Governance

When can engagement be considered a success? And how can you verify that….

How should investors and NGOs respond when companies make public commitments to responsible behaviour?

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Encouraging companies to adopt formal policies or make formal commitments on specific corporate responsibility issues is often a central goal of investor engagement and NGO campaigns. From a corporate perspective, the adoption of a formal policy or commitment is often a key first step in managing the issue in question. Furthermore, while the existence of a policy does not guarantee the policy will be effectively implemented, the absence of a policy is often a clear signal that the corporate responsibility issue in question is not on the corporate agenda.
So, how should we respond when a company makes a policy commitment to responsible behaviour? Is it something that should be celebrated by NGOs and praised by investors? The announcement in February 2016 by Restaurant Brands International (RBI) that it “…is committed to transitioning to 100% cage-free eggs globally—and will accomplish that goal for our U.S., Canadian, and Mexican Tim Hortons and Burger King locations by 2025” puts this question into stark relief.
On one level, this is a hugely important commitment and, if delivered, likely to significantly improve the welfare of millions of egg-laying hens. The announcement has been welcomed by The Humane Society International which commented: “Burger King joining the cage-free movement in North America is a clear signal that the future of egg production is cage-free. We look forward to seeing Burger King set a similar timeline for its restaurants in Asia, Africa, and the rest of the Americas.”
However, there is another part of this story which is that Burger King, in a press release dated 25 April 2012, stated: “Burger King Corp. (BKC) today announced two industry-leading commitments that will enhance the animal welfare standards in its U.S. supply chain, which serves more than 7,200 Burger King restaurants nationwide. The company has pledged to transition its U.S. supply chain to 100 percent cage-free eggs by 2017 and only purchase pork from suppliers that can demonstrate documented plans to end their use of gestation crates for breeding pigs—moves
supported by The Humane Society of the United States.”As one of the global food companies covered by the Business Benchmark on Farm Animal Welfare, we have reviewed Burger King’s practices and reporting on farm animal welfare on four occasions (in 2012, 2013, 2014 and 2015) *. On each occasion, our conclusion – which we relayed to the company – was that the company provided limited information on its animal welfare policies, on its farm animal welfare-related management systems and processes, or on its progress towards its commitments on cage free eggs and the avoidance of gestation crates.
But this is not just about Burger King and Restaurant Brands International. It is about the wider challenge faced by investors and NGOs when engaging with companies. The reality is that, in response to NGO campaigns or investor pressure, it is relatively easy for corporate leaders to make bold statements or adopt ambitious targets. The corporate rhetoric on climate change is a case in point where many companies have made strong commitments to emissions reductions but have subsequently pointed to weaknesses in regulation or incentives as reasons why these commitments have not been delivered (see, for example, Gouldson and Sullivan’s analysis of the climate change practices and performance of the retail sector). *
This is also a reflection of the dialogue between companies and investors, and between companies and NGOs. It reflects the fact that, for many investors and NGOs, getting a company to make a public commitment on an issue is seen as the endpoint of engagement, rather than a starting point. It reflects the fact that NGO and investor agendas change frequently, in response to legislative changes, in response to media stories, in response to the need (or desire) to champion new and emerging issues, in response to the need to be accountable to their donors, funders, supporters or clients. It reflects the fact that analysing and assessing corporate performance on any issue (animal welfare, greenhouse gas emissions, the living wage, forced or bonded labour, child labour, etc.) is technically complex and requires time and effort if it is to be done properly. Unpicking and understanding company data and

performance is not an easy task. It requires knowledge of how companies generate and present data, it requires the ability to critically analyse and interrogate these data and it requires the ability to engage technically with the individuals that produce these data. These challenges are compounded by weaknesses in accountability processes; to take just one example, companies often do not provide enough information to enable stakeholders to verify the claims being made.
So, given these issues, what should investors and NGOs do in response to announcements such as that made by Restaurant Brands International? The logical conclusion is that investor and NGO responses to company policy commitments must be tempered, recognising that such commitments are just a starting point. This is particularly the case when the company, or its predecessors, have a track record of making such announcements but not then providing the evidence to demonstrate that they have followed through on their commitments. It also suggests that investors and NGOs need to ensure that companies actually deliver on their commitments.This means that they need to encourage companies to report on progress in a way that enables performance to be properly assessed. It means that investors and NGOs then need to be prepared to challenge and criticise companies that do not perform as promised. Finally, it also means that investors and NGOs need to praise companies that deliver on their commitments.
To answer the question we raised at the beginning, engagement can only be considered a success when it delivers real and substantive outcomes, in terms of significantly improving corporate practices and performance and in terms of delivering positive social and environmental outcomes. In that context, policies and commitments are important first steps and should be welcomed as such. However, policies and commitments should only be celebrated once companies demonstrate that they have the necessary governance and management processes in place and that they are on track to deliver real improvements in practice and performance.

Dr Rory Sullivan is an independent consultant on responsible investment. Nicky Amos is Executive Director of the Business Benchmark on Farm Animal Welfare.

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