Business Stakeholders – Social Stakeholders:

Business Case for Corporate Sustainability

With reference to the strategic management concept"Stakeholder View“

Dr. Thomas Streiff

Partner

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Table of Contents

• Starting point:

The underlying theory

Explaining the business case for stakeholder

management and corporate sustainability

• The cases:

Barry Callebaut

Novo Nordisk

• Conclusions

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Starting point:

• Key points of the normative stakeholder management

theory

• Explaining the business case for stakeholder

management and corporate sustainability

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Starting point 1:

Improving social welfare

Four criteria to improve social welfare:

C1: Realistic assessment of the nature of economiccompetition

C2: Trusting firm-stakeholder relationships

C3: Accounting for negative externalities

C4: Corporate objectives focus directly on well-being ofstakeholders

„Normative stakeholder theory holds that managers have amoral responsibility to regard the interests of certaincorporate constituents groups, including shareholders, aslegitimate.“

Source: Jones & Felps, 2013

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Four criteria to improve social welfare

C1: Corporate objectives based on realistic assessments ofthe nature of economic competition will provide greatersocial welfare than those based on unrealisticassumptions

C2: Corporate objectives that encourage efficiencies basedon trusting firm-stakeholder relationships will providegreater social welfare than those that assume thatefficient firm behavior depends on the pursuit of selfinterest.

C3: Corporate objectives will provide greater social welfareto the extent that they explicitly account for the costs ofnegative externalities.

C4: Corporate objectives that focus directly on the well-beingof legitimate stakeholders will provide greater socialwelfare than those simply equate economic and socialwelfare.

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Source: Jones & Felps, 2013

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Starting point 2:

Stakeholder management key principles

Principle 1:The corporation (firm) should be managed for the benefit ofits stakeholders: its customers, suppliers, owners,employees, and local communities. The rights of thesegroups must be ensured, and, further, the groups mustparticipate, in some sense, in decisions that substantiallyaffect their welfare.

Principle 2:Management bears a fiduciary relationship to stakeholdersand to the corporation as an abstract entity. It must act inthe interests of the stakeholders as their agent and it mustact in the interests of the corporation to ensure the survivalof the firm, safeguarding the long-term stake of each group.

legitimate

Beyond survival ?!Source: Evan & Freeman (1988, p. 103)

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Corporate sustainability & stakeholder orientation

Profitability

Socialresponsibility

Environmentalresponsibility

Engagement

Stakeholders

Creating shared value

Maintaining long-termcompetitiveness

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Corporate sustainability – level of ambition

Source: WWF UK/Doughty Hanson Co. (2011): Private equity and responsible investment: an opportunity for value creation

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Why strategic stakeholder management impactsthe market value of a company

Source: BHP, PricewaterhouseCoopers

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Physical Assets

Financial Capital

Ta

ng

ible

sIn

tan

gib

les

Financial Capacity“Retrospective”

Strategic Capability“Prospective”

• Intellectual Capital• Innovation• License to Operate• Customer Loyalty• Employees Loyalty• Risk Profile

• Reputation• Brand Value• Compliance

Main intangible valuedrivers influenced bystrategic stakeholdermanagement

Bo

ok

Va

lue

Ma

rke

tV

alu

e

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Importance of intangible valuesAnalysis of the S&P 500 Market Value-Index 1975 - 2015

Source: Standard and Poor’s, BHP

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Peak might beachieved!

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Background: Link between intangible values andshareholder value - the DJSI*-Model (1)

Socia

l,cultura

l,ecolo

gic

ala

nd

econom

icchalle

nges

Intangible Values

FCFF: Free Cash Flow to the FirmWACC: Weighted Average Costs of Capital

ShareholderValue

= Sustainability Criterion

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Source: Adapted from SAM Sustainability Yearbook 2008 *DJSI = Dow Jones Sustainability Index

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ROIC = Return on Invested Capital

Example showing on how human capital development couldpositively impact FCFF

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Background: Link between intangible values andshareholder value - the DJSI*-Model (2)

Source: SAM Sustainability Yearbook 2009

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Intangible values and shareholder value:growing relevance of non-financial reporting

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The N100 refers to a worldwide sample of 4,900 companiescomprising the top 100 companies by revenue in each of the 49countries researched in this study. These N100 statisticsprovide a broad-based snapshot of CR reporting among bothlarge and mid-cap firms around the world.

The G250 refers to the world’s 250 largest companies byrevenue based on the Fortune 500 ranking of 2016. Largeglobal companies are typically leaders in CR reporting and theirbehaviour often predicts trends that are subsequently adoptedmore widely.

Source: KPMG Survey of Corporate Responsibility Reporting 2017

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Intangible values and shareholder value: growingrelevance of non-financial (CR) reporting

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CR = Corporate Responsibility

Base: 4,900 N100 companiesThe N100 refers to a worldwide sample of 4,900 companies comprising the top 100 companies by revenue in eachof the 49 countries researched in this study. These N100 statistics provide a broad-based snapshot of CR reportingamong both large and mid-cap firms around the world.

Source: KPMG Survey of Corporate Responsibility Reporting 2017

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Intangible values and shareholder value:growing relevance of non-financial reporting

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Base: 4,900 N100 companiesThe N100 refers to a worldwide sample of 4,900 companies comprising the top 100 companies by revenue in eachof the 49 countries researched in this study. These N100 statistics provide a broad-based snapshot of CR reportingamong both large and mid-cap firms around the world.

Source: KPMG Survey of Corporate Responsibility Reporting 2017

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The cases:

1. Barry Callebaut

2. Novo Nordisk

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Case 1:Barry Callebaut’s approach to improve social welfare

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2019 Barry Callebaut and Cameroon signed a letter ofintent for the development of a model for sustainablecocoa farming and income diversification initiatives aswell as improve cocoa volumes through sharingproductivity best practices Link

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Barry Callebaut: Short profile (2017/18) [1/2]

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• core business: production of chocolate and cocoa products -

from sourcing and processing cocoa beans to producing the

chocolates, including chocolate fillings, decorations and

compounds

• 12,000 employees operating out of 40 countries

• 62 production facilities

• annual sales: CHF 7.3 billion

• net profit: CHF 368 million

Source: Barry Callebaut, Annual Report 2017/18; Website

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Barry Callebaut: Value chain

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Source: Barry Callebaut, Annual Report 2017/18

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Barry Callebaut: Short profile [2/2]

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In 2017/18, Barry Callebaut processed around 925,000 tonnes or approximately 20% of theworld crop

Source: Barry Callebaut, Roadshow 2018

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Barry Callebaut: Vision & strategy

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Source: Barry Callebaut, Annual Report 2017/18

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Barry Callebaut: Material topics

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Link

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Barry Callebaut: Challenges related to cocoa

production

Aging farms

• Low productivity/yields

• Declining quality

• Low income

• Lack of access to inputs,improved seedlings, latesttechniques

Land

• Vanishing rainforest

• Soil depletion, erosion

• Climate change

• Ownership titles & rights

• Sharecropper arrangements

Aging farmers

• Switch to easier, moreprofitable crops

• High labor costs

• Lack of access to financing

• No savings culture

• Young people don‘t seefarming as viable

Infrastructure and welfare

• Poor roads

• Lack of transportation

• Shortage of schools & teachers

• Shortage of health careservices and providers

• Illiteracy

• Widespread poverty

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Barry Callebaut: The commitment

We have committed to four bold targets that we expect to

achieve by 2025 and that address the biggest sustainability

challenges in the chocolate supply chain.

By 2025:

•We will lift more than 500,000 cocoa farmers out of

poverty

•We will eradicate child labour from our supply chain

•We will become carbon and forest positive

•We will have 100% sustainable ingredients in all of our

products

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Link

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Barry Callebaut: Forever Chocolate – making

sustainable chocolate the norm by 2025!

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Link

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Barry Callebaut: Prospering Farmers

Goal:By 2025 we will lift more than 500,000 cocoa farmers out ofpoverty.

Achievements 2017/18 (excerpt)

• 169,460 = Baseline measurement of the number of

cocoa farmers in the supply chain out of poverty,

measured against the World Bank's USD 1.90/day

threshold for extreme poverty

• In 2017/18 premiums from the purchase of HORIZONS

products generated CHF 10.5 million and the program

reached more than 70,000 farmers. Farmers

participating in Cocoa Horizons have access to coaching,

access to a Farmer Business Plan, are supported to

access financial services and farm services, and are

supported on income diversification activities and

women empowerment.

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Link

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Barry Callebaut: Prospering Farmers - Measures

Improving access to education

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Farmer field schools Business trainings

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Barry Callebaut: Transparency and partners

Criteria addressed to improve social welfare?

C1: Realistic assessment of the nature of economiccompetition

C3: Accounting for negative externalities

C4: Corporate objectives focus directly on well-being ofstakeholders

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Case 2:

Novo Nordisk – changing the business rational

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Source: Novo Nordisk Link

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Novo Nordisk: Short profile (2018)

• core business: diabetes and hemophilia care, growth

hormone therapy and hormone replacement therapy

(obesity). Markets in >180 countries

• Employees:

43,200 in 80 countries

• Sales:

CHF 16.8 billion

• Net result:

CHF 5.8 billion

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Source: Novo Nordisk, Annual Report 2018 (since 2004 integrated)

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Novo Nordisk: Short profile (2018)

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Source: Novo Nordisk, Annual Report 2018 (since 2004 integrated)

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Novo Nordisk pursues a holistic strategy that goes

beyond business as usual

InnovativeProducts

Access toEducation

Access to Health

Patient Advocacy

DiseaseAwareness

Patient value proposition

Serviceandsupport

Treatment

Illustrative

Community

“… it is my aspiration that health willfinally be seen not as a blessing to

be wished for; but as a human rightto be fought for.”

- Kofi Annan, former secretary general of theUnited Nations

The business of healthrequires a patient centred approach

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Source: Novo Nordisk, Presentation 2013

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Novo Nordisk: Project definition

How to generate profitable, sustainable and scalablesolutions to provide diabetes treatment to the low incomepeople who have limited access to care?

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Source: Novo Nordisk, Presentation 2013

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Novo Nordisk: Changing Diabetes in Children

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Source: Novo Nordisk Link

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Description

Environment

Mainhypothesistested

Kenya Nigeria India, Bihar

Making insulin available inmore locations and usingFaith Based organisationfor distribution and CBOfor patient awareness andeducation.

Making insulin available atthe point of prescriptionwill improve diabetes care

Making insulin available atdoorstep and motivationfrom community workerscan improve diabetes care

Patients will find insulin at afixed and low price in theirlocal community healthcentres where they willreceive professionaldiabetes care advice

Patients in hospital willfind personalised care andinsulin . A diabetes carekiosk will be established inthe public hospitals withadequately trained staff

Patients will find insulin infulfilment centres and withcommunity workers, healtheducators or peers bringinginsulin and education atdoor-step

SLUM URBAN RURAL

Private and publicpartnership

Institutionalcollaboration

Social entrepreneurs& rural insulin hubs

Novo Nordisk: Proof of the concept

partnershipmodels

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Source: Novo Nordisk, Presentation 2013

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Novo Nordisk: Partners

Base-of-Pyramid Partners - example of Kenya

•Kenyan Ministry of Health

•Phillips Pharmaceuticals Ltd

•Local county governments

•Mission for Essential Drugs and Supplies (MEDS)

•Kenya Conference of Catholic Bishops (KCCB)

•Christian Health Association Kenya (CHAK)

•Kenya Defeat Diabetes Association (KDDA)

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Novo Nordisk, Base of the Pyramid Report Link

Link to Video

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Novo Nordisk: Living-up patient centricity

From customer driven relationship…

... to cluster development … ... for patient centricity

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Source: Novo Nordisk, Presentation 2013

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Novo Nordisk: Enhancing value for society and

the company

Integration

Scale

Expanding thepie

• Captureopportunitiesthat create

value for bothsociety and

Novo Nordisk

Zero sum game

• Re-allocateresources tocontribute to

society

Business basics

• Embedded part of how NovoNordisk does business

The right thing to do

• Adhere to requirements

• Getting engaged

Philanthropy

• Passive approach to contribute toissues important to society

Value creationpotential

Shared value to NovoNordisk and Society

• Shaping society

• Scale

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Source: Novo Nordisk, Presentation 2013

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Novo Nordisk - A pioneer?

Criteria addressed to improve social welfare?

C1: Realistic assessment of the nature of economic competition

C2: Trusting firm-stakeholder relationships

C3: Accounting for negative externalities

C4: Corporate objectives focus directly on well-being ofstakeholders

Stakeholder management key principles considered

P1: Novo Nordisk is managed for the benefit of its stakeholders

P2: Novo Nordisk acts in the interests of the stakeholders astheir agent and it acts in the interests of the corporation toensure the survival of the firm

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Conclusions

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Stakeholder management is not an academic bubble,

it is a driver for sustainable business success

at a strategic level• Strong leadership - of all parties involved!• To be considered as a long-term investment allocating

sufficient and appropriate resources• Clear focus, joint goals and measurable outcomes and

impacts

at a normative level• Jointly defined the “rules of the game” and responsibilities

at a operational level• Professional process management and “neutral” moderation• Documentation and transparency

It is successful if following requirements are met

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