An issue's public profile indicates to managers:

24

Managing Public Issues and Stakeholder Relationships Businesses today operate in an ever-changing external environment, where effective management requires anticipating emerging public issues and engaging positively with a wide range of stakehold- ers. Whether the issue is growing concerns about climate change, water scarcity, child labor, animal cruelty, or consumer safety, managers must respond to the opportunities and risks it presents. To do so effectively often requires building relationships across organizational boundaries, learning from external stakeholders, and altering practices in response. Effective management of public issues and stakeholder relationships builds value for the firm.

This Chapter Focuses on These Key Learning Objectives:

• Evaluating public issues and their significance to the modern corporation.

• Applying available tools or techniques to scan an organization’s multiple environments.

• Describing the steps in the issue management process and determining how to make the process most effective.

• Identifying who is responsible for managing public issues and the skills required to do so effectively.

• Understanding how businesses can build collaborative relationships with stakeholders through engagement, dialogue, and network building.

• Identifying the benefits of stakeholder engagement to the business firm.

C H A P T E R T W O

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Chapter 2 Managing Public Issues and Stakeholder Relationships 25

IKEA is the Scandinavian home furnishings retailer known for its distinctive yellow and blue big-box stores and stylish, inexpensive, and environmentally sound products. The firm’s mission is “to create a better everyday life for the many people.” In the late 1990s, the company’s managers were startled by a documentary, broadcast on European televi- sion, showing young children in South Asia working under deplorable conditions making hand-woven rugs. The program named IKEA as one of several rug importers from that re- gion. Shortly afterward, activists held protests outside several IKEA stores, demanding that it halt child labor in its supply chain. As the company’s area manager for carpets later com- mented, “The use of child labor was not a high-profile public issue at the time. . . . We were caught completely unaware.” Rather than ignore the issue, IKEA responded by sending a legal team to Geneva to consult with the International Labour Organization. It promptly adopted a clause in all sup- ply contracts stating that any supplier employing children under legal working age would be immediately terminated. The company also reached out to UNICEF (the United Nations Children’s Fund) and Save the Children (a child-advocacy group) for further guidance about what actions to take. After extensive consultation, IKEA decided to fund a community-development project in villages in the carpet-manufacturing region of northern India, which had been depicted in the documentary. Administered by UNICEF, the project provided alternative schooling, community loans, and vaccinations as a way to avoid the economic necessity for children to work. The company also integrated child labor issues into its established supplier audit- ing programs (set up initially to track environmental compliance), and instituted regular reviews of its rug suppliers. It later created a position of children’s ombudsman to handle children’s issues at the firm. By 2012, IKEA, through its foundation, had donated more than $190 million to UNICEF for community development and child welfare in India. UNICEF commented on its website, “What makes IKEA a true partner is the company’s deep commitment to social responsibility and their direct engagement with issues affecting children.” 1 IKEA’s creative engagement with stakeholders on the issue of child labor went far be- yond what was legally required. But it improved the firm’s reputation with both customers and suppliers, avoided more serious conflict with activists, and produced positive outcomes that the company might not have been able to achieve on its own. IKEA had recognized an issue, reached out to stakeholders, and made a difference.

Public Issues A public issue is any issue that is of mutual concern to an organization and one or more of its stakeholders. (Public issues are sometimes also called social issues or sociopolitical is- sues. ) They are typically broad issues, often impacting many companies and groups, and of concern to a significant number of people. Public issues are often contentious—different groups may have different opinions about what should be done about them. They often, but not always, have public policy or legislative implications. The emergence of a new public issue—such as concerns about child labor, mentioned in the opening example of this chapter—often indicates there is a gap between what the firm wants to do or is doing and what stakeholders expect. In the IKEA example, the company was sourcing products from suppliers who used child labor, a practice that offended many

1 UNICEF, “International Partnerships: IKEA,” at www.unicef.org/corporate_partners; and Christopher A. Bartlett, Vincent Dessain, and Anders Sjoman, “IKEA’s Global Sourcing Challenge: Indian Rugs and Child Labor (A) and (B),” Cases # 9-906- 414 and #9-906-415, 2006.

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26 Part One Business in Society

of its customers. Scholars have called this the performance–expectations gap . Stakeholder expectations are a mixture of people’s opinions, attitudes, and beliefs about what consti- tutes reasonable business behavior. Managers and organizations have good reason to iden- tify emergent expectations as early as possible. Failure to understand stakeholder concerns and to respond appropriately will permit the performance–expectations gap to grow: the larger the gap, the greater the risk of stakeholder backlash or of missing a major business opportunity. The performance–expectations gap is pictured in Figure 2.1. Emerging public issues are both a risk and an opportunity. They are a risk because is- sues that firms do not anticipate and plan for effectively can seriously hurt a company. As the following examples show, sometimes a firm anticipates and addresses a public issue very well and other times it does not.

Toyota, a Japanese automobile manufacturer with a history of attention to the safety of its automobiles, including the high-end Lexus model, was ill-prepared for the number and seriousness of the issues the firm encountered in 2010. A 911 call explained the problem: “We’re in a Lexus . . . we’re going north on 125 and our accelerator is stuck . . . we’re in trouble . . . there’s no brakes . . . we’re approaching the intersection . . . hold on . . . hold on and pray. . . .” The call ended with the sound of a crash. By April 2010, Toyota had recalled more than 8 million vehicles because of a sticking gas pedal and a flaw in the design of the driver’s side floor mats, both of which had apparently contributed to the sudden and uncontrolled acceleration experienced by some drivers. The firm also faced a $16.4 million fine from the U.S. National Highway Traffic Safety Administration with a threat of additional fines. Akio Toyoda, Toyota’s president, admitted that the company lost sight of the impor- tance of consumer safety and product quality, placing too much emphasis on market share and profitability. 2

FIGURE 2.1 The Performance– Expectations Gap

Time

Expected Corporate Performance (What stakeholders expect)

Actual Corporate Performance (What actually happens)

Performance– Expectations Gap

High

Low

P er

fo rm

an ce

( S

oc ia

l a nd

E co

no m

ic )

2 “Toyota Faces $16.4 Million U.S. Fine,” The Wall Street Journal, April 6, 2010, online.wsj.com and “Toyoda Concedes Profit Focus Led to Flaws,” The Wall Street Journal, March 1, 2010, online.wsj.com.

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On the other hand, correctly anticipating the emergence of an issue can confer a com- petitive advantage. The same firm, Toyota, was one of the first firms to recognize that growing public concern about the environment and related government regulations would spur demand for fuel-efficient and low-emission vehicles. As a result, the company got an early start on developing gas–electric engines and is today the leading producer of such vehicles. In 2011, Toyota announced that it had sold more than 3 million Priuses and other hybrid models since their introduction in 1989, exceeding all expectations. 3 Understanding and responding to changing societal expectations is a business neces- sity. As Mark Moody-Stuart, former managing director of Royal Dutch/Shell, put it in an interview, “Communication with society . . . is a commercial matter, because society is your customers. It is not a soft and wooly thing, because society is what we depend on for our living. So we had better be in line with its wishes, its desires, its aspirations, its dreams.” 4 What issues should companies prioritize? Recent research suggests that issues become “ripe” for company action when two factors are present: society’s expectations are high, and the issue is highly relevant to the business. This relationship is shown in Exhibit 2.A. Society’s expectations may rise when people perceive an issue to be serious, believe the company is in some way responsible, and are willing to collaborate with other stakeholders to bring about change. An issue may be expecially relevant when it is likely to affect the company significantly, and the company has core competencies to address it. For example, the issue of water scarcity (explored in the discussion case at the end of this chapter) be- came ripe for action by the Coca-Cola Company when both society’s expectations and its relevance to the firm became high. Every company faces many public issues. Some emerge over a long period of time; others emerge suddenly. Some are predictable; others are completely unexpected. Some

Issue RipenessExhibit 2.A

Low Medium High

Lo w

M

ed iu

m

H ig

h

Relevence to Business

S oc

ie ty

’s E

xp ec

ta tio

ns

Source: Committee Encouraging Corporate Philanthropy, Shaping the Future: Solving Social Problems through Business Strategy (New York: CECP, 2010), Exhibit 11, p. 22. Used by permission.

3 “Worldwide Sales of TMC Hybrids Top 3 Million,” March 8, 2011, at www.toyota.com. 4 Interview conducted by Anne T. Lawrence, “Shell Oil in Nigeria,” interactive online case published by www.icase.co.

27

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companies respond effectively; others do not. Consider the following recent examples of public issues and companies’ responses:

• Climate change: Lafarge, a French multinational cement company, recognized that 5 per- cent of all man-made carbon dioxide emissions, a key contributor to global warming and a growing public concern, came from the cement industry. Lafarge partnered with the World Wildlife Foundation to reduce the levels of carbon dioxide emissions by 20 per- cent per ton by improving the energy efficiency of its plants and using locally available alternatives to fossil fuels, such as used tires and coffee husks. In 2010, the company achieved its goals ahead of schedule and adopted new, more aggressive targets. 5

• Executive pay and bonuses: In 2010, Congress stepped in and questioned executive sala- ries and bonuses at Freddie Mac and Fannie Mae, government-sponsored financial insti- tutions dealing with secondary mortgages and securities. “If $900,000 base salary isn’t enough to get someone qualified in that position, I don’t know what is. You don’t have to bonus them another $2.3 million—it is just too much especially when those two entities owe the American taxpayers so much money,” explained a member of Congress. At the time, Freddie Mac and Fannie Mae had received $170 billion in government bailout sup- port, the most expensive bailout of the 2008 financial crisis, yet the top 10 executives at these companies made nearly $13 million in bonuses in 2010. After conducting hearings on this issue, Congress ruled that the salaries of the top 70 Fannie Mae and Freddie Mac executives would be limited to $500,000 per year and their annual bonuses eliminated. 6,7

• Food safety: Outbreaks of E. coli, salmonella, and other food-borne illnesses were on the rise in the early years of the century. In 2011, 29 people died and nearly 3,000 were sickened by a virulent bacterial outbreak traced to organic sprouts from a farm in Germany. Urgent calls for action by consumer advocates, health care professionals, and political figures led to new and more stringent government standards for the processing and storage of vegetables and other food products in many countries. Growers, food companies, and restaurants scrambled to catch up with the new rules. 8

• Privacy: Privacy advocates throughout Europe, where laws were more stringent than in the United States, protested the introduction of Google’s Street View, an addition to the search firm’s popular mapping service. Street View shows a driver’s-eye view of the ground level of streets, buildings, and people. Google collected the images using specially equipped cameras mounted on cars. A Frenchman, who had decided to urinate in his front yard, was photographed by one of Google’s Street View vehicles and sued Google for €10,000 ($13,300) in damages and demanded that Google remove the image. 9

Environmental Analysis As new public issues arise, businesses must respond. Organizations need a systematic way of identifying, monitoring, and selecting public issues that warrant organizational action because of the risks or opportunities they present. Organizations rarely have full control of

5 “Sustainability 10th Report, 2010,” at www.lafarge.com. 6 Quote is by Congressman Darrell Issa, from “Fannie, Freddie CEOs Agree to Face Congress over Bonuses,” Housingwire, November 14, 2011, housingwire.com. Other information is from “Fannie, Freddie Executive Pay Limited, Bonuses Cut,” Daily Herald, March 9, 2012, www.dailyherald.com. 7 “House Approves 90% Tax on Bonuses after Bailouts,” The New York Times, March 20, 2009, www.nytimes.com. 8 “Germany Says Bean Sprouts Are Likely E. Coli Source,” The New York Times, June 10, 2011, www.nytimes.com. 9 “Google Faces ‘Street View Block,’” BBC News, July 4, 2008, newsvote.bbc.co.uk; “Google Pulls Some Street Images,” BBC News, March 20, 2009, newsvote.bbc.co.uk; and “Google Street View Has Patent, Urination Problems,” Search Engine Watch, March 5, 2012, searchenginewatch.com.

28 Part One Business in Society

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Chapter 2 Managing Public Issues and Stakeholder Relationships 29

a public issue because of the many factors involved. But it is possible for the organization to create a management system that identifies and monitors issues as they emerge. To identify those public issues that require attention and action, a firm needs a frame- work for seeking out and evaluating environmental information. (In this context, environ- mental means outside the organization ; in Chapters 10 and 11, the term refers to the natural environment.) Environmental analysis is a method managers use to gather information about external issues and trends, so they can develop an organizational strategy that minimizes threats and takes advantage of new opportunities. Environmental intelligence is the acquisition of information gained from analyzing the multiple environments affecting organizations. Acquiring this information may be done in- formally or as a formal management process. If done well, this environmental intelligence can help an organization avoid crises and spot opportunities. According to management scholar Karl Albrecht, scanning to acquire environmental intelligence should focus on eight strategic radar screens . 10 Radar is an instrument that uses microwave radiation to detect and locate distant objects, which are often displayed on a screen; law enforcement authorities use radar, for example, to track the speed of passing cars. Albrecht uses the analogy of radar to suggest that companies must have a way of tracking important developments that are outside of their immediate view. He identifies eight different environments that managers must systematically follow. These are shown in Figure 2.2 and described next.

FIGURE 2.2 Eight Strategic Radar Screens

Source: Karl A. Albrecht, Corporate Radar: Tracking the Forces That Are Shaping Your Business (New York: American Management Association, 2000).

Customer Environment

Seeking Environmental

Intelligence

Social Environment

Geophysical Environment

Legal Environment

Political Environment

Technological Environment

Economic Environment

Competitor Environment

10 Adapted from Karl Albrecht, Corporate Radar: Tracking the Forces That Are Shaping Your Business (New York: American Management Association, 2000).

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30 Part One Business in Society

• Customer environment includes the demographic factors, such as gender, age, marital status, and other factors, of the organization’s customers as well as their social values or preferences. For example, the “graying” of the population as members of the baby boom generation age has created opportunities for developers that specialize in building communities for active older adults and for medical providers with a specialization in geriatric health care.

• Competitor environment includes information on the number and strength of the or- ganization’s competitors, whether they are potential or actual allies, patterns of aggres- sive growth versus static maintenance of market share, and the potential for customers to become competitors if they “insource” products or services previously purchased from the organization. (This environment is discussed further in the next section of this chapter.)

• Economic environment includes information about costs, prices, international trade, and any other features of the economic environment. The severe recession that hit the world’s economy beginning in 2008 greatly shifted the behavior of customers, suppli- ers, creditors, and other stakeholders, dramatically impacting decision making in many firms.

• Technological environment includes the development of new technologies and their ap- plications affecting the organization, its customers, and other stakeholder groups. Faster access to information through smartphones, PDAs, and other handheld electronic devices changed how people around the world were alerted to the devastation of natural disasters or terrorist actions and how they could be contacted regarding new job open- ings or the launching of innovative consumer products.

• Social environment includes cultural patterns, values, beliefs, trends, and conflicts among the people in the societies where the organization conducts business or might conduct business. Issues of civil or human rights, family values, and the roles of special interest groups are important elements in acquiring intelligence from the social environment.

• Political environment includes the structure, processes, and actions of all levels of government—local, state, national, and international. Awareness of the stability or in- stability of governments and their inclination or disinclination to pass laws and regula- tions is essential environmental intelligence for the organization. The emergence of strict environmental laws in Europe—including requirements to limit waste and provide for recycling at the end of a product’s life—have caused firms all over the world that sell to Europeans to rethink how they design and package their products.

• Legal environment includes patents, copyrights, trademarks, and considerations of intel- lectual property, as well as antitrust considerations and trade protectionism and organi- zational liability issues. China’s commitment in 2011 to dramatically increase its patent filings from 300,000 annually to one million by 2015 sent shock waves through the global business community. In comparison, about 500,000 patent applications are filed in the United States each year.

• Geophysical environment relates to awareness of the physical surroundings of the or- ganization’s facilities and operations, whether it is the organization’s headquarters or its field offices and distribution centers, and the organization’s dependency and impact on natural resources such as minerals, water, land, or air. Growing concerns about global warming and climate change, for example, have caused many firms to seek to improve their energy efficiency.

The eight strategic radar screens represent a system of interrelated segments, each one connected to and influencing the others.

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Chapter 2 Managing Public Issues and Stakeholder Relationships 31

Companies do not become experts in acquiring environmental intelligence overnight. New attitudes have to be developed, new routines learned, and new policies and action programs designed. Many obstacles must be overcome in developing and implementing the effective scanning of the business environments. Some are structural, such as the reporting relationships between groups of managers; others are cultural, such as changing traditional ways of doing things. In addition, the dynamic nature of the business environ- ments requires organizations to continually evaluate their environmental scanning procedures.

Competitive Intelligence One of the eight environments discussed by Albrecht is the competitor environment. The term competitive intelligence refers to the systematic and continuous process of gathering, analyzing, and managing external information about the organization’s competitors that can affect the organization’s plans, decisions, and operations. (As discussed in Chapter 1, competitors may be considered a nonmarket stakeholder of business.) The acquisition of this information benefits an organization by helping it better understand what other compa- nies in its industry are doing. Competitive intelligence enables managers in companies of all sizes to make informed decisions ranging from marketing, research and development, and investing tactics to long-term business strategies. “During difficult times, excellent competitive intelligence can be the differentiating factor in the marketplace,” explained Paul Meade, vice president of the research and consulting firm Best Practices. “Companies that can successfully gather and analyze competitive information, then implement strategic decisions based on that analysis, position themselves to be ahead of the pack.” 11 Clearly, numerous ethical issues are raised in the acquisition and use of competitive in- telligence. Business managers must be aware of these issues, often clarified in the organi- zation’s code of ethics. 12 The importance of ethical considerations when collecting competitive intelligence cannot be understated, as illustrated by the following examples.

In February 2011, Adrian Jones began a new job at Oracle after being the head of enterprise sales for Hewlett-Packard’s Asia region. He allegedly took with him a USB drive that contained hundreds of files and thousands of e-mails with proprie- tary and valuable information about Hewlett-Packard’s products and customers. Hewlett-Packard filed a lawsuit against Jones demanding the return of all documents. This incident closely paralleled a Ford Motor Company situation in 2009, in which a former Ford engineer allegedly stole thousands of sensitive documents, copied them onto a USB drive, and intended to deliver them to his new job at an unnamed company in China. The engineer was apprehended on his way to China at the Chicago O’Hare airport. Similar incidents also occurred at DuPont, Motorola, and Intel. A U.S. attorney said, “Employees and employers should be aware that stealing proprietary trade secrets to gain an economic advantage is a serious federal offense that will be prosecuted aggressively.” 13

11 See Best Practices report at: www.benchmarkingreports.com/competitiveintelligence. 12 For information about the professional association focusing on competitive intelligence, particularly with attention to ethical considerations, see the Strategic and Competitive Intelligence Professionals’ website at: www.scip.org. 13 “Hewlett-Packard Sues Former Exec at Oracle,” Reuters, April 6, 2011, www.reuters.com; and “Ex-Ford Engineer Indicted for Allegedly Stealing Company Secrets,” Security Dark Reading, October 16, 2009, www.darkreading.com. Also see “Engineer Gets 4 Years in Motorola Secrets Case,” The Wall Street Journal, August 29, 2012, online.wsj.com.

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32 Part One Business in Society

As the Hewlett-Packard and Ford Motor Company attempted theft stories indicate, the perceived value of trade secrets or other information may be so great that businesses or their employees may be tempted to use unethical or illegal means to obtain such informa- tion (or provide it to others). However, competitive intelligence acquired ethically remains one of the most valued assets sought by businesses. A business must balance the impor- tance of acquiring information about its competitors’ practices with the need to comply with all applicable laws, domestic and international, and to follow the professional stan- dards of fairness and honesty. Disclosure of all relevant information prior to conducting an interview and avoidance of conflicts of interest are just a few of the ethical guidelines promoted by the Strategic and Competitive Intelligence Professional’s code of ethics.

The Issue Management Process Once a company has identified a public issue and detects a gap between society’s expecta- tions and its own practices, what are its next steps? Proactive companies do not wait for something to happen; they actively manage issues as they arise. The process of doing so is called issue management . The issue management process , illustrated in Figure 2.3, has five steps or stages. 14 Each of these steps is explained below, using the example of McDonald’s response to emerging stakeholder concerns about the humane treatment of farm animals raised for food. As the largest buyer of pork in the United States, McDon- ald’s was vulnerable to stakeholder pressure on this issue, but also was well positioned to take action and move ahead of its competitors. But, as this example also illustrates, even a strong corporate response does not completely close an issue, since it may arise again in a new form. In McDonald’s case, it had earlier responded to stakeholder concerns about its

FIGURE 2.3 The Issue Management Process

IDENTIFY ISSUE

ANALYZE ISSUE

GENERATE OPTIONS

TAKE ACTION

EVALUATE RESULTS

14 Other depictions of the development and management of public issues may be found in Rogene Buchholz, Public Issues for Management, 2nd ed. (Englewood Cliffs, NJ: Prentice Hall, 1992); Robert Heath, Strategic Issues Management (Thousand Oaks, CA: Sage, 1997); and Eli Sopow, The Critical Issues Audit (Leesburg, VA: Issues Action Publications, 1994).

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Chapter 2 Managing Public Issues and Stakeholder Relationships 33

suppliers’ treatment of cows and chickens, but that did not prevent the animal cruelty issue from arising again—this time, involving pigs.

Identify Issue Issue identification involves anticipating emerging concerns, sometimes called “horizon issues” because they seem to be just coming up over the horizon like the first morning sun. Sometimes managers become aware of issues by carefully tracking the media, experts’ views, activist opinion, and legislative developments to identify issues of concern to the public. Normally, this requires attention to all eight of the environments described in Fig- ure 2.2. Organizations often use techniques of data searching, media analysis, and public surveys to track ideas, themes, and issues that may be relevant to their interests all over the world. They also rely on ongoing conversations with key stakeholders. Sometimes, aware- ness of issues is forced on companies by lawsuits or protests by activists who hold strong views about a particular matter.

When McDonald’s reintroduced its McRib sandwich in 2011, the U.S. Humane Society filed a legal complaint contending that McDonald’s pork supplier was guilty of inhumane practices. According to a 2010 undercover Humane Society investigation, Smithfield Foods, the world’s largest pork producer and a supplier to McDonald’s, kept their female pigs in confined gestation crates. The crates were about 2 feet by 7 feet, too small for a pregnant pig to turn around. The crates were often coated in blood from pigs chewing the metal bars of the cages, prematurely born piglets fell through gate slates into a manure pit, and in one instance a pig was shot in the head with a bolt gun and thrown into a dumpster while still alive, as reported by The Atlantic magazine. The Humane Society’s complaint was followed by an animated short film re- leased online featuring the Coldplay song “The Scientist,” sung by Willie Nelson. It featured a farmer who experienced a crisis of conscience, prompting him to aban- don factory-like farming methods and free his pigs, chickens, and cows from con- finement. Within months it had more than 4.6 million views on YouTube. “It’s just wrong to immobilize animals for their whole lives in crates barely larger than their bodies,” said the president of the U.S. Humane Society. 15

McDonald’s had been aware of animal welfare issues for some time, having proactively responded to questions of animal cruelty to cows and chickens a decade earlier. But the Humane Society’s challenge elevated the urgency to the company of the issue of humane treatment of pigs and put it squarely on the agenda of managers.

Analyze Issue Once an issue has been identified, its implications must be analyzed. Organizations must understand how the issue is likely to evolve, and how it is likely to affect them. For each company, the ramifications of the issue will be different. How the animal welfare issue affected McDonald’s was complex. On one hand, the company was concerned about public perception, and did not want customers to turn away because of concerns about the mistreatment of pigs used for food. On the other hand, it was also concerned about maintaining standards for food quality and keeping down costs. An added complexity was that McDonald’s did not raise its own animals for slaughter, but

15 “Humane Society Complaint Questions Conditions of McRib Pork Supplier,” Time Newsfeed, November 3, 2011, newsfeed .time.com; and “McDonald’s: Gestation Crates Have No Part in Pork Production,” Huffington Post, February 13, 2012, www .huffingtonpost.com.

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34 Part One Business in Society

relied on a network of suppliers for its meat, including such major firms as Smithfield Foods, Hormel Food, and Cargill. In order to influence the treatment of animals, it would need to collaborate closely with companies in its supply chain and use lessons learned from earlier similar public issues.

The pig-raising challenge paralleled the poultry industry’s experience in the 1990s, which was attacked for their practices of keeping chickens in tight cages and other inhumane conditions. McDonald’s aggressive response then helped jump-start changes in that industry. In 1999, McDonald’s ordered their egg suppliers for the pop- ular McMuffin sandwich to provide more space for laying hens. Shortly thereafter other fast-food chains followed suit. In response to the new issue of pig-raising, “there are alternatives that we think are better for the welfare of sows,” McDonald’s senior vice president said. In Octo- ber 2011, in a joint statement with the Humane Society, the fast-food chain an- nounced its decision to explore this issue and search for better practices. The Humane Society hailed this as a major victory in its fight against so-called gestation crates. “They do have the power to move an entire industry, to set an example that other food providers often follow,” said the executive director of Mercy for Ani- mals, a Chicago-based nonprofit animal rights group. “We hope it’s a beginning of the end of these cruel and abusive practices.” 16

Generate Options An issue’s public profile indicates to managers how significant an issue is for the organiza- tion, but it does not tell them what to do. The next step in the issue management process involves generating, evaluating, and selecting among possible options. This requires com- plex judgments that incorporate ethical considerations, the organization’s reputation and good name, and other nonquantifiable factors.

Many of McDonald’s competitors, including Burger King, Wendy’s, and Hardee’s, had already begun to move away from suppliers who used gestation crates. Alterna- tive procedures for raising pigs included using larger and cleaner pens to house the pigs, permitting pigs more time outdoors for grazing and exercise, providing pigs with more nutritious diets, and a greater use of antibiotics to prevent diseases. McDonald’s announcement to join in addressing this issue came a day after Chipotle Mexican Grill aired a nearly two-and-a-half-minute television commercial during the Grammy’s televised award ceremony that touted Chipotle’s ban on pork producers using the crates. “We’re really looking to see a positive change regarding moving away from gestation stalls, and we think the best way to do that is working with our suppliers,” a McDonald’s spokeswoman said. “They’re the ones that actually have to take action to make this happen.” 17

Selecting an appropriate response often involves a creative process of considering various alternatives and rigorously testing them to see how they work in practice.

16 “McDonald’s: Gestation Crates Have No Part in Pork Production,” Huffington Post, February 13, 2012, www.huffingtonpost .com; and “McDonald’s to Phase Out Pig Crates,” The Boston Globe, February 14, 2012, www.bostonglobe.com. 17 “McDonald’s: Gestation Crates Have No Part in Pork Production,” Huffington Post, February 13, 2012, www.huffingtonpost .com; and “Hog Heaven: Farmers Are Raising Pigs in Ways That Produce More Flavorful Meat and Are Better for the Pigs and the Environment,” Land Stewardship Project, January 16, 2003, www.landstewardshipproject.org.

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Chapter 2 Managing Public Issues and Stakeholder Relationships 35

Take Action Once an option has been chosen, the organization must design and implement a plan of action.

McDonald’s Corp. said in February 2012 that it would require five direct suppliers of bacon, Canadian bacon, sausage, and ribs to provide plans by May 2012 to phase out crates that tightly confined pregnant pigs, a move that one animal rights group predicted would have a “seismic impact” on the industry. 18

Evaluate Results Once an organization has implemented the issue management program, it must continue to assess the results and make adjustments if necessary. Many managers see issue management as a continuous process, rather than one that comes to a clear conclusion.

After a review of the actions required in the February 2012 announcement, McDon- ald’s said that it would explore all of its options to decide how to proceed. “It’s a promising move,” said the senior director of farm animal protection for the U.S. Humane Society. “No other fast-food company has done what McDonald’s has done here.” 19

This example illustrates the complexity of the issue management process. Figure 2.3 is deliberately drawn in the form of a loop. When working well, the issue management pro- cess continuously cycles back to the beginning and repeats, pulling in more information, generating more options, and improving programmatic response. Such was the case with the concern over the treatment of pigs. McDonald’s was committed to addressing the issue and knew that it needed to monitor the progress being made with its suppliers to fully address an emerging public issue. Contemporary issue management is truly an interactive process, as forward-thinking companies must continually engage in a dialogue with their stakeholders about issues that matter, as McDonald’s has learned. The new challenge from the Humane Society jump- started another round of discussions between company representatives and animal rights activists. As a result, all parties have continued to learn from one another. Managers must not only implement programs, but continue to reassess their actions to be consistent with both ethical practices and long-term survival.

Organizing for Effective Issue Management Who manages public issues? What departments and people are involved? There is no sim- ple answer to this question. Figure 1.5, presented in Chapter 1, showed that the modern corporation has many boundary-spanning departments. Which part of the organization is mobilized to address a particular emerging issue often depends on the nature of the issue itself. For example, if the issue has implications for public policy or government regula- tions, the public affairs or government relations department may take a leadership role. (The public affairs department is futher discussed in Chapter 9.) If the issue is an environmental

18 “McDonald’s Teams Up with Humane Society to Phase Out Pig Crates,” National Public Radio: The Salt, February 14, 2012, www.npr.org/blogs/the salt; and “McDonald’s Set to Phase Out Suppliers’ Use of Sow Crates,” The New York Times, Febru- ary 13, 2012, www.nytimes.com. 19 “McDonald’s Teams Up with Humane Society to Phase Out Pig Crates,” National Public Radio: The Salt, February 14, 2012, www.npr.org/blogs/the salt.

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36 Part One Business in Society

one, the department of sustainability or environment, health, and safety may take on this role. Some companies combine multiple issue management functions in an office of exter- nal relations or corporate affairs. The following example illustrates how one company has organized to manage emerging public issues.

BlueScope Steel, a flat steel product company based in Australia and New Zealand, created a Corporate Affairs office to manage relationships with a number of key external stakeholders. The office coordinates company efforts with the media, governments, industry bodies, and other steelmakers. Corporate Affairs produces regular media releases and announcements, and is responsible for managing the production of corporate reports, including the Annual Report and the Community, Safety and Environment Report. Corporate Affairs is also responsible for the management of communications with the company’s 21,000 plus employees around the globe, including production of the company-wide employee newspaper, Steel Connections . BlueScope Steel maintains a sophisti- cated electronic communications system, including regular “Stop Press” e-mail announcements and an extensive corporate intranet site, in addition to the company’s external Internet sites.

A corporation’s issue management activities are usually linked to both the board of di- rectors and to top management levels, because of their increasing importance. The Founda- tion for Public Affairs reported in 2011 that 70 percent of business executives say public affairs already plays an increasingly important or very important strategic role in their firms. Another 14 percent said that it was becoming more important. Despite widespread corporate budget cuts due to the recession, 80 percent of the corporate executives surveyed by the Foundation for Public Affairs reported that their firm’s budgets for public issues had increased or remained the same between 2008 and 2011. 20 What kinds of managers are best able to anticipate and respond effectively to emerging public issues? What skill sets are required? The European Academy of Business in Society (EABIS) undertook a major study of leaders in companies participating in the United Na- tions Global Compact. (This initiative, discussed in more detail in Chapter 7, is a set of basic principles covering labor, human rights, and environmental standards, to which com- panies can voluntarily commit.) The researchers were interested in the knowledge and skills required of what they called the “global leader of tomorrow.” They found that effective global leadership on these public issues required three basic capabilities, as schematically diagrammed in Exhibit 2.B. The first was an understand- ing of the changing business context: emerging environmental and social trends affect- ing the firm. The second was an ability to lead in the face of complexity. Many emerging issues, the researchers found, were surrounded by ambiguity; to deal with them, leaders needed to be flexible, creative, and willing to learn from their mistakes. The final capa- bility was connectedness: the ability to engage with external stakeholders in dialogue and partnership. Although more than three-fourths of executives polled said that these skills were important, only 7 percent said their organization was developing them very effectively. 21 We turn next to the topic of connectedness—how managers in today’s corporations engage with stakeholders in the management of public issues.

20 Public Affairs Goes Mainstream, Public Affairs Council, January 13, 2012, pac/org/blog. 21 European Academy of Business in Society, Developing the Global Leader of Tomorrow (United Kingdom: Ashridge, December 2008). Based on a global survey of 194 CEOs and senior executives in September–October 2008.

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Stakeholder Engagement One of the key themes of this book is that companies that actively engage with stakehold- ers do a better job of managing a wide range of issues than companies that do not. In the McDonald’s example presented earlier in this chapter, one of the reasons that the company was quite successful in its response to the emerging issue of animal welfare was that it consulted widely with stakeholders such as the Humane Society. (This process is often ongoing, as McDonald’s experienced when changing technology required the firm to re- establish critical dialogues with its stakeholders.) This section will further explore the various forms the business–stakeholder relationship takes, when stakeholder engagement is likely to occur, and how managers can engage with stakeholders most effectively.

Stages in the Business–Stakeholder Relationship Over time, the nature of business’s relationship with its stakeholders often evolves through a series of stages. Scholars have characterized these stages as inactive, reactive, proactive, and interactive, with each stage representing a deepening of the relationship. Sometimes, companies progress through this sequence from one stage to the next; other companies remain at one stage or another, or move backward in the sequence. 22

• Inactive companies simply ignore stakeholder concerns. These firms may believe— often incorrectly—that they can make decisions unilaterally, without taking into consid- eration their impact on others. Stand ’n Seal Grout Sealer, a do-it-yourself home improvement product made by a company called BRTT, promised a “revolutionary fast way” to seal grout around tiles that was safe to use since any excess spray would

22 This typology was first introduced in Lee Preston and James E. Post, Private Management and Public Policy (Englewood Cliffs, NJ: Prentice Hall, 1975). For a more recent discussion, see Sandra Waddock, Leading Corporate Citizens: Visions, Values, and Value Added, 2nd ed. (New York: McGraw-Hill, 2006), ch. 1.

Capabilities Required for Effective Management of Emerging Public Issues Exhibit 2.B

Context

Connectedness Complexity

Source: Exhibit 3, ”Three Clusters of Knowledge and Skills,” p. 19, European Academy of Business in Society Developing the Global Leader of Tomorrow (United Kingdom: Ashridge, December 2008). Used by permission.

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38 Part One Business in Society

“evaporate harmlessly.” But the product was hardly harmless: dozens of people who used it were horribly sickened, two of them fatally, after breathing in dangerous chemi- cal fumes. An investigation later revealed that BRTT tried to play down the hazard and contined to ship the product to the retailer Home Depot even after it had received nu- merous reports of serious illness. It said it had reformulated the product—although it had just changed the smell, not removed the hazardous ingredients. 23

• Companies that adopt a reactive posture generally act only when forced to do so, and then in a defensive manner. For example, in the film A Civil Action, based on a true story, W. R. Grace (a company that was later bought by Beatrice Foods) allegedly dumped toxic chemicals that leaked into underground wells used for drinking water, causing illness and death in the community of Woburn, Massachusetts. The company paid no attention to the problem until forced to defend itself in a lawsuit brought by a crusading lawyer on behalf of members of the community.

• Proactive companies try to anticipate stakeholder concerns. These firms use the envi- ronmental scanning practices described earlier in this chapter to identify emerging pub- lic issues. They often have specialized departments, such as public affairs, community relations, consumer affairs, and government relations to manage stakeholder relation- ships. These firms are much less likely to be blindsided by crises and negative surprises. Stakeholders and their concerns are still, however, considered a problem to be managed, rather than a source of competitive advantage.

• Finally, an interactive stance means that companies actively engage with stakeholders in an ongoing relationship of mutual respect, openness, and trust. For example, in an effort to address continuing high unemployment rates, in 2011 Starbucks teamed with Opportu- nity Finance Network, a group of community development financial institutions, to launch “Create Jobs for USA.” Donations from Starbucks customers, employees, and others were pooled into a nationwide fund to promote community business lending. The company also pledged $100,000 of profits annually from two stores located in low-income areas, the Harlem section of Manhattan, New York, and the Crenshaw neighborhood of Los Angeles, California, to create jobs and training for young adults living in those communi- ties. 24 Firms with this approach recognize that positive stakeholder relationships are a source of value and competitive advantage for the company. They know that these rela- tionships must be nurtured over time. The term stakeholder engagement is used to refer to this process of ongoing relationship building between a business and its stakeholders.

Drivers of Stakeholder Engagement When are companies most likely to engage with stakeholders, that is, to be at the interac- tive stage? What drives companies further along in this sequence? Stakeholder engagement is, at its core, a relationship . The participation of a business organization and at least one stakeholder organization is necessary, by definition, to consti- tute engagement. In one scholar’s view, engagement is most likely when both the company and its stakeholders both have an urgent and important goal, the motivation to participate, and the organizational capacity to engage with one another. These three elements are presented in Figure 2.4.

Goals For stakeholder engagement to occur, both the business and the stakeholder must have a problem that they want solved. The problem must be both important and urgent. Business

23 “Dangerous Sealer Stayed on Shelves after Recall,” The New York Times, October 8, 2008. 24 “Starbucks Pushes to Create Jobs,” The Wall Street Journal, October 5, 2011, online.wsj.com.

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Chapter 2 Managing Public Issues and Stakeholder Relationships 39

is often spurred to act when it recognizes a gap between its actions and public expectations, as discussed earlier. The company may perceive this gap as a reputational crisis or a threat to its license to operate in society. For their part, stakeholders are typically concerned about an issue important to them—whether child labor, animal cruelty, environmental harm, or something else—that they want to see addressed.

Motivation Both sides must also be motivated to work with one another to solve the problem. For ex- ample, the company may realize that the stakeholder group has technical expertise to help it address an issue. Or, it needs the stakeholder’s approval, because the stakeholder is in a position to influence policymakers, damage a company’s reputation, or bring a lawsuit. Stakeholders may realize that the best way actually to bring about change is to help a com- pany alter its behavior. In other words, both sides depend on each other to accomplish their goals; they cannot accomplish their objectives on their own. (Theorists sometimes refer to this as interdependence. )

Organizational Capacity Each side must have the organizational capacity to engage the other in a productive dia- logue. For the business, this may include support from top leadership and an adequately funded external affairs or comparable department with a reporting relationship to top ex- ecutives. It may also include an issue management process that provides an opportunity for leaders to identify and respond quickly to shifts in the external environment. For the stake- holder, this means a leadership or a significant faction that supports dialogue and individuals or organizational units with expertise in working with the business community. In short, engagement is most likely to occur where both companies and stakeholders perceive an important and urgent problem, see each other as essential to a solution, and have the organizational capacity to interact with one another.

Making Engagement Work Effectively Companies have experimented with various engagement processes. These range from infor- mal to formal, and from one-time-only interactions to fully institutionalized relationships. Engagement may take the form of focus groups, individual or small group interviews, surveys, key-person meetings, or advisory councils. In any event, the firm must invite stakeholders to participate, provide a forum for discussion, and sometimes offer financial or logistical support.

FIGURE 2.4 Drivers of Stakeholder Engagement

Source: Adapted from Anne T. Lawrence, “The Drivers of Stakeholder Engagement: Reflections on the “Case of Royal Dutch/Shell,” Journal of Corporate Citizenship, Summer 2002, pp. 71–85.

Company Stakeholder(s)

Goal To improve corporate reputation; to earn a license to operate; to win approval of society

To change corporate behavior on an issue of concern

Motivation Needs stakeholder involvement because of their expertise or control of critical resources

Governmental campaigns, protest perceived as inadequate to change corporate behavior

Organizational capacity Top leaders committed to engagement; well-funded department of external (stakeholder) affairs

Experienced staff; core group of activists committed to dialogue with business

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40 Part One Business in Society

Sun Microsystems is an example of a company that has begun to institutionalize its stakeholder engagement process. The company has formed a Corporate Social Re- sponsibility Stakeholder Committee, composed of representatives of major custom- ers, investors, and environmental and human rights organizations. The company schedules regular telephone consultations, as well as face-to-face meetings, to air issues of common concern. During a discussion of the global nature of the business, one stakeholder team member suggested that the company adopt a human rights policy. After broad consultation, Sun did so—becoming one of just a few firms to have such a policy. Sun’s director of corporate sustainability and responsibility commented, “Work- ing with external stakeholder groups allows Sun to get direct and meaningful feedback on the social and environmental aspects of our business performance. Admittedly, it isn’t always easy to hear what they have to say, nor are we able to commit to all the things they ask of us. But every interaction we have with the stakeholder team so far has led to progress for Sun.” 25

The process of engagement can take many forms, but it often involves dialogue with stakeholders. One management theorist has defined dialogue as “the art of thinking to- gether.” 26 In stakeholder dialogue , a business and its stakeholders come together for face- to-face conversations about issues of common concern. There, they attempt to describe their core interests and concerns, define a common definition of the problem, invent inno- vative solutions for mutual gain, and establish procedures for implementing solutions. To be successful, the process requires that participants express their own views fully, listen carefully and respectfully to others, and open themselves to creative thinking and new ways of looking at and solving a problem. The promise of dialogue is that, together, they can draw on the understandings and concerns of all parties to develop solutions that none of them, acting alone, could have envisioned or implemented. 27

PacifiCorp is a major electric utility, serving customers throughout the Pacific Northwest. In 2004, the company initiated the process of renewing the permits for seven hydroelectric dams it operated on the Klamath River, a massive waterway that ran 250 miles from southern Oregon into northern California and drained a 13,000 square mile watershed before emptying into the Pacific. Renewing the per- mits turned out to be highly contentious, as it impacted numerous stakeholders, including state and federal agencies, Native American tribes, fishermen, environ- mentalists, farmers, and recreational users, all with diverse interests. Finally, in 2010, after a lengthy collaborative process, the various stakeholders hammered out a historic pact, called the Klamath Basin Restoration Agreement, to remove the dams, restore habitat, and guarantee water for local farmers. PacifiCorp agreed to the plan when it realized that bringing the dams up to modern standards (the oldest had been built in 1903) would be more expensive than removing them. In 2012, the agreement—which one newspaper called “the equivalent of the Berlin wall coming down”—awaited congressional approval. 28

25 Author interview, July 8, 2009. 26 William Isaacs, Dialogue and the Art of Thinking Together (New York: Doubleday, 1999). 27 This section draws on the discussion in Anne T. Lawrence and Ann Svendsen, The Clayoquot Controversy: A Stakeholder Dialogue Simulation (Vancouver: Centre for Innovation in Management, 2002). The argument for the benefits of stakeholder engagement is fully developed in Ann Svendsen, The Stakeholder Strategy: Profiting from Collaborative Business Relation- ships (San Francisco: Berrett-Koehler, 1998). 28 More information is available at: www.pacificorp.com and www.sustainablenorthwest.org.

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Chapter 2 Managing Public Issues and Stakeholder Relationships 41

Stakeholder Networks Dialogue between a single firm and its stakeholders is sometimes insufficient to address an issue effectively. Corporations sometimes encounter public issues that they can address effectively only by working collaboratively with other businesses and concerned persons and organizations in stakeholder networks . One such issue that confronted Nike Inc. was a growing demand by environmentally aware consumers for apparel and shoes made from organic cotton.

Cotton, traditionally cultivated with large quantities of synthetic fertilizers, pesti- cides, and herbicides, is one of the world’s most environmentally destructive crops. In the late 1990s, in response both to consumer pressure and to its own internal commitments, Nike began for the first time to incorporate organic cotton into its sports apparel products. Its intention was to ramp up slowly, achieving 5 percent or- ganic content by 2010. However, the company soon encountered barriers to achiev- ing even these limited objectives. Farmers were reluctant to transition to organic methods without a sure market, processors found it inefficient to shut down produc- tion lines to clean them for organic runs, and banks were unwilling to loan money for unproven technologies. The solution, it turned out, involved extensive collabora- tion with groups throughout the supply chain—farmers, cooperatives, merchants, processors, and financial institutions—as well as other companies that were buyers of cotton, to facilitate the emergence of a global market for organic cotton. The outcome was the formation in 2003 of a new organization called the Organic Exchange, in which Nike has continued to play a leading role. 29

In this instance, Nike realized that in order to reach its objective, it would be necessary to become involved in building a multi-party, international network of organizations with a shared interest in the issue of organic cotton.

The Benefits of Engagement Engaging interactively with stakeholders—whether through dialogue, network building, or some other process—carries a number of potential benefits. 30 Stakeholder organizations bring a number of distinct strengths. They often become aware of shifts in popular sentiment before companies do and thus are able to alert com- panies to emerging issues. For example, as described earlier in this chapter, the U.S. Hu- mane Society brought the issue of animal cruelty to McDonald’s attention and encouraged them to address it proactively. Stakeholders often operate in networks of organizations very different from the company’s; interacting with them gives a firm access to informa- tion in these networks. Stakeholders often bring technical or scientific expertise in their area of concern. Finally, when a stakeholder agrees to work with a company on imple- menting a mutually agreed-upon solution, they can give the resulting work greater legiti- macy in the eyes of the public. For example, when Coca-Cola partnered with the World Wildlife Fund and other nonprofit organizations to address stakeholder concerns about the company’s impact on water quality and access—a story told in the discussion case at the end

29 The website for the Organic Exchange is: www.organicexchange.org. Nike’s description of its efforts is available online at: www.nike.com/nikebiz. This case is discussed in Ann C. Svendsen and Myriam Laberge, “Convening Stakeholder Networks: A New Way of Thinking, Being, and Engaging,” Journal of Corporate Citizenship 19 (Autumn 2005), pp. 91–104. 30 The following paragraph is largely based on the discussion in Michael Yaziji and Jonathan Doh, NGOs and Corporations: Conflict and Collaboration (Cambridge, UK: Cambridge University Press, 2009), ch. 7, “Corporate-NGO Engagements: From Conflict to Collaboration,” pp. 123–45.

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42 Part One Business in Society

of this chapter—their efforts were more believable to many than if the company had undertaken this initiative on its own. In short, stakeholder engagement can help companies learn about society’s expecta- tions, draw on outside expertise, generate creative solutions, and win stakeholder support for implementing them. It can also disarm or neutralize critics and improve a company’s reputation for taking constructive action. On the other hand, corporations that do not en- gage effectively with those their actions affect may be hurt. Their reputation may suffer, their sales may drop, and they may be prevented from taking action. The need to respond to stakeholders has only been heightened by the increased globalization of many businesses and by the rise of technologies that facilitate fast communication on a worldwide scale. Companies are learning that it is important to take a strategic approach to the manage- ment of public issues, both domestically and globally. This requires thinking ahead, under- standing what is important to stakeholders, scanning the environment, and formulating action plans to anticipate changes in the external environment. Effective issue management requires involvement both by professional staff and leaders at top levels of the organiza- tion. It entails communicating across organizational boundaries, engaging with the public, and working creatively with stakeholders to solve complex problems.

Key Terms public issue, 25 stakeholder dialogue, 40 stakeholder engagement, 38 stakeholder networks, 41

competitive intelligence, 31 environmental analysis, 29 environmental intelligence, 29

issue management, 32 issue management process, 32 performance–expectations gap, 26

• A public issue is an issue that is of mutual concern to an organization and one or more of the organization’s stakeholders. Emerging public issues present a risk, but they also present an opportunity, because companies that correctly anticipate and respond to them can often obtain a competitive advantage.

• The eight strategic radar screens (the customer, competitor, economic, technological, social, political, legal, and geophysical environments) enable public affairs managers to assess and acquire information regarding their business environments. Managers must learn to look outward to understand key developments and anticipate their impact on the business.

• The issue management process includes identification and analysis of issues, the generation of options, action, and evaluation of the results.

• In the modern corporation, the issue management process takes place in many bound- ary-spanning departments. Some firms have a department of external affairs or corpo- rate relations to coordinate these activities. Top management support is essential for effective issue management.

• Stakeholder engagement involves building relationships between a business firm and its stakeholders around issues of common concern. It may involve dialogue, network building, or partnerships.

• Engaging with stakeholders benefits businesses by bringing in expertise, enhancing legitimacy, and generating creative solutions to common problems.

Summary

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Chapter 2 Managing Public Issues and Stakeholder Relationships 43

Discussion Case: Coca-Cola’s Water Neutrality Initiative From approximately 2005 to the early 2010s, Coca-Cola faced an emerging issue: its cor- porate impact on water quality, availability, and access around the world. The Coca-Cola Company (TCCC) was the world’s largest beverage company. The com- pany operated in more than 200 countries, providing 1.7 billion servings a day of carbon- ated beverages, juices and juice drinks, bottled water, and ready-to-drink coffees and teas. The company also partnered with more than 300 bottlers, independent companies that manufactured various Coca-Cola products under franchise. Seventy percent of the company’s revenue came from outside the United States. Water was essential to Coca-Cola’s business. The company and its bottlers used around 82 billion gallons of water worldwide every year. Of this, about two-fifths went into finished beverages, and the rest was used in the manufacturing process—for example, to wash bottles, clean equipment, and provide sanitation for employees. Water supplies were also essential to the production of many ingredients in its products, such as sugar, corn, citrus fruit, tea, and coffee. Coca-Cola’s chairman and CEO put it bluntly when he commented that unless the communities where the company operated had access to water, “we haven’t got a business.” In 2003, Coca-Cola was abruptly reminded of the impact of its water use on local com- munities when the Center for Science and the Environment, a think tank in India, charged that Coca-Cola products there contained dangerous levels of pesticide residues. Other activists in India charged that the company’s bottling plants used too much water, depriv- ing local villagers of supplies for drinking and irrigation. Local officials shut down a Coca- Cola bottling plant in the state of Kerala, saying it was depleting groundwater, and an Indian court issued an order requiring soft-drink makers to list pesticide residues on their labels. In the United States, the India Resource Center took up the cause, organizing a grassroots campaign to convince schools and colleges to boycott Coca-Cola products. Water was also emerging as a major concern to the world’s leaders. In the early 21st century, more than 1 billion people worldwide lacked access to safe drinking water. Water consumption was doubling every 20 years, an unsustainable rate of growth. By 2025, one- third of the world’s population was expected to face acute water shortages. The secretary general of the United Nations highlighted water stress as a major cause of disease, rising food prices, and regional conflicts, and called on national governments and corporations to take steps to address the issue.

Internet Resources

www.wn.com/publicissues World News, Public Issues www.nifi.org National Issues Forum www.un.org/en/globalissues United Nations, Global Issues www.issuemanagement.org Issue Management Council www.scip.org Strategic and Competitive Intelligence Professionals www.wfs.org World Future Society www.globalissues.org Global Issues dir.yahoo.com/Society_and_ Yahoo’s list of issues Culture/issues_and_Causes www.cfr.org Council on Foreign Relations

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44 Part One Business in Society

Coca-Cola undertook a comprehensive study, surveying its global operations to assess its water management practices and impacts. It also reached out to other stakeholders, includ- ing the World Wildlife Fund, the Nature Conservancy, the humanitarian organization CARE, and various academic experts, to seek their advice. As the leader of TCCC’s water steward- ship initiative explained, the company also “sat down with each of our top bottlers, all of our operating groups, and really walked through all aspects of water and really understood where they were coming from and reached consensus though a very deliberate process.” In 2007, TCCC announced an aspirational goal of water neutrality , “to safely return to nature and to communities an amount of water equal to what we use in all our beverages and their production, by the year 2020.” This goal would be accomplished in three ways: reduce, recycle, and replenish. The company said it would reduce its own use of water by running its operations more efficiently. It would discharge water used in manufacturing only if it were clean enough to support aquatic life—treating its wastewater itself where local authorities were unable to do so. Finally, the company would replenish the balance of the water it used (for example, as an ingredient in bottled beverages) by participating in various water conservation projects globally, such as river conservation, rainwater collection, and efficient irrigation. As the water neutrality initiative proceeded, Coca-Cola moved to measure and publicly share its results. In 2011, the company reported that it had reduced its “water ratio” (the number of gallons of water used per gallon of product produced) by 13 percent from base- line levels. It estimated that 39 percent of its facilities were using recycled water, and 23 percent of the water used in finished products had been replenished through community water projects. The company also sought to measure the benefits of more than 300 partner- ships with governments and nonprofit organizations around the world, ranging from build- ing water treatment facilities in Colombia, to restoring watersheds in Thailand, to improving sugarcane irrigation in Australia. Coca-Cola estimated in 2011 that these con- servation projects had replenished the equivalent of 31 percent of the water used in its finished beverages, although it acknowledged that its methodologies for accurately quanti- fying water benefits were still evolving.

Sources: The Coca-Cola Company, The Water Stewardship and Replenish Report, 2011, at www.thecoca-colacompany .com/citizenship/pdf/replenish_2011.pdf, and 2010/2011 Sustainability Report, at www.thecoca-colacompany.com /sustainabilityreport; Business for Social Responsibility, “Drinking It In: The Evolution of a Global Water Stewardship Program at The Coca-Cola Company,” March 2008; and “Coca-Cola in India,” in Michael Yaziji and Jonathan Doh, NGOs and Corporations (Cambridge, UK: Cambridge University Press, 2009), pp. 115–19.

Discussion Questions

1. What was the public issue facing The Coca-Cola Company in this case? Describe the “performance–expectations gap” found in the case—what were the stakeholders’ concerns, and how did their expectations differ from the company’s performance?

2. If you applied the strategic radar screens model to this case, which of the eight environ- ments would be most significant, and why?

3. Apply the issue management life cycle process model to this case. Which stages of the process can you identify in this case?

4. How did TCCC use stakeholder engagement and dialogue to improve its response to this issue, and what were the benefits of engagement to the company?

5. In your opinion, did TCCC respond appropriately to this issue? Why or why not?

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