LEGS Report Ikea vs Divine Chocolate PDF

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ETHICS, SUSTAINABILITY AND GOVERNANCE WITHIN COMPANIES Ikea vs. Divine Chocolate

University of Portsmouth 893087, 900770, 897865, 950839

Table of Contents Introduction............................................................................................................................. 2 Methodology........................................................................................................................... 3 Ethics...................................................................................................................................... 4 Governance............................................................................................................................ 8 Conclusion............................................................................................................................ 10 Appendix............................................................................................................................... 12 Evaluation Tool.................................................................................................................. 12 Ethics............................................................................................................................. 13 Sustainability.................................................................................................................. 19 Governance................................................................................................................... 25 Bibliography....................................................................................................................... 31 Group Contribution Form...................................................................................................35

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Introduction The biggest aim of every business is to be successful, especially where being up to date and competitive is vital for an organisation to stay relevant. This trend affects not just the business environment but also the members of the general public. Thus why, monitoring how their operations have an impact on the public and environment is essential. This report is a cryptic explanation of the assessment of ethics, sustainability and governance for Ikea, a for profit organisation and Divine Chocolate, a for benefit organisation. The first part of the evaluation focuses on business ethics, which is used to create a significant level of trust between employees, employers and customers. The second part, as mentioned by Stubbs & Cocklin (2008) is sustainability. In business it plays a significant role by its impact on the environment and society. Governance, the third part of the evaluation has a big value for a business as it is based on how a specific organisation makes decisions and if these are well thought out (Bonn & Fisher, 2005, p. 730.) The evaluation tool was created in order to uncover how the companies face these challenges. The selected issues are split into 3 sub-sections, each divided into 4 questions indicating the commitment and recognition shown by each company and whether they have improved on the issue. In the following, the methodology and evaluation tool that is used to assess the performance of the companies throughout the report is explained. From the results of the evaluation, the company’s performances in Ethics, Sustainability and Governance are then being explained. The Ethic section will address issues such as working conditions, living wage and human rights to give a better understanding of the ethical side. Followed by sustainability, which focuses on their material sourcing, circular economy concerning recycling and their environmental impact. Lastly, a wider and in-depth explanation of governance is given by addressing their business model and ownership structure, accountability and their code of conduct regarding what actions these companies have overtaken in the last years and the justification behind it. Concluding the report, the company’s performances are set in context and key issues as well as recommendations will be pointed out.

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Methodology This evaluation tool can be used to analyze ethics, sustainability and governance of both profit and nonprofit companies. The tool addresses 3 indicators that relate to each issue. The indicators are independently assessed through four criteria’s and rated to then provide an overall score of the issue. The criteria’s is based on some of the quality principles proposed by Zadek (1997). Within Zadek’s principles we focused on the transparency of company’s information, the external verification of company’s practices, the communication of their actions and their continuous improvement.

The aim is to ensure the evaluation tool provides a well-rounded depiction of the company, as well as addressing their short term and long term efforts; something managers needed to implement within their actions to ensure both short and long terms needs were met (Zadek et al., 1997, p.4). The rating scale is out of 20 marks for each indicator and they are individually rated using 4 criteria’s worth 5 marks each. The assessment consists of internal and external data, for example company reports and websites are the main sources for internal data, meanwhile sources like newspaper articles and reviews offer an outside perspective on the companies’ actions. In addition, it is ensured the data comes from either academic or reliable sources to enhance the accuracy and credibility of the evaluation. Overall the evaluation tool is easy to operate and provides a holistic view of the company. Despite this, the tool does have some limitations. One limitation of the tool is the fact that some of the information sourced does not just fit in one indicator and therefore there is an issue with overlapping information. This could lead to the tool lacking specificity, however the aim of the tool is to give a holistic view of the company therefore these indicators becoming more specific may lose sight of the tool’s objectives. Another limitation of the tool is that it does not necessarily explore the financial aspects of the company’s actions, for example how much they have invested or how much they plan to invest etc. This can create challenges when analyzing the company further as there are no financial indicators for comparison, however, this does not mean that the tool fails to provide quantitative data which can be used for further analysis.

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Ethics

This section will examine the ethical performance of both companies and give an in-depth view on their working conditions, living wage and human rights. Business ethics is the study of policies and regulations within an organisation regarding governance, sustainability, etc. (Beauchamp, Bowie & Arnold, 2004). It is used to create a significant level of trust between employees, employers and customers. Both companies are concerned with ethics, as Ikea has developed a strategy that consists of goals which improve Ikea as an organisation and protects communities. Ikea ensures employees feel appreciated on every step they take and have limitations regarding working hours that do not exceed 60 hours per week. Ikea is also named one of the most ethical organisations in the world (Avrami, 2000). Thus why, Ikea received a good score on ethics. Being the only Fairtrade chocolate company that is co-owned by farmers, Divine Chocolate places importance in their farmers achieving a dignified livelihood. This is shown through ensuring farmers operate in secure working conditions and have sustainable future (“Why Fairtrade?”, 2019). They partner with Fairtrade to introduce initiatives which will improve the working conditions, by ensuring the protection of the working conditions for the farmers, whilst simultaneously protecting the environment ("How Divine Chocolate protects its precious crops", 2019). This reflects the rather high score they received. A living wage is a salary paid to a worker that should cover the basic standards of living (Fairtrade, 2019). Since 2016, Ikea has provided their employees with living wage. As Ikea is a value driven organisation, every decision made is based on their values, employees and the environment. As stated by Wills (2016), living wage can have a positive impact on staff wellbeing and morale. Since living wage was introduced, its improved productivity, quality of work and consumer awareness (Gender Pay Gap – Ikea report, 2018). Thus why, Ikea scored high regarding their living wage. Divine chocolate has a mission to tackle poverty amongst their farmers and producers in Ghana ("A Real Livelihood is Not Just Putting Food on the Plate", 2019). They ensure farmers are given a sustainable livelihood by awarding them a “guaranteed, secure minimum price, an extra social premium payment for the farmers… all aimed at empowering farmers to make their own improvements to living standards for the future.” ("Press Release: Divine Chocolate Honoured as a '2017 Best for 4

the World B Corporation", 2019). However, over 20 years after Divine was established, farmers remain in extreme poverty and the additional finances provided is not enough for farmers to receive a decent standard of living for their households. Which is mirrored in the lower score. As stated by Stellmacher, Sommer & Brahler (2005), human rights guarantee peoples’ necessity of needs and protects them from abuse caused from people who believe to be stronger. Ikea supports human rights and the empowerment of women in all their activities. However, a report from 30 years ago resurfaced and revealed hidden information regarding the company using prisoners in Germany to build some of the components for its furniture (Gender Pay Gap – Ikea report, 2018). This is shown in the evaluation as well. Divine Chocolate aims to reach the Sustainable Development Goals set up by the UN, which seek to end poverty, tackle climate change and inequality (“Empowering Women”, 2019). Currently, they aim to achieve Goal 5, which intends to improve gender equality and better women’s empowerment. Being both led by women, Divine and Kuapa Kokoo have created programs intended to develop the professional skills and confidence of female cocoa farmers, in order to maximise and motivate more females into leadership positions.

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Sustainability

This section will discuss how Ikea and Divine Chocolate manage their growth responsibly and will explore their contribution towards sustainability. Sustainability can be defined as the economic development that meets the needs of the present without compromising future generations meeting their own needs (Portney, 2015, p. 3). It has focused targets such as addressing climate change and finding alternatives to disposing toxic materials (Portney, 2015, p. 27). These targets flagged important areas of research and led us to fixate on 3 main areas: material sourcing, circular economy and environmental protection. Being the largest user of wood in the retail sector, Ikea is always looking for ways to use it wisely and source their wood to high set standards. 77% of wood, as well as their cotton, wool and plastic come from sustainable sources, defined as recycled or FSC® certified. They are on track achieving their long-term goal of 100% by 2020 (“Were big fans of wood”, 2019). This represents Ikea’s total commitment to ensure their raw materials are sustainably sourced. Divine Chocolate strictly uses recyclable materials and sources. They do not use GM ingredients, palm oil or soya in their products, which are constantly under review to ensure the lowest environmental impact. Since every product carries the Fairtrade Mark, it ensures they meet the internationally agreed Fairtrade Standards (The Divine Difference, 2018). Ikea’s strategy towards waste has shifted away from a linear system towards a circular system (Pownell, 2019); a strategy which is a growing consensus in the global community (Charter, 2018, p.3). Ikea has approached waste by focusing on 2 main aspects; implementing a circular design to their products and eliminating waste. This highlights Ikea’s innovation towards waste prevention by embedding it within the manufacturing of their products and consequently reducing waste at the end of the product lifecycle (Ikea sustainability report, 2018). Divine Chocolate also ensures that everything that can be recycled is recycled and implements this thought into every step of their supply chain. The company strictly uses recyclable materials and minimises packaging by not using plastics. They regularly review product packaging and make every effort to employ recyclable materials and reduce waste. They have recycled 3.6 tonnes of material and converted it into 6

energy as well as 63% of their total waste (Divine Chocolate, 2016/17). Divine Chocolate is also a certified B-Corporation, meaning it meets the highest standards of verified social and environmental performance, public transparency, and legal accountability to balance profit and purpose (Weinrich, 2019). Ikea’s corporate identity is built on environmental values. The company has stated that they want to take a leading role towards a low carbon society, reducing CO2 emissions (Hrelja, Isaksson & Richardson, 2012). Ikea’s parent company, the Inka Group, is set to invest £171m into green energy and forest planting to become carbon neutral by 2030 (Butler, 2019). Divine Chocolate values the environment as well, by only operating the most modern vehicles designed to minimise the production of nitrogen oxide and dioxide and the release of harmful particles into the environment. They also do not use airfreight for any product transport. Since Divine is not using palm oil in their products, deforestation is being avoided and trees are saved. In 2017, the company saved around 4 tonnes of CO2. Through their collaboration with Fairtrade, they protect, restore and promote sustainable use of terrestrial ecosystems, sustainably manage forests, combat desertification over the next 15 years (Nicholson, 2018).

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Governance

This section will explore the Governance of both companies. Corporate governance can be defined as the set of rules and regulations which a company must follow and run by (Council, 2007). It focuses on decisions made by an organisation and their reasons behind them. Important parts are their business structure, accountability and their code of conduct. A business model is a set of assumptions which lay out a company’s key resources and key activities regarding their value chain and value proposition ("What Is a Business Model?", 2019). In recent years, Ikea has proposed plans of a new business model responding to changes within their shoppers buying habits and the continuous growth of online sales (Milne, 2018). Their key activities will be loaning furniture to customers instead of selling it. This new business model highlights Ikea’s dedication to less consumer waste and helps reduce the organisation’s carbon footprint (Mikel, 2019). Divine Chocolate on the other hand is a social enterprise that combines business with social justice and is co-owned by cocoa farmers. It reflects the belief that producers should earn a share of the profits they help to create. By owning 44% of Divine, the farmers receive a share of the distributable profits from the sale of the chocolate and have meaningful input into decisions on how Chocolate is produced and sold. Also, Divine invests 2% of its revenue into projects aimed at empowerment of women, adult education and promoting good governance (The Divine Difference, 2018). Accountability describes how leaders of an organisation take responsibility for the consequences of their choices and actions (McCall, 2002). It is very important, because it shows commitment and what people are willing and capable to do. Ikea’s main aim is to increase trust between them and their stakeholders, customers, employees and society in general. Therefore, Ikea holds responsibility regarding every process and action that takes place in their premises, by carrying out investigations and following guidelines to provide safety (Ikea Sustainability report, 2018). Divine Chocolate has paired up with Fairtrade and B-corps, who’s main mission is to “secure decent working conditions, fair prices, and better terms of trade” ("Why Fairtrade?", 2019) as well as being transparent and accountable (Certified B Corporation, 2019). To stay on its mission, Divine ensures that they are 8

transparent in all their business operations like the correct production management procedures being put in place, ensuring the business maintains good business practices, and being accountable for business following discriminatory, human rights and safety laws regarding their labour conditions (“Why Fairtrade?”, 2019). IWAY is Ikea’s code of conduct which was introduced in 2000. As stated by Erwin (2011), a code of conduct contains further regulations on what is defined as expected behaviour and what not. IWAY is based on trust, integrity and honesty and is key to its sustainability. Ikea ensures that they protect child labour, that their suppliers follow legislations and are not part of illegal actions which protects society and environment (“IWAY, Our code of conduct IKEA", 2019). Therefore, Ikea scored a high score on showing full commitment regarding their code of conduct and ensuring their regulations are followed. Being a mission driven business, Divine’s core value is bringing people together establishing distinguished trading relations, thus empowering both their producers and consumers (Divine Chocolate, 2019). To manage the organisations’ internal affairs, along with its relationship with consumers, Divine intends to increase power and representation of the farmers in the market, ensuring they are aware of child labour policies and improving female participation in all of its operations (“The Beginnings and Structure of Kuapa Kokoo”, 2019).

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Conclusion

To conclude, this report offers an in-depth analysis on the operations of Ikea and Divine Chocolate. The report highlights the company’s strengths, along with the issues they face, and justification to the reasons behind the organisations’ receiving specific marks on their business performance in terms of their ethics, sustainability and governance. Ikea perceive themselves as transparent in terms of their employees matching the organisations’ values, thus placing focus on the training of employees and ensuring that each member of the organisation is feeling good. This is reflected in Ikea’s overall score for ethics being 39/60. However, there is room for improvement in terms of the organisation’s ethics. Ikea received low scores for their human rights in the evaluation tool, due to a scandal regarding prisoners facing punishment if they refused to build components for the organisation. This created controversy, thus bringing their ranking low for human rights. Ikea has since used this scandal to improve human rights and gender equality regarding their employees and will need to continue proving that all employees are treated fairly and correctly, to guarantee recovery from their negative reputation. Divine Chocolate place their farmers at the heart of the organisation and have a mission to ensure their farmers are given a sustainable livelihood. The organisation received 41/60 for their ethics, however, with poverty remaining at large among the farmers, instead of just raising consumer awareness, Divine can improve on their ethics by disclosing more information on how they plan to tackle farmers poverty.

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Both Ikea and Divine received high scores regarding their sustainability. The organisations provided a generous amount of information relating to their material sourcing, circular economy and environment, with Ikea receiving an overall score of 43/60 and Divine Chocolate receiving a score of 47/60. Ikea especially has become an advocate for other companies to increase their efforts regarding sustainability. Through their work with WWF and FSC, Ikea has been able to promote responsible forestry management within their industry,...