Corporate Social Responsibility - An Evaluation At Primark Stores - Case Study Example

? Corporate Social Responsibility: An Evaluation At Primark Stores Table of Contents References 13 Corporate Social Responsibility: An Evaluation At Primark Stores 1. Corporate Social Responsibility Today, there are a large number of global and multinational organisations. This has been a strategy of the firms to multiply their profits. At the same time, they become increasingly obliged to the societies that facilitate their progress. Such large corporations are supposed to do more than sending out products, providing employment and paying taxes. They are expected to produce and market the products and services ethically and in an environment-friendly manner, provide good working conditions for the employees, etc,. Along with these, the organisations owe their revenues to the society, and thus have to pay back a part of it by serving the community at large. All these expectations in Toto make up the Corporate Social Responsibility(CSR) of a firm. It is defined as, “a concept whereby companies integrate social and environmental concerns in their business operations and in their interaction with their stakeholders on a voluntary basis” ((Mcnall & Hershauer, 2011) CSR is a means of ensuring the sustainability of an organization. Unless it conducts the trade morally, the malpractices and loop holes in the operations may surface at any time and become the organisations’ weakness in winning the hearts of customers. Decent working conditions attract good job-seekers and make the organization a better place for the employees, this again reflects on their loyalty. When a percentage of profits are diverted towards community development, the company appeals to the attention of larger audience and helps it build a brand image. Finally, the stress on environment is the order of the day and there is growing concern in the consumers towards using eco-friendly products. Thus, CSR is a social investment that reaps huge competitive advantage to the companies and guarantees their viability in the competitive markets (Banerjee, 2007). 2. Primark Stores Primark is a chain of 235 clothing stores spread in 7 countries including Ireland, Spain, UK, Netherlands, Portugal, Germany and Belgium. Associated British Foods (ABF) plc., is its parent company. The clothing line offered by Primark include men, women, kids and baby clothing, accessories such as shoes and home linen and upholstery. Its competitive advantage lies in presenting variety to the fashion-conscious customers at affordable rates. The factors that allow Primark to sell high fashion products at such low prices are Bulk-buying merchandising only the most popular sizes Stream-lining of operations their easy and unsophisticated design logic low expenses on promotion good ties with suppliers 3. Corporate Social Responsibility at Primark Primark’s CSR is aligned according to the instructions drawn out by ABF. These initiatives fall into 6 categories under the Twinings Ovaltine Strategy Model developed by ABF. The model is illustrated in figure 1. The facets of this strategy pertinent to Primark are discussed in the following sections. Figure 1: Twinings Ovaltine Strategy Model of CSR at ABF (Source: Associated British Foods url: http://www.abf.co.uk/our-decentralised-approach.aspx) 3.1. Its People The company believes that its human resources are one of its main assets. All the employees are treated equally, provided with equal opportunities in case of employment, training, promotion, etc., based on their skill and ability. The company gives due regard to their safety during work. They abide by the regulations set by national and international statutory bodies in the countries where they operate. Harassment is considered as a crime. Primark accords due respect to the cultural differences among employees, who belong to different backgrounds. Open communication among the entire workforce is encouraged. The strong whistleblowing policy guarantees that the employees abide by Primark’s code of conduct (Werther & Chandler, 2011). 3.2. Upstream and Downstream Relationships The stakeholders along Primark’s value chain are given rational treatment. The customers are served with products that meet the promised quality standards. Primark also helps its consumers to double check the fact that the products they buy are ethically sourced. This is facilitated by an online reporting system which is capable of retrieving supplier related information (Primark, 2011). The primary purpose of Primark is to cater to the profitability and interests of its shareholders. Thus, financially viable strategic decisions are made keeping in view these concerns of shareholders. Correct information is disseminated to the shareholders in a timely manner. The data pertaining to Primark is revealed to its shareholders through the Annual General Meeting, quarterly reports, its downloadable documents made available on the website. Trade related issues are divulged through the stock exchange. Meetings with institutional shareholders are conducted to examine and deliberate on concerns related to operational efficiency and achievements (The Times 100, 2010). Primark stresses its suppliers to follow ethical business practices, to see that the products that they market are produced in factories which meet all the necessary regulations including human rights. It has an established supplier choice criteria and processes that allow them to select those who align ethically with Primark’s philosophy. The company ensures that the human resources at supplier end are treated well and provided with good environment and work culture. This is a measure that guarantees that more than 7 million people are provided with decent employment at these organisations (Primark, 2011). The supplier payment terms are negotiated by top management. Primark settles the payments to suppliers as per their obligation to Prompt Payment Code. Timely third party audits related to working conditions, employee compensation, safety and related infrastructure, etc., are conducted at the suppliers’ factory. More than 90 percent of the 250 suppliers of the company are audited this way in 2010 (Primark, 2011). When the suppliers are found to deviate from such practices, Primark facilitates the suppliers to overcome these fluctuations, by providing them necessary support. It provides ethical trading trainings, workshops, related tools etc., to the suppliers, in order to help them in this regard. Primark has developed Entropy, an online supplier and factory management system. It is a system designed to maintain data related to improvement measures and developments at their supplier sites. This aids the company in identifying the supplier training needs effectively (Hooley, Piercy and Nicoulaud, 2009). 3.3. Community Development Service to society as well as other communities forms part of their strategy, as Primark recognizes its responsibility towards them. Primark, along with ABF works in close congregation with some of the NGOs, in order to serve the societies in some of the Asian countries including India, Bangladesh, China etc.,. Their efforts are mainly related to alleviating the lives of labor at supplying units, skill building, women welfare and education (Primark, 2011). The company donates to a charity organization, Garfield Weston Foundation, indirectly through its holding company Wittington Investments. Primark is a member of many development and ethical standard setting organisations, including Ethical Trading Initiative(ETI) Business for Social Responsibility(BSR) International Finance Corporation Better Work Programme Job Centre Plus that trains and supports the unemployed. 3.4. Environment Primark sees that environment and green measures are considered important in each of their practices. The company follows the local environmental regulations and laws wherever it operates. The parent company, ABF’s cost towards environmental safety measures was more than 60 million pounds in 2010 (Associated British Foods, 2011). Supporting this philosophy, Primark warrants that the packages for the product as well as customer carriage leave minimum wastage. This contributes to dematerialization, i.e., decreasing the energy and materials in business practices and processes. Conversion of shares and documents to electronic formats is also the initiative undertaken by Primark in this regard. This attempt reduces the usage of paper. Consultants are hired to guide the teams towards reduced energy usage. Primark has listed itself with UK’s Carbon Reduction Commitment Energy Efficiency Scheme that is applicable to companies which are not based on high energy usage. Primark recycles its package boxes and plastic that is the by-product of its value chain. The merchandise transport trucks bring these recyclable materials back to the recycling unit. This has successfully reduced their costs by 3 million pounds in 2010 (Primark, 2011). This intervention contributes to decreased energy usage, minimize carbon dioxide emission and reduce fuel consumption. Primark is a member of Green Alliance’s Business Circle that encourages and spreads sustainable environmental practices. It is conscious of the carbon footprint and is constantly putting in efforts to reduce the impression. It closely tracks research activities related to eco-friendly distribution and packaging of its products. Primark assesses its environmental risk annually, which is through audit conducted by Environment Resource Management Ltd. The findings of the audit are published in its annual report. Business acquisitions and expansions are planned only after critical analysis of their environmental impact. Thus, Primark subscribes to eco-friendly value chain management. 3.5. Business Ethics ETI is an International association whose membership includes companies, worker and employee organisations and NGOs, who work together to safeguard the interests of employees around the world and provide them with working conditions. Primark has ingrained this initiative into its organizational hierarchy. The Ethical Trading Director works at the headquarters, who is supported by managers and executives from all the countries in which the company operates. Each ethics enforcement team has 12 members. Primark’s commitment to ETI helped it gain the Achiever status. Primark practices the tenet of competing in the markets through rational methods, rather than resorting to unlawful practices. The code of conduct at Primark is derived from ILO regulations and is available in as many as 26 languages to increase the scope of its understanding. All the major policies at the organization are drawn by a group that includes representatives from Government, top management and the workers. Primark strictly adheres to its anti-bribery policy drawn out in 2011 and is against corruption. This policy specifies the conduct necessary to stand by this promise. A bribery risk assessment is done every year to bring forth the issues related to the matter and the subsidiaries which are susceptible to such risks. A regulatory framework is set up within the organization, with Anti-bribery Compliance Officers at different destinations, to check the process. The workforce is also well informed of this regulation and is empowered to report any deviations (Associated British Foods, 2011). 4. Evaluation of CSR at Primark Primark highlights ETI practices as its main CSR initiative. This is the part that has contributed most to tarnishing the brand image of the company. The third party auditing system that reports the working conditions at supplier factories is not foolproof. But for all the supplier audits, Primark has faced problems with the suppliers not abiding by the ethical standards. In 2008, three suppliers from South India were found to be employing child labour in their factories (MacDougall, 2008). In 2009, one supplier in Bangladesh is reported to be paying wages less than the minimum required, while making the labour work 80 hours a week (Hewitson, 2007). These deflections from the set standards were checked by dismissing the suppliers, rather than empowering them, as specified in the ETI norms. These measures were taken in view of Primark’s reputation, but the compliance to ethical trading is affected by this action. This shows that the company’s commitment to ETI is situational and conditional, rather than a mandatory obligation. The supplier ethic monitoring and reporting system must be further strengthened to increase its effectiveness. It is also important to include discussions and opinions of the labor and low level managers in supplier factories in the reporting system. This strategy makes certain that the data collected not only pertains to the supplier documents, but also to the ground zero, where actual implementation takes place. In the cases of such extreme incidents, responsible companies such as Primark must resort to provide transparent information to the consumers in this aspect. But, it resorted to shrewd tactics, which further affected its place in good books of the consumers. Primark endorses trendy garments at low prices. Low prices imply that the company has to keep low on its costs too. These low prices are prone to further decline due to competition, which reflects on the expenses of Primark. Thus, the attempt to cut costs decreases its payments to suppliers too. The suppliers need to comply with Primark’s set rates as the latter holds the bargaining power, as the former are based in developing economies. The suppliers thus cannot pay high wages to their workers or invest in organizational climate, culture and employees, when the payments they receive are low. So, the pricing policy of Primark does not financially subscribe to improving employee working conditions at supplier sites. The above specified deflections from code of conduct set by Primark to its suppliers left the consumers believe that ETI and CSR at the company are just a part of public relations machinery, rather than a strategic action. Because of these allegations, the customers’ concerns regarding ethical sourcing of Primark’s products are increasing. This affects its competitive position. Highlighting the company’s corporate social responsibility related activities is as much important as planning and indulging in them. Primark has not made efforts in this direction. CSR, to be used as a tool to competitive advantage, needs a company to project its advantage, which Primark did not undertake. 5. Conclusions Corporate social responsibility at Primark is based on the Twinings Ovaltine framework developed by its parent company, ABF. Ethical trading initiative is central to its CSR policy, which stresses on good working conditions for the employees at its supplier locations. Other initiatives relate to ethical and eco-friendly business practices. HR practices that promote equal opportunity, compliance to code of conduct form part of this scheme. Good upstream and downstream relations are also constituents of this policy. The loopholes in the monitoring system designed to check supplier employment practices exposed the problems with ETI to Primark. So, there is a need to strengthen the system. References Associated British Foods, 2011. Our Principles. [Online] Available at: http://www.abf.co.uk/Our-principles-accordion.aspx [Accessed 1 May 2012] Banerjee, S., 2001. Corporate Social Responsibility: The Good, The Bad and The Ugly, Glos: Edward Elgar Publishing Ltd. Hewitson, J., 2007. Stitched up. The Director, 20 March. Hooley, G.; Piercy, N. and Nicoulaud, B.; 2009. Marketing Strategy and Competitive Positioning, New Delhi: Dorling Kindersley (India) Pvt. Ltd. MacDougall, D., 2008. The hidden face of Primark fashion. The Observer, 22 June, p. 22. Mcnall, S. & Hershauer, J. a. B. G., 2011. The Business of Sustainability: Trends, Policies, Practices, and Stories of Success. 1st ed. Santa Barbara: ABD-CLIO, LLC. Primark, 2011. Primark Ethical Trading - External Stakeholder Reports. [Online] Available at: http://www.primark-ethicaltrading.co.uk/reporting_and_assurance/external _stakeholder_reports [Accessed 1 May 2012]. Primark, 2011. Primark’s Ethical Trading Initiative report. [Online] Available at: http://www.primark-ethicaltrading.co.uk/reporting_and_assurance/eti_report [Accessed 1 May 2012]. The Times 100, 2010. Primark - Providing Consumers With Ethically Sourced Garments, London: The Times Newspaper Ltd. Werther, W. & Chandler, D., 2011. Strategic Corporate Social Responsibility: Stakeholders in a Global Environment. 2nd ed. Thousand Oaks: SAGE Publications Inc. Read More