Week Three: Managing Sustainability Risks

Week Three: Managing Sustainability Risks

“Introduction to Issues and Risks Management … Managing Sustainability Risks … Managing Organizational Crisis … Managing Risks in a Global Context”
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Summaries

  • Week Three: Managing Sustainability Risks > Introduction to Issues and Risks Management > Analysis of the Bhopal Case Study
  • Week Three: Managing Sustainability Risks > Introduction to Issues and Risks Management > Introduction to Issues Management
  • Week Three: Managing Sustainability Risks > Managing Sustainability Risks > How to Assess Risks?
  • Week Three: Managing Sustainability Risks > Managing Sustainability Risks > Examples (Climate and Water Risks)
  • Week Three: Managing Sustainability Risks > Managing Sustainability Risks > A Strategic Perspective of Risk Management
  • Week Three: Managing Sustainability Risks > Managing Sustainability Risks > Corporate Stories - Thought Leader Insights (1)
  • Week Three: Managing Sustainability Risks > Managing Organizational Crisis > Crisis Management
  • Week Three: Managing Sustainability Risks > Managing Organizational Crisis > Thought Leader Insights
  • Week Three: Managing Sustainability Risks > Managing Risks in a Global Context > Liabilities of Global Operations
  • Week Three: Managing Sustainability Risks > Managing Risks in a Global Context > Thought Leader Insights

Week Three: Managing Sustainability Risks > Introduction to Issues and Risks Management > Analysis of the Bhopal Case Study

  • In the last session we asked you, how should Dow respond to activists pressing Dow to accept responsibility for the Bhopal Gas Tragedy? What compensation should be paid? All of this a consequence of Dow’s acquisition of Union Carbide Corporation in the U.S. At the time of acquisition, Frank Popoff, Dow’s then chairman had asserted, “It’s not in my power to take responsibility for an event 15 years ago with a product we never developed at a location we never operated in”.
  • 30 years after the accident and nearly 15 years after the acquisition, Dow is still troubled by the ghosts of Bhopal.
  • Every anniversary serves both as a reminder of the terrible tragedy as well as an opportunity for activists to browbeat Dow.
  • In May last year, Dow once again blocked a shareholder resolution asking for a report on the financial and operational impact of Bhopal on its business.
  • As these images show, while Dow’s ability to carry out its operations successfully in India is greatly challenged by social actors, even though it has legal rights to operate in India, the questions we asked you were how should Dow deal with the problem of Bhopal? How should it respond to the demand of the activists? What strategy should they follow? And how far should they be willing to go to protect their interests and reputation? What are the costs and the benefits? Let’s review the facts of the case.
  • Dow acquired shares of Union Carbide Corporation in the U.S. more than 16 years after the tragedy for about 11.6 billion U.S. dollars.
  • Dow is looking to resolve this issue but without impacting their reputation, global operations or cash flows.
  • Dow needs to resolve this issue because the India opportunity is huge.
  • Dow is willing to pay for cleanup as a goodwill gesture but does not want to be held liable for any future problems.
  • The Indian government is rather ambiguous on Dow’s liability.
  • It has concluded that it’s not in a position to except Dow from all potential future liabilities.
  • What are Dow’s options? Just for fun, let’s call them the D options.
  • How will Dow choose the most viable option? We could analyse this in terms of operational, reputational, financial and shareholder value impacts.
  • In terms of operational issues, the Bhopal issue places restrictions on Dow on accessing the highly attractive Indian market.
  • There is the possibility that Dow’s assets could be attached by Indian courts and there is the real consumer and community boycotts that the company is facing across India and the world.
  • Overall, in terms of shareholder value, you find that shareholder value is highly susceptible to potential liabilities, and it’s possible that analysts may downgrade Dow if Dow fails to resolve this matter quickly.
  • To come to a correct decision, we also need to understand the nature of stakeholder pressures that Dow faces today.
  • For Dow, it faces intense public pressure and its reputation is on the line.
  • If you consider the victims and the community in Bhopal, the community is unwilling to compromise, wants Dow to pay for complete clean up of the factory site and pay adequate compensation.
  • It wants Dow to provide for social and economic rehabilitation of the affected immediately.
  • If you consider civil society, NGOs and activists such as Students for Bhopal, they believe that Dow is 100 percent liable after it acquired Union Carbide.
  • What would stakeholder theory say? How do you resolve this? As Freeman would argue in this case, Dow needs to arrive at a compromise as if both the parties play hardball, this could lead to further conflicts and possible adjudication by external agencies which will increase the overall cost of resolution for everyone concerned.
  • Local community tends to be marginal at the moment and Dow needs to hold and monitor the community to see which new issues are developing.
  • Civil society and activists are mostly non-supportive and Dow needs to defend itself.
  • Once again, we had mapped three variables-High Urgency, High Firm Power and High Resource Dependency, and in this case you find that all of these three are high in the context of Bhopal and Dow needs to work it out.
  • Was Dow’s managers immoral, irresponsible or incompetent in failing to anticipate these matters at the time of acquisition? Or was Dow just plain vulnerable? Should they even said Bhopal has surprised Dow? Or was this a predictable surprise? It is to these questions that we will turn to in the next section.
  • Professor: So, let’s start by asking the question, what are the issues that Dow is facing? Student 1: If I am somebody who’s in Bhopal right now and probably in ’84 and going through all of this, the things that I am hearing right now are, “The safety staff that was supposed to be there at the factory was reduced from 12 to half; the refrigeration cooling system that was supposed to be functional was shutdown for three months; the flare tower was supposed to take care of the gas that comes out was to burner was shutdown; there was no alarm system in place; nobody was taking care of that.
  • The question pertaining to law has emerged as whether Dow is responsible for the liability which Union Carbide was to pay.
  • Student 5: I don’t think it’s only limited to choosing whether the what corporate is India or Dow.
  • Whether Dow has the competency to handle the non-market environment in this case? Whether it is kind of inclined to handle and look at that environment? Because ultimately, this will have an effect on how the other environment and the market involvement is going to shape.
  • The question is not only limited to whether Dow wants to be in India.
  • It’s not a question of whether Dow is prepared to take on the liabilities in India, but a larger question.
  • Student 6: Dow, probably, also has to look at what the government in India as well as US government is taking a stance with the respect to the gas tragedy because they cannot go on denying it, if it is going to affect their markets outside, especially US where they have other interests.
  • Student 7: Dow has been interpreting this whole issue in a totally legal point of view.
  • If they want to have a long term presence in India and build some credibility, I think they should move beyond that and they should, as a corporate social responsibility, they should accept the responsibility of at least of cleaning the site, and I think that will build a better brand value for the company.
  • Student 8: If they step down, whether this will be the one time settlement or not? Student 9: Dow is locked in a dilemma that shareholder versus stakeholder dilemma.
  • These kind of liability has to be own by that Dow owners.
  • Professor: Would you say Dow’s managers were irresponsible, immoral or incompetent? Because I think it takes care of everything that you mentioned.
  • Student 7: Lot of emotions have been running high and the magnitude of the issue, and they have been making all sort of irresponsible statement, and that too totally from legalistic point of view.
  • From 2001 taking over, Dow also is continuously on denial mode.

Week Three: Managing Sustainability Risks > Introduction to Issues and Risks Management > Introduction to Issues Management

  • How do you anticipate such events even before they happen? One approach to evaluating such developments is to analyse issues as they emerge and examine their implications for strategy.
  • To understand this, we need to define what is an issue first.
  • An issue is any trend, event, controversy or public development that might impact the corporation.
  • Issues may have its origins in social, political, regulatory or judicial environments.
  • When we refer to managing an issue, we’re referring to the approach that a corporate adopts to deal with challenges to its strategies, plans and assumptions.
  • How do we identify if a problem is an emerging issue? One, the terms of debate are not clearly defined.
  • Two, the issue deals with matters of conflicting values and interest and often there is no one correct solution.
  • Four, the issue is often stated in value-laden terms.
  • An early anticipation of an issue helps because it widens the range of options that you have.
  • It allows you to understand the problem better and develop a positive orientation towards issues.
  • Let me show you an example of an issue that emerged in the recent past.
  • Concerns about genetically modified food and its possible adverse fallouts began to appear in the mainstream media in the Europe in the eighties and nineties.
  • Monsanto’s growing control over the food chain and the implications for health, environment, competition and accountability made the company the target of repeated protests and disruptive action.
  • Many UK supermarket chains unveiled plans to ban GM food one after another starting with Sainsbury’s and Iceland, Tesco and other major food chains.
  • Carrerfour, Delhaize, Esselunga, Marks and Spencer, Migros, Superquinn all of them joined in and by 1999, 24 of the top 30 European food manufacturers had declared GM-free policies.
  • How do you deal with issues? There are a number of frameworks and models for dealing with issues.
  • Could Monsanto have anticipated these issues better? People have studied this and come up with what could be called as an Issue Development Cycle.
  • In the first stage, most issues can be traced to some initial concerns that may have surfaced in campaign group agendas or from academics or specialists working in this field.
  • One, the issue may get framed in ways that you don’t prefer.
  • In the third stage, leading political agencies adopt policies to deal with the issue.
  • Businesses begin lobbying if the issue appears to be headed for new laws that may constrain them.
  • When should you intervene? What’s the right stage when a corporate begins to deal with an issue? The real challenge of issue management is to figure out when a corporation should intervene in trying to resolve the issue.
  • If we map an issue’s development over time, as time passes the issue gets more complex and the cost of resolving this increases.
  • It is quite clear from this framework that the earlier you intervene to resolve an issue, less expensive it would be and the more options a corporation would have.
  • The first step is identifying the issue by looking at leading events, leading authorities or advocates, literature and so on.
  • In the second stage, you analyse the issue, identify who are the stakeholders or interest groups, what are their positions of influence, how has the issue evolved over a period of time and how is it likely to move in the future? In the third stage, prioritize the issues.
  • In the next stage, formulate responses to the issue.
  • What are the key learning points in issues management? Here are some that you may like to consider.
  • The earlier you map an issue, the easier it is to manage and shape the debate.
  • Seventh, demonstrate your commitment to resolving the issue, and eighth, adopt a leadership role, not an advocacy role.
  • Put all of this together and you would be able to manage issues.
  • No matter how well you manage an issue, new ones are likely to arise.
  • The most important step in managing issues is to anticipate them.
  • How do we anticipate emerging issues? It is to that we will turn to in the next section.

Week Three: Managing Sustainability Risks > Managing Sustainability Risks > How to Assess Risks?

  • The truth is that businesses face far more risks today, and these risks have become ever more complex to comprehend and manage for us.
  • Managing risk therefore becomes extremely important.
  • Risk assessment and management comprises a vast area and requires a specialised education.
  • Risk may arise from changes in socioeconomic, technological, political, legal or environmental context that faces a firm such as climate change.
  • Strategic risks refer to threats to the long-term survival and profitability of the firm arising from poorly designed or implemented strategies or the firm’s inability to adapt to a changing external context.
  • Compliance risk refers to a potential negative impact arising from the failure to comply with or adapt to existing or regulatory expectations.
  • Monsanto is an excellent example of a firm that faced significant compliance risks as a result of changing food safety regulations in the EU and other locations.
  • Financial risk refers to the risk of loss in financial instruments or balance sheet due to changes in asset value, input price, volatility or changes in interest rates or exchange rates.
  • Operational risks refer to breakdowns in internal company systems and procedures.
  • It’s important to note that unlike the earlier two strategic and financial risks, in the case of operational risk, you cannot expect a positive return.
  • Finally, we look at reputational risk that is risk which arises from stakeholder expectations as well as their impressions about your practices and policies.
  • Reputational risk can lead to a decline in brand value or market access or even customer base.
  • Please note that I have not mentioned sustainability and environmental risks separately.
  • When we try and understand risk, we also need to understand the dimensions of risk and these can be mapped using five variables-predictability, preventability, source, scope and consequence.
  • Some risks such as a gas leak may be preventable but some are unpreventable such as emergence of a new technology, competitors entering your market, climate change and so on.
  • Source addresses the question about the genesis of the risk.
  • Is the risk externally specified or is it internally determined by the product market choices that you made? Some risks are externally specified and some are internally determined based on the choices that you make.
  • Risk is traditionally measured along the dimensions of likelihood and severity.
  • We have a pretty good understanding of what risk is.
  • How do we visualise risk? It is to that we turn next.
  • I can characterize that risk along three dimensions-likelihood, severity and scope.
  • If I draw this and so we have now combined likelihood, severity, scope and reversibility into this one piece of block that represents a unique aspect of risk that a firm faces.
  • What if we have numerous such risks? We can refine this for instance by adding other dimensions of environment, economics and social and cultural factors that the risk manager must consider.
  • I am going to assume that each colour denotes a different category of risk.
  • Our risk cubes now represent a medley of risks with each cube representing a unique risk consequence with respect to probability, impact, scope and reversibility.
  • How does one characterize the risk arising from, say, possible release of effluents to nearby water bodies? Under normal circumstances, the probability of an accidental release may be low, but if this does happen, the impact can be high.
  • On the other hand, greenhouse gas emissions coming out of an energy company that generates power by burning coal has a different risk profile-one that is highly likely, severe, global in its scope and irreversible at least in the short run.
  • Not understanding the interactions can also create blind spots for the organisation to certain aspects of risk and a firm may need to systematically identify risks.
  • There are number of methodologies used for this including Delphi techniques, workshops, risk registers and scenario planning.
  • You need to place sustainability risk management or environmental risk management at the heart of the strategy-making process to manage risk and to help build corporate resilience.
  • Managing these risks is somewhat like solving a Rubix cube.
  • In the next segment, we look at two such risks, climate change and water scarcity, and explore how these risks can potentially impact corporate performance.

Week Three: Managing Sustainability Risks > Managing Sustainability Risks > Examples (Climate and Water Risks)

  • To recap, climate change can lead to a host of problems including rise in sea levels, flooding, higher temperatures, extreme weather events, food shortages, famine, eco-migration, social unrest, loss of biodiversity or other rapid, catastrophic climate-induced change.
  • Climate change may also improve acceptance and increase the value of substitutes as in the case of clean energy firms.
  • In the case of Europe and Asia, these numbers are 22.5 billion and 60 billion, respectively.
  • In summary, the economic challenges posed by climate-related events are huge for corporates and governments and these cannot be ignored.
  • They categorize risk from climate change as arising as regulatory, physical or other climate-related, you know, developments that can impact market access and profitability.
  • From these companies’ perspective, the highest levels of risk from climate change arise by way of loss of reputation, increase in energy prices and changing regulations, and many of these firms have initiated steps-have created organisational structures to manage these changes.
  • Conflicts mainly arise as access to water is viewed as a human right and human uses have priority.
  • The pressing question for many investors and companies is not whether they face water risk but how severe the impacts will be and how soon will they be felt.
  • Most corporates use a tool called as the water footprint analysis to analyse both direct and indirect water usage.
  • Many of us consider biofuels to be very environment friendly, but the global average water footprint of a litre of bioethanol is nearly 2,854 litres of water.
  • The chocolate that you consume takes up about 17,000 litres of water per kilogram and the coffee that you will have at Starbucks consumes nearly 132 litres per cup.
  • Every product from coffee to computer chips consume large amounts of water, and water has turned out to be one of the biggest risk factors for corporations today.
  • To get back to the corporate context, the key questions that we will ask are, will costs increase due to rising stakeholder expectations, changes in regulatory policy, emissions taxing, will there be a need for new capital expenditures or would there be escalation in raw materials or energy costs, could there be supply chain disruptions, overall would the risk profile of the company change? On the other hand, will revenues be impacted due to new business opportunities, new forms of income, will customer demand for green product allow premium pricing or costs to be passed through to customers and so on.
  • When you look at risks, the key questions for analysis are how has the risk influenced the markets’ overall structure, efficiency and profitability; how has it influenced the behaviour of firms in the industry; what are the implications of these changes for incumbents as well as new players in terms of new opportunities, threats or constraints; what are the implications for performance if the current strategy is maintained; given the changes, what alternative strategies are consistent with long-term goals and capabilities of the firm? These are all questions that corporates need to address to deal with such changes.

Week Three: Managing Sustainability Risks > Managing Sustainability Risks > A Strategic Perspective of Risk Management

  • How does a firm deal with strategic risks? Here’s a framework that you might want to consider.
  • These events pose risk and potential liability for the firm and eventually might impact the overall competitive advantage.
  • How do you map these risks? What risk should you be concerned about? Here is an excellent report by the World Economic Forum that maps the risks that firms operating globally face.
  • This maps the impact and likelihood of environmental risks including biodiversity laws, climate change and so on or societal risk, technology risk, economic risk, geopolitical risk and so on.
  • All of these combine to create the global risk landscape, and as you can see, it’s a medley of risk that firms face ranging from climate change to food crisis to failure of urban planning.
  • It’s important for managers to understand the interconnections between these risks.
  • It’s also useful for managers to understand which global trends are connected to which global risk.
  • The key questions are which customers will you serve using what products and using which technology? While these choices are internally specified and driven by business strategy, they also expose a company to two other sources of risk-regulations and stakeholder actions-both of which are externally determined.
  • In the final analysis, there are five ways in which risks may impact corporate performance.
  • If you’re an energy company or an automotive firm, your dependence on fossil fuels will cause climate change issues and associated risks to pass through to your context.
  • At this point, a firm begins to assess its risks and tries to find out ways to mitigate the same.
  • As we’ve seen before, stakeholder assessment of risk and consequent action is generally driven by stakeholder perceptions, and stakeholder perceptions of risk may sometimes be subjective.
  • To complicate matters, stakeholders subjectively assess risk based on the information available, and there may be information asymmetry between the firm and the stakeholder groups.
  • In the final analysis, the strategic risk exposure of a firm is a combination of both of this and unless the corporation recognises this, it is likely to come up with strategies that are inadequate in meeting the challenge of sustainability.
  • Dow’s subjective assessment based on the due diligence that it conducted before acquiring Union Carbide would have indicated limited risk exposure.
  • We witness here the societal change that we were talking about in the first session of this course-increasing stakeholder expectations and holding MNCs and firms to be more accountable and responsible.
  • The final strategic risk that Dow faced was a combination of both of these.
  • At this point, investors begin to retreat, leading to liquidity problems and reduced ability to invest in facilities or R&D. Eventually, these may result in increased operating risks and takeover threats.
  • Timing is really important in dealing with issues or risks.
  • Each of these contribute to the overall strategic risk of the firm.
  • In the next segment, we will look at some examples of issue, risk and crisis management.

Week Three: Managing Sustainability Risks > Managing Sustainability Risks > Corporate Stories – Thought Leader Insights (1)

  • Do you have interesting stories about successes and failures in engaging with stakeholders? Auret: You know, the issues in the supply chain are very big.
  • If you map your supply chain from raw materials, all the way, to recycling, and you do a risk analysis, you’ll find many risks either human rights risks or environmental risks at the raw materials phase, at the processing phase, at the manufacturing phase, at the consumption phase, and all the way through to the recycling phase.
  • You need partnerships, you need alliances, you need coalitions of stakeholders in order to address those risks.
  • Companies when they map their risks in their valued chain, they should also map the actors-the stakeholders involved to each risks.
  • The risk might be a water risk, it might be a land use risk, it might be a human rights risk- a child labor risk.
  • When they have identified that risk, they need to map the actors-the stakeholders involved and get them all together, so that you can then decide how to address that risk, and how to make the tradeoffs and the compromises, which are probably involved.
  • It’s difficult for them to work out how to communicate with the other stakeholders, and the other stakeholders as well-NGOs and government agencies, and international organisations and local communities-are particularly not used to talking to companies.
  • It’s really great that communication, and that trust, and that working relationship between the different stakeholders.
  • One of the things that Apple needed to learn was how to start talking to critical stakeholders and people who, good faith, they didn’t necessarily understand or accept.
  • Apple has some very valuable collaborations with Ma Jun where they’ve realized that sharing information with him and with his pollution map helps everybody to clarify, to identify risks in the supply chain.
  • That’s a real journey for companies and it’s often a journey, which is fraught with dangers.

Week Three: Managing Sustainability Risks > Managing Organizational Crisis > Crisis Management

  • In the last segments, we looked at issues and crisis management.
  • The first story I would like to tell you is of Nestle and the problem of infant food formula.
  • The origin of Nestle’s problem was a 1974 report titled “The Baby Killer”.
  • Activists argued that multinational companies like Nestle endangered the health of third world children because the product had no immunological properties was mixed with contaminated water and was overdiluted because of the high cost of the product.
  • Interesting to note that two of the three problems mentioned, namely dilution and contaminated water didn’t have anything to do with Nestle but related to the use of the product.
  • As may be expected, Nestle sued the group for libel and the issue became a public controversy involving policy makers.
  • In 1984, after seven years of boycott pressure, Nestle agreed to abide by this international code and in October 1984, the boycott was called off.
  • Activists once again found evidence of Nestle violating this code and exactly four years after the boycott was called off, this was reinstated by the activists.
  • Of course, Nestle has indeed learned from this experience.
  • The slide now that you see shows some of the campaigns being run by Nestle to promote breastfeeding.
  • Nestle still faces resistance in different parts of the world.
  • Second, the company’s chairman, Jim Burke, appeared before the media was forthright in dealing with them and explained the steps taken to ensure product integrity.
  • Johnson & Johnson spent more than 100 million dollars for the 1982 recall and relaunch of Tylenol.
  • What do we learn from the cases of Johnson & Johnson and Nestle.
  • What additional lessons for risk management can you gain from this? First, it is necessary to map issues and manage risks at the earliest possible time.
  • Two, a broad approach to managing risks would be to identify each risk and then ask the following questions.
  • Which risks can be eliminated? The high-impact, high-probability risks need to be eliminated.
  • Four, the risks that cannot be eliminated, reduced or transferred need to be accepted and the organisation needs to deploy resources to manage these risks.
  • Another important point to note is that risks and opportunities are two sides of the same coin.
  • Else, you maintain an offensive strategy and create great reputation and become a leader in climate-related products.

Week Three: Managing Sustainability Risks > Managing Organizational Crisis > Thought Leader Insights

  • Interviewer: Can you give us a brief summary about how companies should look at emerging issues and conflicts with stakeholders? Auret: So, I think that stakeholder engagement will become a critical skill set for companies in the future.
  • They really need to hire experts, people with experience and training in stakeholder engagement because it’s really a critical element in crisis management and in prevention.
  • Just to give you one example, I know many cases where stakeholders have brought solutions to companies, even to suggest technological solutions, which the companies might not have appreciated before.
  • Lifebuoy, now, is a vehicle for multi-stakeholder projects trying to prevent certain diseases in Africa and it’s become not just a another soap brand, it’s become really a brand which is endorsed and promoted by UN agencies and NGOs because of this prevention function, which it can play.
  • Auret: I think that collaboration helps you not only to manage risks and to manage crisis, but it helps you to actually develop new business opportunities and new business models.
  • Companies like Unilever are realizing that their engagement with stakeholders is not just a form of insurance or social or environmental insurance, and not just the form of crisis management, it’s actually a way of identifying and developing new markets.
  • What I can tell you from my experience is that in a company of a 100,000 people that work across a 100 countries, which what it was at the time when I was working there, of course, you’re going to have many different subcultures and different pockets of the company.
  • I now realise in retrospect that the very, sort of, progressive and holistic and enlightened approach that I saw on the projects that I work on, multiple projects and there was the project in Indonesia, then I moved to China to work on a joint venture and then I spent some time in London working with colleagues around the world who were really trying to do better on human rights.
  • It is not an excuse for any corporate related disaster that happened, but what I like to do is point to what I think BP and other companies do well which, again, for me was institutionalising that sort of external scrutiny.
  • Government needs to step up and fulfil its duties whether that’s by making sure that, for example, what we saw on the tragic Rana Plaza factory collapse in Bangladesh in 2013, is that there are so few labour inspectors, right? And again, that does not excuse criminal behaviour on the part of factory owners because there will always be people who are trying to exploit and are trying to squeeze every dime.

Week Three: Managing Sustainability Risks > Managing Risks in a Global Context > Liabilities of Global Operations

  • If a scandal appears along the value chain, it’s the multinational’s reputation that’s at stake as the examples of Apple, Nike, Walmart and many other companies show, and we will talk about some of these later.
  • Let’s look at another example that we have seen before, the case of Monsanto.
  • As you have seen, Monsanto ignored the growing media alarm over its plant, roll out of genetically modified food in Europe with disastrous consequences both for its managers and shareholders.
  • We saw in the last session how Monsanto’s approach to dealing with genetically engineered food labelling issue in the UK set it on a path to a confrontation with activists and led to the eventual meltdown of the company in the UK. Let me continue from where I stopped.
  • In 1999, Monsanto’s innovation-creation of sterile seeds that would not germinate beyond its first generation fuelled an intense debate on farmer’s rights and the economics of genetically engineered seeds.
  • Faced with an unprecedented opposition, Monsanto chose to abandon this technology.
  • In the meantime, problems in the UK mounted due to Monsanto’s refusal to adopt GE labelling.
  • Monsanto in its new avatar as a plant biotech company was still not out of the woods.
  • The bitter harvest in UK had now been transformed into what media termed as Monsanto’s harvest of fear.
  • In 2010, Monsanto was besieged by activists, both in Europe and in other parts of the world.
  • In 2013, the global march against Monsanto rallied two million people.
  • Let me clarify that this is not a question of whether Monsanto has been irresponsible.
  • Monsanto has taken several steps to improve its reputation and environmental performance.
  • Here’s a slide that shows Monsanto’s responses to the GM controversy over the last seven years.
  • In 2007, Monsanto convened a committee of stakeholders to create a sustainability strategy.
  • Since then it has worked with Indian farmers, attempted to reach out to activists at the Green Peace conference, facilitated the Monsanto Sustainable Agricultural conference and created the Monsanto sustainability strategy in 2012 and has been engaging in stakeholder dialogues ever since then.
  • Despite all of this, Monsanto is still under considerable pressure.
  • If you Google Monsanto on YouTube, you get about 20,000 hits, and the first set of videos all contain adverse comments about Monsanto.
  • In some ways, Monsanto’s missteps in the EU and India have lost it significant reputation advantage across the world.
  • Monsanto’s success in the U.S. during the 90s was based on the American population’s willingness to adopt its products.
  • The same strategy when transferred to the UK failed completely due to consumer concerns about the safety of GE foods, and its refusal to agree to labelling nearly bankrupted the company.
  • In India, on the other hand, while Monsanto faced resistance from anti-GMO activists on safety related issues, the biggest challenge it faced was reserved for its patent strategy.
  • Monsanto attempted to enforce patent rights over the seeds bought by farmers.
  • The idea that seed which had been the farmer’s common resource had become the intellectual property of Monsanto, for which it could collect royalties, was completely alien to the Indian farmer who was used to a lifetime of saving seeds and even distributing it freely all the time.
  • While food safety issues challenged Monsanto in the EU, one more issue that of traditional intellectual property rights was added to the plate in India.
  • In such a context, how can a company evolve a global strategy? Is a global strategy even relevant and meaningful in the context of sustainability? Many studies have shown that the global strategy needs to be tailored to local contexts and this is so much more true in the case of sustainability-related issues which may also have cultural underpinnings.
  • Its challenges are threefold, namely continue innovation and market testing of GM products, gain increased acceptance of its technologies and improve its reputation, tailor its strategies and messages to multiple geographies differently.
  • The key point here is that irrespective of what Monsanto does, it is still vulnerable.
  • Further changes in regulation may limit Monsanto’s access to new markets or technologies or increase potential liability and environmental litigation costs.
  • What would be the likely impact if the US were to enforce mandatory labeling of genetically modified foods, which is incidentally under consideration? Or for instance, what’s the risk that this company will run if a contamination occurs? So, these are challenges that Monsanto still faces and lot of these challenges are inherent in the technology that it has adopted.
  • These traits were marketed by the company in China as a way to deal with the problems that farmers faced that were water scarcity, excessive usage of fertilizers and as a way to deal with climate change.
  • If you compare the experiences of Monsanto and Arcadia, you find fundamentally both used similar technologies and introduced similar products, but Arcadia, by changing the terms of debate was able to avoid much of the controversy that followed Monsanto.

Week Three: Managing Sustainability Risks > Managing Risks in a Global Context > Thought Leader Insights

  • How does one integrate strategy and sustainability in a large conglomerate that’s working across multiple businesses in multiple countries? How do you manage those contradictions and challenges? Shankar Venkatesan: Yeah, that’s an interesting question.
  • We have for example-looking at you know, we have a policy-we have a group policy which was just unveiled a couple of weeks ago where we have set down a set of principles and approaches that all the companies in the group would follow and this is something that was created through a very participative process amongst the CEOs of various companies.
  • We have companies that are very advanced in their sustainability thinking.
  • If any company wishes to go down this journey, wishes to accelerate how they want to go along this journey, they come to us and we sort of help them.
  • Many of our CEOs, many of our CMOs have actually gone through a two or three day program on, “What is sustainable development? What does sustainability mean for companies? Why is it something that you should take seriously?” And we have about more than a 150 C-Suite folks who have gone through this kind of a program.
  • This we see as a basic base and then we build on this through a whole lot of other knowledge-building programs on how to do water footprinting, how to do carbon footprinting.
  • The how, the why, the what and the how, we are trying to sort of create a whole a bunch of people who understand all these nuances.
  • Finally, I think the thing that we try and do is to see whether there are certain things that all of us as a group can do together.
  • What can bind us as a group? And we are trying to evaluate, assess some of those programs.
  • It’s a way of saying, ‘OK, let’s all of us in the group, however disparate, however diverse we are, can we come together and start working on certain problems together?” So, we are trying to-we are trying a mix of all these kinds of elements and that’s how we try and get us all together.
  • It certainly never and it is not the Tata tradition to say, “Thou shall do this!” It’s about creating spaces where people-where companies figure out at their own pace, what’s the best way and why this needs to be done and why it is important to do this.
  • I think regulations play a very interesting role in and a predictive nature of regulations, is what makes life in the U.S. and the U.K. different from say in India where you know, you’re never quite sure what the regulation is or what the trajectory is and when it comes.
  • Well, in each company, one of the things that we-all our companies have been aware of is that they need to be tracking what stakeholders they have in their geography and keep an eye on them and keep dialoguing with them so that they get to know, you know, what are the kinds of issues that stakeholders are concerned about well before it actually becomes a reality.

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