BITC Market Responsibility

Marketplace Responsibility What does it mean to be a responsible business in the marketplace?

T E K MARDERS LEA

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Achieving real market leadership Leadership in business is about developing and protecting long term value. Increasingly, this can only be done if businesses are prepared to navigate unfamiliar and dangerous territory. Companies need to show that they can create wealth sustainably.

To do this businesses can no longer simply follow codes, policies and procedures. They will increasingly have to resolve dilemmas between competing interests, requiring business to look at how it operates within, and influences, the rules of the marketplace. Businesses need to bring new perspectives to their relationships with customers and suppliers. They also need to have an eye to how their products or services may affect third parties.

There are plenty of examples of how difficult such dilemmas can be.

Recent debates around childhood obesity and binge drinking illustrate the point that it’s no longer enough for companies to concern themselves only with those aspects of their business they directly control – how they source, what they produce and how they sell. Expectations are growing upon them to account for the areas that, realistically, they can only influence – not least how consumers choose to consume their products.

Nowadays, responsible drinking messages adorn alcohol advertisements. Some companies are beginning to restrict advertising of certain products to children and to seek to promote positive contextual messages for their brands.

Addressing such issues is no longer the preserve of the unrealistic do-gooder. It is a key requirement for good business.

At a time when trust in business is low, all of us have a stake in ensuring that the value that business adds to society is both maximised and recognised. The smartest companies know that it is their behaviour in the marketplace which defines their success – not the extras that they may do on the periphery.

This brochure outlines the marketplace issues identified

by Business in the Community’s Marketplace Taskforce, along with some examples of how companies are already taking action. It is just a first step in the work of the Taskforce to produce analysis, experience and case studies to help businesses from all sectors face their specific marketplace challenges.

Mike Clasper Chief Executive, BAA plc Chair, Marketplace Taskforce

An invitation to get involved Five years ago, Business in the Community first raised the question of how companies should measure and report on their activity in the marketplace in its publication of the Business Impact Taskforce report “Winning with Integrity”. Since then, many of our members have made significant progress – putting their relationship with their customers and suppliers into the heart of their reporting. Many others have yet to address these issues.

It is difficult territory. Often when businesses find themselves under attack in the press, it is because of controversies around their product or service, to whom or how it is sold, and from where it is sourced. The issues here can often challenge a business sector’s whole basis for how it makes profit.

Companies are being asked to be responsible not only for the things in their control, but to some extent for the things they can only influence, such as behaviour of suppliers or customers.

There is a clear and growing demand for more business collaboration to address how these issues could best be managed. The Marketplace Taskforce is now hard at work on this.

This document is a forerunner for our draft Marketplace Principles framework, which will test out a practical programme for business action. We hope a number of businesses will want to be involved in our consultation on these, and will use the contact details at the back of the brochure to get in touch.

Mallen Baker Development Director, Business in the Community

Business in the Community – Marketplace Responsibility

Sustaining Profits

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Theme 1: The Rules of the Market

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Theme 2: Relationship with the Customer

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Theme 3: Relationships with suppliers

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Develop and protect long term value through doing the right thing

Theme 4: Impacts on third parties

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Contents

The next steps

How the rules governing how the market works, and the expectations on business behaviour, are shaped

Issues that are defined by how the company meets the expectations and obligations of its customers

Issues where the company’s activity may directly or indirectly impact on, or be impacted by, companies from whom it buys goods and services in the marketplace

Issues where the company’s activity may directly or indirectly impact on a broader range of stakeholders who may or may not be customers

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Sustaining Profits Develop and protect long term value through doing the right thing Responsibility in the marketplace is about how companies manage business, consumer and supplier relationships, from product development to sourcing, buying, marketing, selling and promotion of products and services.

When companies are hit by a controversy big enough to damage their business performance, how they handle that controversy can be key to how well they survive.

A recent example is the food industry and its response to rising concerns over obesity.

G N I N I A T S U S its f o Pr

How should companies respond?

When faced with a potential, or emerging, issue around its product or process, a company can do one of three things. It can ignore the problem and hope it goes away. Time and again this approach has been seen to create real problems, forcing companies into the unhappy role of corporate villain.

Alternatively, it can monitor and then react to the issue once it has achieved prominence. Done well this can mitigate the damage, although it leaves the company on the back foot – reacting to critics.

The third approach is for the company to proactively respond to emerging issues, and to use behaviours that help to build trust. The company predicts trends rather than following them. It identifies opportunities in problems, and by creating solutions first it achieves market leadership. Market leaders create value over the short and the long term for the benefit of shareholders, employees, customers and society as a whole.

Business in the Community – Marketplace Responsibility

Impact on third parties

Relationships with suppliers

Relationships with customers

The rules of the market

Reactive

Proactive

Market Leadership

Core Marketplace Principles

What are the PRINCIPLES? What are the issues?

Market Leadership

Leadership companies: great products / services Produce

that meet customers needs and are sustainable in the long term

Companies achieve market leadership because they lead – they don’t follow.

They anticipate trends, and create new products to meet them. In this context, they see opportunities in social and environmental issues where others see only risk. They anticipate and manage issues, and through doing so they lead a path that others aspire to follow. In the process, they are successful in the short and the long term. It is an ongoing process, needing continual improvement to be sustained but the rewards can be considerable.

roactively manage social, P environmental, economic and regulatory issues around its core business and its licence to operate im to have all parties that deal A with the company to benefit by the experience perate with integrity within O the rules of the marketplace, and aim to influence the rules from a position of seeking business and social benefit

The issues that companies face can be placed in groups reflecting some of their most important relationships – with government, customers, suppliers and those third parties that are affected by the company or its products.

1.

he rules of the market – how the T rules, regulatory and otherwise, that govern the market are shaped

2.

elationship with the customer R – issues that are defined by how the company meets the expectations and obligations of its customers

3.

elationships with suppliers R – issues where the company’s activity may directly or indirectly impact on companies from whom it buys goods and services in the marketplace

4.

I mpacts on thirds parties – issues where the company’s activity may directly or indirectly impact on a broader range of stakeholders as well as customers

espect diversity within its R operations and customer base As a result of these behaviours, they achieve profitability in the short and long term – this is central. Measures taken in the name of social responsibility that lead to a company failing in the marketplace undermine the value the business can add to society and lead to negative impacts.

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Theme 1: The Rules of the Market How the rules governing how the market works, and the expectations on business behaviour, are shaped There is no such thing as a free market. All marketplace activities are shaped by rules within which businesses must operate. Some of these rules are formal, such as legislation. Some of them are less formal, covering expected standards of behaviour and fair play.

Business in the Community – Marketplace Responsibility

The Issues 1. Influencing market rules Expectations on business to define positive policy goals, and to show transparency and accountability in how they seek to influence legislative frameworks affecting the rules of how business is done.

What should companies do?

Reactive: The company should

ensure that its lobbying activity is in line with its own values and the positions it takes through its corporate responsibility work.

Proactive: Companies also

publicly disclose their positions, and aim to lobby government to achieve positive social outcomes.

2. Corporate personality Operating within the spirit of fair play and responsible competition – avoiding coercive or monopolistic behaviour – establishing a base of values that dictates how commercial decisions are made.

What should companies do?

Photo courtesy of Getty/Stone+. Photographer Andreas Pollok

Reactive: The company

should ensure it does not exhibit monopolistic or anti-competitive behaviour.

Proactive: The company

should shape its corporate personality around a set of values that really change the ways it makes decisions and resolves dilemmas.

For a case study on this area, see www.bitc.org.uk/personality

3. Behaviour in the absence of rules for enforcement How businesses operate in the environments where legislative frameworks are either absent or not enforced.

What should companies do?

Reactive: The company should

ensure that it has a code of conduct that prohibits bribery and other corrupt practices, and that it observes local laws.

minimum is lower, and it collaborates with others to help influence the legislative environment to encourage adherence to internationally recognised minimum standards.

Proactive: The company has

its own minimum standards which are observed, even when the local

For a case study on this area, see www.bitc.org.uk/absence

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Case study: Co-operative Financial Services LTD CHALLENGE Co-operative Financial Services (CFS) has founded its business success on a strong ethical policy, driven by customers and other key stakeholders.

However, CFS saw that simply operating its business according to its policies was not enough – it needed to be seen as an active contributor to the debate in a number of issues. This has led it to take an active lobbying role on a number of areas, bringing with it an obligation of transparency.

PROCESS CFS includes information about its public lobbying positions, such as covering the use of safer chemicals, action on cluster bombs and landmines and curtailing the trade in ‘conflict diamonds’. CFS has taken progressive positions on a number of key policy areas in line with its ethical policy, developed in consultation with its customers. CFS does not yet publish all of its lobbying activities, only some of which it says are material to its position on responsible business. However, they are committed to provide information to auditors for future reports to ensure that inconvenient or contradictory positions are not classified as ‘immaterial’. CFS has also lobbied government for other measures relating to corporate responsibility, such as mandatory social reporting. Although its strong performance as an ethical niche player may lead many businesses to dismiss their activist stance on a number of issues, they have nevertheless provided a model for the dual aims of policy consistency with their CR positions, and their transparency in disclosing those positions.

IMPACT Co-operative Financial Services has been one of the first to include information about the company’s lobbying activities and positions in its social and environmental reporting.

In fact, the company’s leadership in this area was one of the factors that led to CFS winning the ACCA award for its recent report.

TO T N I WA GE THE N CHA ULES R

Theme 2: Relationship with the Customer Issues that are defined by how the company meets the expectations and obligations of its customers Every company proclaims its belief in the adage that ‘the customer is king’.

Precious few actually manage to make good on the promise. The companies that get these issues wrong can find that nothing else much matters.

Business in the Community – Marketplace Responsibility

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The Issues 1. Vulnerable customers Identifying the needs of customers that are specially vulnerable in contrast to the broader customer base. Such customers can often be invisible and unnoticed. The way they are treated can sometimes be a matter of life or death.

Find new ways to reach these markets in order to profitably create social value.

Proactive: Undertake a strategic

review of potential markets for products or services, including those that would require alternative production and distribution approaches to be viable.

What should companies do?

Reactive: Follow others that

develop product and service approaches to underserved markets.

For a case study on this area, see www.bitc.org.uk/underserved

What should companies do?

Reactive: Take measures to

mitigate problems when they come to light.

Proactive: Carry out research

and review the customer base for potential vulnerable groups. Develop products or services that reduce vulnerabilities.

2. Respect for customers Providing the degree of accessible information, control and choice the customer wants, selling appropriate products with integrity and ensuring customer safety. Respecting diversity in the global marketplace.

What should companies do?

Reactive: Review customer

complaints and suggestions and respond to identify needs.

Proactive: Research and

review broader trends in customer requirements, and anticipate changing customer needs and expectations.

For a case study on this area, see www.bitc.org.uk/respect

Photo courtesy of www.thirdangle.com

3. Underserved markets Reaching customers on the margins of poverty – particularly those across the world who earn less than $2 a day and would previously have been considered non-viable markets.

Case study: Camelot GROUP PLC The National Lottery has become an established institution in the UK, with around seven out of ten adults playing regularly. But Camelot, the lottery operator, has a commitment to design, promote and sell National Lottery games to ensure they do not target vulnerable people: those who are under-16, those on low incomes and those who are likely to play excessively.

Processes Camelot has produced an innovative risk matrix called the Game Design Protocol to help assess any potential problems with proposed new games.

The Protocol has been designed in consultation with universities and gambling-related charities. If the product appears to be particularly risky for a vulnerable group, Camelot either revises the product and/or its marketing, or simply does not run the game. The company has checked the actual experience of several games against the predictions of the protocol and found the predictions to be accurate.

Impact In 2004/05, 11 games were put through the Protocol. The only game which showed an above average risk was revised and checked again against the Protocol. Camelot assesses the impact of its products on vulnerable players by monitoring the number of calls to GamCare resulting from lottery games.

In 2004 only 3% of calls to GamCare related to lottery or scratch card products. Camelot also actively aims for as many people as possible to play with small stakes. It therefore compares per capita spend to other lotteries worldwide. Whilst it is ranked 5th in total sales, it is currently 48th in terms of per capita sales.

I’m a omer cust oo t

Theme 3: Relationships with suppliers Issues where the company’s activity may directly or indirectly impact on, or be impacted by, companies from whom it buys goods and services in the marketplace A company’s suppliers know significant parts of its business better than anyone else – and their conformance with corporate values, or local laws, can hugely impact on the reputation of the purchasing company.

Business in the Community – Marketplace Responsibility

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The Issues 1. Human rights and labour rights Issues around how the company’s reputation may be put at risk due to violations of basic standards. This area also includes opportunities to drive environmental efficiency and reduction of risk through the supply chain.

Case study: What should companies do?

Reactive: Respond to problems

identified within supply chains generic to your industry sector. Produce policies and codes of conducts covering these issues, and require compliance from key suppliers.

Proactive: Review your

full supply chain for existing and emerging risk issues. Begin a partnership programme with key suppliers to invest in their capacity to improve management approaches to achieve mutual benefit.

2. Conduct towards suppliers Issues around pricing, late changes to orders and other activity to force suppliers to accept conditions that may be unsustainable, as well as late payment to suppliers.

What should companies do?

Reactive: Monitor prompt

payment performance against policy and review supplier complaints.

Photo courtesy of Getty/Stone. Photographer Joel Simon

Proactive: Develop partnership

approach to supply chain with involvement in resolving requirements, such as pricing and flexibility.

For a case study on this area, see www.bitc.org.uk/conduct

Boots GROUP PLC Challenge Boots is one of the most trusted brand names on the high street, with its brand value estimated at £1.2bn. The nature of Boots’ products means that maintaining trust between the customer and the brand is essential to their continuing business success. Issues in the supply chain, such as poor labour standards, or poor environmental practices could have a negative impact on the business.

Process Through a robust process based on the principles of continuous improvement, the Supplier Verification Programme assesses supplier compliance with the Boots Group Code of Conduct for Ethical Trading.

Suppliers are visited by specialist teams, comprising split gender assessors and use a combination of communication tools aimed at workers, management and trade unions. The findings of the assessments are communicated to all key stakeholders, for example workers and buying teams internally. This information is then used to influence future purchasing decisions. Further communication ensures that remediation actions raised from assessments are closed off within agreed timescales and that suppliers continue to comply with the Code. Boots is on track to assess all of its external Boots brand product suppliers by April 2006.

Impact The Supplier Verification Programme has so far identified over 2500 breaches against the Code since it began. A higher compliance rate reduces the risk to the brand, means a reduced risk of prosecution for suppliers, and improves suppliers efficiency to deliver product on time.

Boots believes that managing the supply chain is about creating value through development of strong relationships throughout its supply chain. Results have shown that workers have increased awareness of their rights and have more empowerment, suppliers have increased efficiency, reduced overheads and lowered recruitment costs.

E V O L I OB J Y M

Theme 4: Impacts on third parties Issues where the company’s activity may directly or indirectly impact on a broader range of stakeholders who may or may not be customers Company activities do not only affect people who are directly buying or selling from the company. They can also affect third parties who may suffer the consequences of either the use or abuse of the product.

Business in the Community – Marketplace Responsibility

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The Issues 1. Inherent impact of product or service Consequences of the use of the product or service on society arising from normal usage.

What should companies do?

Reactive: Respond to issues

as they arise, taking full account of the impact, how much the company can affect or influence the impact, and aiming to show a willingness to tackle problems inherent to the product or service.

Proactive: Carry out a

review of the known and potential impacts of the product or service. Build requirements to address issues into product development and innovation processes. Consider positive marketing programmes to influence consumer behaviours to minimise impact.

2. Impact of product or service mis-use Products being used, either by the customer or by a third party, in a way that creates damage or nuisance to themselves or to others.

What should companies do?

Photo courtesy of Ecoscene. Photographer Angela Hampton

Reactive: Respond to issues as they arise, as for the issue above.

Proactive: Carry out a review

of the known and potential areas for mis-use. Consider building product design requirements or distribution policies to minimise potential for mis-use. Consider positive marketing programmes to encourage responsible use.

For a case study on this area, see www.bitc.org.uk/misuse

Case study: Coca-Cola GREAT BRITAIN Concern is growing about the rising incidence of obesity, particularly amongst young people. As every investigation of obesity has concluded, the causes – and therefore the solutions – are multi-faceted. Tackling obesity requires everyone to play their part; parents, business, government and Coca-Cola is committed to play an active part.

Processes Coca-Cola Great Britain is responding to the challenge through a total business approach led by a cross-functional senior management team.

Four key areas of strategic focus are actively being addressed: 1) providing and raising awareness of a widening choice of products, particularly making diet and low sugar choices more attractive through continuing taste enhancement; 2) helping consumers make a more informed choice. Their consumer research showed that around 43% of consumers did not know that diet Coke is “sugar free” and it suggested that a “sugar free” message is more motivating to consumers than the actual number of calories listed.

The “sugar-free” message now features on all diet Coke packs; 3) ensure responsible sales and marketing, by reinforcing their 50–year policy of not targeting under 12s in any media, upholding their Schools Code of Practice including its commitment to not place vending machines in primary schools and give secondary schools the opportunity to provide a wide choice of products from water, 100% juice, a variety of diet, low sugar as well as regular carbonated drinks, and as well as offering unbranded machines and 4) encouraging physical activity amongst young people and thereby challenge the rise in sedentary lifestyles.

Impact Coca-Cola is responsible for marketing over 100 products, with 34% ‘diet’ or ‘no sugar’. 93% of all vending machines in secondary schools have noncarbonated fruit based drink choices such as 5 Alive. Extending motivational front of pack messages to their new zero added sugar “Z” range. No advertisements in children’s TV programming with all media placements independently audited. Building upon 30 years of grass roots football heritage by increasing participation in GB’s largest secondary schools football tournament, the Coca-Cola English Schools Cup to over 40,000 12-13 year olds.

GAS ER? UM S N CO

The next steps This document gives an overview of some of the work to date of Business in the Community’s Marketplace Taskforce. Having defined the scope of the issues to be covered, and how these may be approached under the four underlying themes, the Taskforce is aiming to achieve the following:

To establish a set of management principles and guidelines to define excellence in this area To consult widely to develop from these practical tools for management and leadership To raise the profile of the benefits of proactive business leadership in tackling key marketplace issues The Taskforce is keen to engage with all companies that are interested to take part in a review of how they manage impacts around their core products, how they market and how they source.

If you would like to talk to us about this, contact: marketplace@bitc.org.uk

The Marketplace Taskforce The Marketplace Taskforce is chaired by Mike Clasper, CEO of BAA. It includes the following business leaders.

For more information, see www.bitc.org.uk/marketplace

Mike Clasper Chief Executive BAA plc

Dianne Thompson Chief Executive Camelot Group plc

Mark Clare Deputy Chief Executive Centrica plc

Charlotte Oades President Coca-Cola Great Britain

Phil Hodkinson Group Finance Director HBOS plc

Gerry Murphy Chief Executive Kingfisher plc

Bruce Haines Group Chief Executive Leo Burnett Limited

Alistair Baker UK Managing Director Microsoft UK

If you would like more information please contact: Joanna Daniels T: +44 (0) 20 7566 8700 E: marketplace@bitc.org.uk www.bitc.org.uk/marketplace

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