Corporate Governance and Business Ethics - Sainsbury Plc - Essay Example

Corporate Governance and Business Ethics -A Study of J Sainsbury Plc Company Background J Sainsbury plc comprises Sainsbury's supermarkets, convenience stores, a home shopping service and Sainsbury's Bank. Sainsbury's Supermarkets is Britain's longest-standing major food retailing chain. A large Sainsbury's supermarket offers around 30,000 products, 50 % of which are Sainsbury's own brand. Apart from quality food and grocery products, many stores offer delicatessen, meat and fish counters, complementary non-food products such as clothing and home ware, pharmacies, coffee shops, restaurants and petrol stations. The stores stock more than 23,000 food products including low price ranges, healthy eating options and local and regional products. In short, 'all you ever wanted we have right here' kind of concept. The convenience division includes Sainsbury's Local stores, Bells Stores in North East England, Jacksons Stores across Yorkshire and the North Midlands, and JB Beaumont in the East Midlands (Company's corporate website). Sainsbury's Bank aims to make finance easier to understand and manage and has built a reputation for offering excellent value products with extra benefits, delivered in a simple and accessible way. The current product range includes: car insurance, life cover, home insurance, travel insurance, pet insurance, Visa credit cards, Child Trust Fund, internet savings account, instant access savings account, direct saver account, personal loans, and a car purchase scheme. Sainsbury's to You is the internet-based home delivery service. It covers around 77 per cent of the UK. Herein customers place orders online and freely choose time of delivery. The online service also has Sainsbury's Entertain You, which offers thousands of books, CDs, DVDs, videos and computer games and a DVD rental service with over 28,000 titles. Flowers, wine, gifts, kitchen appliances and electricals are also up for online buy. Sainsbury's had a wide network of 727 stores in the UK at the end of 2005. Its market shares in various regions were very impressive, ranging from a high of 18.3 % in London to a modest 3.6% in Scotland with an overall UK market share of 10.4 %( TNS data for 52 weeks to 17 July 2005). Business Ethics and Corporate Responsibility to Stakeholders "Today's modern organization in many instances is the institutional centrepiece of a complex society made up of many people with a multitude of interests, expectations, and demands as to what organizations ought to provide. The social contract between organizations and various parties has continually changed. Organizations that have been able to survive and thrive have found ways to respond to ever-changing expectations" (Ronald, 2003). Sainsbury's approach to corporate responsibility is an exact recognition of the above fact. Sainsbury is a multiple activities company and has delineated its all possible immediate stakeholders in its customers, employees, communities, share holders, suppliers and the environment within its holistic corporate responsibility (CR) plan. Further Sainsbury recognizes another set of not so actively recognized stakeholders in government, politicians and regulators in the UK and Brussels, e.g. non-government organizations (NGOs) etc.However, for the present, we would not cover this set of stakeholders in this paper as their link with the company tends to be tenuous and long. It is important to examine Sainsbury's views of the expectations of each of the above active groups of stake holders and efforts to meet them. Ethics is concerned about value judgements. Business ethics deals with such judgements encourse doing business. Sainsbury's business has set for itself a code of business ethics focussed around its active stake holders, as above. It is important to realize that the combined code for corporate governance contributes actively to business ethics in a compliable form. Ronald further suggests that if an organization institutionalises ethics, it is unlikely to find itself trying to recover from a fall or having to undertake an ethical turnaround (Ronald, 2003). Institutionalising ethics means structuring business ethics formally not only in practised day to day business but also into company's policy formation at the board and top management levels primarily through formal coding. This has been done at Sainsbury as noted above. At Sainsbury each operative level of the company is aware what they must do and what they should not. In order to monitor its self set and prescribed business ethics code Sainsbury has at the very top a CR Operating Board wherein apart from the Chief Executive six directors relate to CR in respect of each of the six major stakeholders' group. A Steering Group supports the operating board in developing CR policy and in getting CR embedded in the business processes and practices. CR here is towards stake holders and is seen primarily fulfilled when business ethics code is met. While operating board is committed to discuss CR issues at least twice a year the steering group meets at least quarterly. Its members are senior managers and the Customer Director, Gwyn Burr, chairs the group. Sainsbury has also set up two groups to help integrate CR in day-to-day operations. All this has lent structure to business ethics and CR at Sainsbury. Sainsbury has published two CR reports online in the years 2004 and 2005.Present paper covers the CR report for the year ended 26th March 2005. This reports compares the efforts made by the company to meet the coded goals and values (business ethics) and stake holders expectations of them. Sainsbury had its priorities set out for this year out of several other competing goals and values and the CR report is a description of how such prioritized goals and values were met with stakeholders' satisfaction . These priorities included food safety, food and health, animal welfare, reducing pesticides, serving and responding to the customers better, supporting farmers, improving energy efficiency, recycling to reduce landfill waste, recruitment of experienced employees and employee retention, employees' growth and supporting the community. Sainsbury's Scorecard on Corporate Responsibility The Sainsbury's 2005 CR report is lucid in juxtaposing ethical priorities, as stated above, with their achievements. It may be observed that each of the self set priority had a class of stakeholder expectations in vison.Fulfillment of priority, therefore, implied the satisfaction of stakeholder. The imparted satisfaction in turn implied that corporate responsibility was met; to what extent we will now examine in the following paragraphs. Customers Sainsbury group has a large constituency of customers-its perhaps largest and most important stakeholder is its customer base. Sainsbury welcomes 14 millions customers every week. Sainsbury has set for itself the CR goal in following words" At Sainsbury's will deliver an ever improving quality shopping experience for our customers with great products at fair prices. We will exceed customer expectations for healthy, safe, fresh and tasty food making their lives easier every day."(CR Report, 2005). It may be seen that three of priorities listed above viz. food safety, food and health and serving and responding to the customers better directly concerned its customers. These priorities also reflect the fact that Sainsbury has made a serious attempt to align itself with changing customer requirements and their growing concerns to safety and health in food. Sainsbury attends to each of these customer concerns in best of manner. It has taken extremely effective measures to improve the health content of its food products. These measures included limiting the amount of fat, sugar and salt1 and close monitoring of traces of pesticides2 in all own-brand products and using natural alternatives wherever possible. Appendix A indicates that Sainsbury was able to reduce salt in five key product categories of its own-brand food products. Similarly Appendix B indicates that only in 4.5% of fresh produce did the pesticides traces exceed the MRL. Sainsbury launched Active Kids to help inspire school children to take more exercise and to encourage healthier eating. It also introduced its Wheel of Health label on the front of food product packs to help customers who wish to identify healthier eating choices. It also extended the use of the company's 5-a-day logo for fruit and vegetable portions. These represented best efforts that could be deployed to ensure provision of healthy food products. Sainsbury directly addressed the concept of fair prices through its reduction of prices on 7,000 products, so that a typical week's shopping costs 1.6% less than a year ago. It also relaunched its Basics low-price range and extended it to 400 products. It also reduced prices on about half of its Be Good To Yourself range. This was a substantial move towards fairer prices. Organic foods are increasingly considered healthier foods. Sainsbury has organic food range of over 700 lines with 65 percent of the organic food being sourced in UK.It was named Organic Supermarket of the Year for the third time in succession. To increase awareness and cultivate tastes Sainsbury launched Taste of Success, which promotes food education and cooking in schools - more than 250,000 children have participated. On making life easier for customers Sainsbury launched the Just Cook range of fresh, healthy foods which need no preparation before cooking. Sainsbury's believes in customers' right of assurance about the safety of all products they intend to purchase. The customers are provided with information through product labels and in-store leaflets to help them prepare food hygienically and minimise the risk of food poisoning, including tendering tailored advice for groups that are more susceptible to risk. The company offers exclusive product ranges for customers including pregnant women and people susceptible to allergies. For the convenience of the customers, the stores installed a coin converter machine where customers can convert their small changes into larger coins against a small fee;fees going to charity and similar purposes (CR Report, 2005). Colleagues Sainsbury's employs around 150,000 people in stores, depots and offices around the country (CEO Sainsburys, 2005). It has a simple CR colleagues' goal when it says," Respect for colleagues means that we are committed to providing a safe, healthy working environment where everyone feels valued, respected and able to contribute"(CR Report,2005). To begin the story with final official outcome first, it may be stated that Sainsbury was certified as Investors in People for a second three year term. Sainsbury had taken many exemplary initiatives to achieve this recognition. It has introduced Shining Stars a recognition programme across Sainsbury's to reward colleagues doing a great job in demonstrating the Sainsbury's values. It was liberal with over-the-pay bonuses and 97,000 colleagues shared a 37 million bonus. Sainsbury also introduced new methods of communication, including regular letters from its Chief Executive, Justin King, and a new programme called 'Tell Justin' through which colleagues could contribute ideas. Sainsbury achieved 90% response in the Talkback research into colleagues' opinions, commitment and engagement, which amply demonstrated that colleagues were clear about what was expected of them. It also alerted Sainsbury of the need to further improve day-to-day communications and act to prevent deterioration in work-life balance. Sainsbury embarked on a major health and safety training programme for managers with even top management participating in shorter versions. Sainsbury achieved a fall in the reportable accident rate by 16%.Sainsbury has a fair recruitment and promotio policy based on equal opportunities. Women, ethnic groups, older age people, students and fresh graduate all find places in Sainsbury's workforce. This policy works as a double edged sword. Multiethnic workforce ensures better communication with multiethnic customer base. It has an open and fair employee performance appraisal and salary and perks system. Sainsbury also values older colleagues and the diverse skills they offer and honours them specially.Sainsburys offers flexible working to enable colleagues to balance the needs and demands of their home and work lives. The report identifies the company's elaborate pay plans, training programmes and flexibility of working hours for achieving its work-life balance objectives. (CR Report, 2005) Community Sainsbury lays much importance to the communities from where it derives its sustenance. In its CR report the company states," Each of our stores plays an important role in its local community...We aim to make sure we are good neighbours, welcomed for our contribution to the community"(CR Report, 2005). Community involvement is best reflected by positive economic contribution to such communities. Sainsbury's total community investment was a hefty 6.8 million (6 million in 2003/4). Sainsbury helped sell 4 million red noses and raised 7 million for Comic Relief (see Appendix C). Sainsbury's is the only national retail partner for Comic Relief's Red Nose Day- a fundraising event held every two years to raise money for the poorest and most disadvantaged people across Africa and in the UK. Its Colleagues and customers raised a total of 1.7 million for the tsunami appeal. Sainsbury opened 4 stores and completed 11 major extensions or refurbishments. All new developments were on "brownfield" land which was previously derelict or redundant. Sainsbury supported approximately 100 town centre management schemes. It also launched Active Kids, which now involves three quarters of UK schools. In 2005, Sainsbury's donated a massive 17m worth of sports equipment to 30,000 British schools through this campaign. Active Kids is running again in 2006. Sainsbury supported Taste of Success, which has involved more than 2,700 schools helping children to appreciate healthy food and cooking. Besides this, the company engages in numerous charitable initiatives and works for rural communities (CR Report, 2005). Environment Sainsbury recognises that virtually all its activities have some impact on the environment and it candidly states in its CR Report for the year 2005 that," we recognize that virtually all our activities have some impact on environment. Our aim is to minimise these impacts through a programme of continuous improvement"(CR Report, 2005). Sainsbury has three environment related priorities, drawn from the above quoted goal statement, viz. to reduce the environmental impact of its operations, to reduce carbon dioxide emissions and to reduce/recycle waste. Sainsbury achieved continued reduction in carbon dioxide emissions from its stores with cuts coming from energy-saving investments such as lighting upgrades, technical measures such as voltage supply reduction and purchase of a good 10% of its energy from renewable sources. This ensured Sainsbury topped their 2005 target substantially. 3 They also achieved a steady decline in waste sent to landfill, relative to their sales. In 2004/5 Sainsbury landfilled 5.73 tonnes of waste for every 1 million sales, compared to 6 tonnes in 2002/3.Sainsbury spurred a large food donation programme which gives food to charity that is beyond its display-by date but within its use-by date. This helps reduce the amount of waste sent to landfill. Sainsbury recognizes the financial and environmental benefits of recycling for stores and recycled 118,000 tonnes of cardboard and over 5,000 tonnes of plastic. Sainsbury also worked on reducing food miles - the distance food got transported. Towards this end they increased the proportion of products sourced from the UK while still ensuring that they met all customers' needs. Sainsbury estimates that they source domestically 90% of the food that can be grown in UK. Sainsbury began full review of its environmental policies and perhaps have an updated policy by now. They also reviewed and reinvigorated their environmental management system.The company has an Environmental Steering Group, which supports the Board in developing policies and management systems, and integrating environmental awareness in its business processes and practices. Its focus is on improving the efficiency with which the company uses resources, because it reduces its environmental impacts and saves money. (CR Report, 2005). Investors Sainsbury states its CR goal in respect of investors as follows, "we believe that good CR performance will benefit the business by attracting and keeping the investment from socially responsible and mainstream investors". Laurels speak for themselves. Sainsbury was named as one of the world's top 100 sustainable corporations in the new Global 100 Index launched at the World Economic Forum in February 2005- they were the only UK food retailer listed. Sainsbury participated in the Corporate Responsibility Index compiled by Business in the Community. In 2005 Sainsbury's was ranked first in the food retailing sector for the 2nd successive year. They were ranked joint 5th overall out of 144 companies -up from 8th in 2004. Sainsbury is also participating in The London Stock Exchange's Corporate Responsibility Exchange. It aims to overcome the need for each research body to send questionnaires to companies to discover basic corporate responsibility information. They also participated in the Carbon Disclosure Project - research into leading companies' greenhouse gas emissions, backed by major investment firms. Sainsbury's was also included in the two major stock market indices: the Dow Jones Sustainability Index (DJSI world) and the FTSE4Good index. With such CR laurels Sainsbury can expect to attract more and more investment from socially responsible and main-stream investors .Particularly when they also have systems leading to corporate transparency on climate change and engage in timely and frequent face-to-face meetings, written and web-based communications targeted at such investors (CR Report, 2005). Suppliers Sainsbury states its CR goal in respect of investors as follows, "we aim for clear accountabilities so that suppliers know exactly what we expect, and we aim to drive out complexity so that we and our suppliers can focus on what matters most-delivering great products at fair prices"(CR Report, 2005). Sainsbury updated their Code of Conduct for socially responsible sourcing. They received 233 Ethical Trading assessments of supplier sites (up from 539 in 2003/4).They jointly set targets for 2005/6 with WWF on elimination of illegally sourced wood based products. They added hake and pollock to their range of fishes certified as sustainably sourced by the Marine Stewardship Council. They even extended the number of farm suppliers with Biodiversity Action Plans to 868 (up from 694 in 2003/4).Sainsbury launched new Fairtrade products including flowers, sugar and coconuts. They introduced their first Freedom Food certified line - Lloyd Maunders Devonshire White Chicken, and decided to extend the Freedom Foods certification to all of their own-label corn-fed chicken. Sainsbury also expanded local sourcing and increased the availability of British produce, e.g. by helping farmers to extend the onion-growing season. Sainsbury increased the proportion of our own-label organic food sourced from the UK, beating their 2004 target of 55%.It was named Organic Supermarket of the Year in the 2004 Soil Association Organic Awards.The above sets out clearly that as a major customer of its suppliers Sainsbury chooses carefully its suppliers to raise environmental and social concerns thus helping spread them far and wide. Sainsbury publishes frequently the commitments it makes to suppliers and the expectations it has of them in return (CR Report, 2005). It is at once apparent from the above that with such a large and expanded operations base stake holders' orientation at Sainsbury has turned more committed. The organization is devoting plentiful resources and efforts to address social and environmental concerns as well while maintaining date with its profits. Ratner, a retail analyst, predicted a sharp fall in Sainsbury profits (over 425 m) in the coming year in the face of competition labeling Sainsbury as being 'massively uncompetitive (BBC News,2004).However Sainsbury had begun rebuilding plans right from October 2004 when its Chief Executive Justin King laid out Sainsbury's three-year recovery plan, designed to grow sales by 2.5bn by the end of 2007/8. Sainsbury also had plans to recruit an additional 13,000 people (including 10,000 over 50s) to ensure that customers have a good shopping experience in its stores. (Sainsbury's Today). Similarly Sainsbury,immediately after receiving in April 2004,the Soil Association's Organic Supermarket of the Year award for the third successive year experienced a hue and cry when people found out that the Sainsbury's cows were fed on GM and its milk was GM milk(Greenpeace,2004).This ethical issue is silent now but Sainbury's profits should hopefully talk in future. APPENDICES Appendix - A Sainsburys has achieved its year 1 targets for reducing salt in five key product categories of own-brand food and has set challenging new targets for year 2 (2005) Targets for maximum salt content All products are Own Label/All targets are for Salt (not Sodium) Product Category Year 1 Targets (2004) Year 2 Targets (200 Source: J Sainsbury CR Report 2005nts For Year 2 Targets Appendix - B Source: J Sainsbury CR Report 2005nts For Year 2 Targets Appendix - C The bar diagram clearly reflects increasing sterling contribution under the charity campaign. Source: J Sainsbury CR Report 2005nts Appendix - D Sainsburys uses five key indicators to monitor progress. The table shows its performance in 2004/05 compared to previous years. Source: J Sainsbury CR Report 2005nts References J Sainsbury plc Corporate Responsibility Report 2005 (www.j-sainsbury.co.uk/csr) J Sainsbury plc (http://www.envirolink.org/articles/jun97-1.html) Article Title: Business School Centres on Corporate Governance; 'There Is an Increasing Recognition That Companies Should Not Pursue Profit without Regard to the Impact on Wider Societal Interests'. Newspaper Title: The Birmingham Post. Publication Date: November 11, 2004. Page Number: 6. Ronald R. Sims, 2003, 'Ethics and Corporate Social Responsibility: Why Giants Fall' Publisher: Praeger. Place of Publication: Westport, CT. Publication Year: 2003 G. P. Stapledon, 1996, 'Institutional Shareholders and Corporate Governance' Publisher: Clarendon Press. Place of Publication: Oxford. Publication Year: 1996. Jodie Benveniste, Dexter Dunphy, Andrew Griffiths and Philip Sutton 'Sustainability: The Corporate Challenge of the 21st Century'. Publisher: Allen & Unwin. Place of Publication: Crows Nest, N.S.W. Publication Year: 2000. Sainsbury's supermarket fined for child labor 12:00 AM, 09 Nov 2003 by Malte Sussdorff http://intranet.csreurope.org/news/csr/archive/2003/11/ J Sainsbury plc Company Overview (http://www.jsainsburys.co.uk/index.asppageid=12) BBC News.Ratner, Richard."Sainsbury's issues profit warning".Retrieved on April,04,2006 from http://news.bbc.co.uk/1/hi/business/3732370.stm revised upto 11 October, 2004. Saninsbury's Today Retrieved on April,04,2006 from http://www.j-sainsbury.co.uk/index.asppageid=188&caseid=today#today Greenpwace,UK."Cows and milkmen protest outside 22 London Sainsburys". Retrieved on April,04,2006 from http://www.greenpeace.org.uk/contentlookup.cfmucidparam=20040507180419&MenuPoint=D-I-A revised upto 08-05-2004 Read More