field of nutrition, hiring people from poor countries, so may be targeted by such institutions. In contrast, MTN does not have a direct impact on people’s lives and is not recognized globally like Nestle since it operates only in developing countries.

The report then analysed and evaluated the CSR approaches for both companies using Ponte et al typology to allocate them in four dimensions, engaged/disengaged, distant/proximate. It was found Nestle and MTN use all of them except for MTN which did not use distant CSR initiatives. The report attempted to answer the question which stakeholders were satisfied and which were not, no matter what type of approach was adopted, by contrasting two points of view (with and against CSR) and arguing them in four different aspects. Through the analysis of the aspect ‘Useless for society’, it was found some organizations and institutions are still not satisfied by the CSR initiatives and need deeper indicators, going beyond the basics and taking into account the real influences on the surroundings. Regarding the future of CSR, some authors such as Murray and Blowfield (2008, p:365-369) emphasised that the context analysis such as the mega trends (climate change, demographic change, poverty) will be no less important than simply examining the CSR approaches taken by the company.