Answer

Table of Contents

1.0                Introduction                3

1.1                Company Introduction                3

1.2                CSR Profile                4

2.0                Tensions and Dilemmas in Being an Ethical Company                4

2.1                Meaning of Ethical Company                4

2.2                Corporate Social Responsibility (CSR)                5

2.3                Similarity and Differences between Ethics and CSR                6

2.4                Ethical Frameworks                6

2.5                Shareholder versus Stakeholder Theories                7

2.6                Normative and Descriptive Approaches                7

3.0                Assessing Proposals                8

3.1                Carroll’s Pyramid of CSR theory 8

3.2                Shareholder Theory versus Stakeholder Theory                10

3.3                The Three Ethical Frameworks                11

4.0                Developing a Proposal                13

4.1                Product Development                13

4.2                Vertical versus Horizontal Integration                14

References                16

• Introduction
  • Company Introduction

Innocent Drinks is a multinational manufacturer and retailer of juice and smoothies. It mostly sells its products through coffee shops, supermarkets, and other outlets. According to Sharp (2020) Innocent Drinks sells two million smoothies annually. Ninety percent of the company is currently owned by The Coca-Cola Company. Innocent Drinks was founded in 1998 by three graduates from Cambridge University while working in advertising and consulting firms. However, when they realized that Londoners loved their smoothie recipes, they quit their jobs and focused on growing the brand. Innocent Drinks then attracted investors and briefly partnered with McDonald’s from 2007 to 2012. Revenues declined in 2008, following a global financial crisis which led to a loss of £8.6m. The company reached an agreement to sell a 20% stake to the Coca-Cola Company. The takeover prompted the Ethical Consumer magazine to reduce the firm’s ethical rating to 6.5/20 from 12.5/20 (Sharp, 2020). The company continued to struggle, thus prompting Coca-Cola to increase its stake to 58% in 2010 and 90% in 2013. By June 2016, Innocent Drinks had revenue of £247.4m which is a 13% increase from 2015.  

• CSR Profile

Innocent Drinks purposes to produce and supply healthy, natural, delicious and sustainable food. The company values sustainable and ethical practices. Its vision is to work with employees, and other stakeholders in optimizing performance and achieving sustainable goals. The mission is to be an inspirational company that promotes individual and organizational growth (Innocent 2020). Despite past controversies such as product recalls and poor environmental records due to the high emission of greenhouse gas, Innocent Drinks is slowly embracing CSR and sustainability to improve its reputation. As part of its CSR and sustainability campaigns, Innocent Drink is an advocate for recycling, health eating, and gender equity through sustainability and gender pay gap reporting (Sharp 2020). The company intends to promote ethical business dealings by being good to the core, protecting the future of the plan and standing out as a hero of change. Through its website, Innocent Drinks shares its sustainability statement, which communicates the company’s desire to leave the world better than it found it. This means that it is ready to take full responsibility for its actions and impacts on the environment, and society. Additionally, Innocent Drinks purposes to be an ethical company. The firm acknowledges its imperfections, but is keen to emphasize that it is trying to be the best company regarding the triple bottom line; profit, planet, and people (Innocent 2020). It purposes to achieve these goals by producing health and nutritious smoothies, using organic and natural ingredients, environmentally friendly packaging, and sustainable sourcing and production.

• Tensions and Dilemmas in Being an Ethical Company

Being an ethical company enhances the reputation of the organization. However, for the business to be ethical, it has to make a financial trade-off. For instance, it has to ensure that its processes are sustainable and that it does no harm to the planet and the people. As evident with Innocent Drinks which uses a sustainable supply chain certified by the Rainforest Alliance, the process of achieving these goals requires a financial commitment which in turn, reduces the profitability of the organization. This creates the dilemma of whether being an ethical company is worthwhile. According to Trevino and Nelson (2016) an ethical company is any organization that believes in not harm the environment and the people. This means that it does not engage in exploitative business practices such as using child labor, paying low wages, selling harmful products and damaging the environment. Ethical companies engage in best practices such as using reusable and clean energy, supporting charities, advocating for circular economic models of production and reducing the emission of greenhouse gases and carbon footprint. Shaw (2016) notes that ethical businesses are characterized by a strong commitment to ethical leadership, fairness, integrity, respect for customers and employees, loyal relationship with stakeholders and concern for both the environment and the people.

Corporate Social Responsibility (CSR) refers to a business model that guides businesses into practising social accountability to stakeholders, the public and itself. It is also known as corporate citizenship. The concept of CSR is integrated into businesses to encourage conscious decision making that balances the economic, environmental and social goals of the organization. Carroll’s CSR pyramid is considered a remarkable framework that guides organizations in prioritizing social responsibilities. According to this theory, businesses should prioritize profitability since it ensures the sustainability of the business (Carroll 2016). Secondly, businesses are required to adhere to legal regulations and laws. This includes engaging in fair competition, and employment practices, in addition to promoting health and safety at the workplace. The third requirement is for businesses to prioritize ethical conduct by acting ethically and morally. The fourth requirement is that businesses engage in philanthropic activities. These are acts that give back to the society. Guided by this theory, it is certain that ethics is a vital element and the third responsibility of CSR.

As much as the concepts of ethics and CSR work collaboratively, they have differences and similarities. Sroka and Szántó (2018) note that whereas business ethics is a broad field that studies moral decision-making in business contexts, CSR is a narrower field of study that focuses on societal obligations and the triple bottom line. This means that ethics is concerned with wrong and right, as well as bad and good whereas CSR is majorly concerned about the planet, profit, and people. A socially responsible business will strive to make sustainable profits while equally engaging in philanthropic, ethical and legal activities.

Three ethical frameworks guide decision making, namely; duty framework, virtue framework and consequentialist framework. Brown University (2020) cautions that whereas these three frameworks are important, none of them is perfect. As a result, it is important to understand the advantages and disadvantages of each of these frameworks. The consequentialist framework argues that businesses should only make decisions that are utilitarian and produce the best consequences or the best for most people. This framework is used when making decisions that affect many people. It enables the business to cause the least possible harm. The duty framework argues that businesses have the obligation of doing good at all times regardless of the outcome. This framework encourages organizations to be fair in their decision making by exercising respect and dignity. Despite this advantage, this framework does not provide ways of determining which duty to pursue and which to avoid. Third, the virtue framework argues that organizations should identify negative and positive character traits among people (O’Brien 2019). Such traits will enable them to classify situations as either ethical or unethical. The downside of this framework is that people hold different beliefs about ethics. For instance, it fails to answer the question of whether a person who engages in illegal businesses and gives part of the returns to society for the greater good, should be considered ethical or unethical.

Shareholder theory and stakeholder theories are different in several ways. According to Harrison et al (2019), a stakeholder is anyone with a vested interest in the operations and activities of an organization while shareholders are the partial or full owners of the business. In the case of Innocent Drinks, its stakeholders include customers, shareholders, suppliers, rivals, government, employees, society and the managers. On the contrary, its shareholders are Coca-Cola which has 90% stakes and the three founders who have a minority stake-holding. Another difference between the shareholder theory and stakeholder theory is that whereas the former seeks to optimize returns on investment, the latter is concerned about the general performance of the company (Paul, Elango & Kundu 2019). As a result, shareholders and stakeholders are constantly in conflict as most shareholders only focus on maximizing their returns while the stakeholders pressure the organization into adopting CSR and ethical business practices.

                Ethical decision-making in organizations can equally be guided by either normative or descriptive approaches to ethics. According to Hahn et al. (2018), normative ethics refers to the study of how people are required to behave. A normative approach is considered to be an argumentative discipline that is aimed at sorting behaviors on how people ought to behave. Normative ethics explains value judgment and what ought to be. On the contrary, descriptive ethics refers to the study of the behavior of others. This means that descriptive ethics describes what is already known about a person. Guided by the explanations and arguments made in this section, the selected theories to continue this discussion are; shareholder theory versus stakeholder theory, the three frameworks and Carroll’s pyramid of CSR theory.   

• Assessing Proposals

According to the fictitious scenario facing Innocent Drinks, the organization is experiencing a decline in revenues and profitability as a result of high input costs, adverse weather patterns, and climate emergency. These scenarios make it unsustainable to operate in the fruit drinks industry where sustaining the lowest possible costs contributes to higher financial returns. As a result, the board of directors of Innocent Drinks is evaluating two proposals as alternative measures to addressing the profitability concerns. The first proposal is to reduce the fruit content of its products while the second proposal is to source a proportion of its fruits from non-sustainable sources. These proposals will be evaluated based on the following theoretical frameworks; shareholder theory versus stakeholder theory, the three ethical frameworks and Carroll’s pyramid of CSR theory.

Carroll presents a simplified framework useful in guiding and justifying why organizations have to be socially responsible in their decisions. This model emphasizes that organizations should be profitable. However, it urges managers to undertake additional responsibilities. The model is represented in the form of a pyramid. The responsibility at the base is noted to be the most important to an organization, while the responsibilities at the apex are the least significant. The model is represented in figure 1 below:

Figure 1: Carroll’s CSR Model (Carroll, 2016)

Carroll emphasizes that economic responsibility is the most significant and basic element of Innocent Drinks. The business must generate revenues and profits for the shareholders. Likewise, the profits generated can be used to meet the needs of other stakeholders. For instance, when an organization is profitable, it pays higher tax rates to the government, it provides employment and pays salaries above the minimum wage, and also, pursues investment opportunities that build the economy of the country (Carroll 2016). This responsibility is therefore beneficial not only to the organization and its shareholders but to all the stakeholders. Failure to make profits means the organization will struggle to meet its recurrent expenses and costs, thus leading to the declaration of bankruptcy and collapse of the organization. This argument validates the two proposals made by the Board of Directors since they both aim at optimizing the firm’s profits.

The second level of the CSR pyramid is composed of legal responsibilities. The organization should adhere to laws and regulations of the country. Delivering this responsibility ensures the organization is in good standing with the government officials and the society (Carroll 2016). In this context, reducing the fruit content of the product is legal as long as the organization indicates this on the packaging of the product. This is because the government does not stipulate the level of fruit content to be included in juices. However, society expects that the fruits are healthy and natural without fillers and additives. The second proposal is also legal since it is not a mandatory requirement that firms source fruits from sustainable sources.

The third level of responsibility is an ethical responsibility. The society expects that firms deliver these duties. According to Carroll (2016), ethics refers to the obligations of firms to do what is just, fair and right. It further emphasizes the need to avoid harm. This responsibility surpasses the narrow requirements set by the law. It differentiates socially responsible organizations from those that are not responsible. The firm doesn’t need to be ethical as long as its activities are legal. However, for Innocent Drinks to remain ethical and sustainable as it claims, it should not reduce the fruit content of its products since this will be unfair competition to the rivals. Secondly, Innocent Drinks should not use non-sustainable sources of fruit as it would be promoting unethical practices along its supply chain.

The fourth level of responsibility is known as discretionary or philanthropic responsibility. Society desires that firms are good corporate citizens. However, this is not mandatory. This responsibility focuses on giving back to the society rather than on fruit content and non-sustainable sourcing of raw materials. As a result, it is not applicable in analysing the two proposals.

The shareholder versus stakeholder debate questions whether the primary objective of businesses is to maximize value for shareholders or whether the firm should serve the conflicting interests posed by stakeholders. The stakeholder theorists are concerned about ethical and social responsibility issues affecting society (Paul et al. 2019). For instance, they are worried that unethical and unsustainable conduct by organizations would lead to increased greenhouse gases and global warming. They are concerned about the possibility of unethical behavior that would harm the society. Likewise, they are accustomed to questioning instances of financial fraud and how it impacts on the society as a whole. These evidence as seen across most industries and justify the failure of the shareholder theory in addressing ethical and sustainability issues. As a result, the stakeholder theory must be upheld so that it normalizes businesses.

Introducing these two theories will provide different dimensions regarding the two proposals made by the board of directors. The shareholder theory will justify these proposals on the group that it helps achieve the objective of maximizing shareholder returns. On the contrary, the stakeholder theory will be against the two proposals since the outcome will favor the shareholders at the expense of the customers who will be charged the same price for juices with lower fruit content than they are accustomed to. The stakeholder theory will propose that the directors find alternative ways of balancing the financial interests of the shareholders with the interests of the stakeholder groups. According to Paul et al. (2019), both stakeholder and shareholder theories are classified under the normative theories of CSR since they dictate the roles of corporations. By extension, the two theories are normative theories of ethical business conduct since they guide managers in discerning right from wrong. Nonetheless, the two theories present divergent views on what is right and wrong for a business.

As noted in the previous section, there are three ethical frameworks; consequentialist, duty and virtue framework. The consequentialist framework is based on consequentialist theories such as the utilitarian approach and common good approach (Brown University 2020). According to the utilitarian approach, an organization should make decisions that have a positive impact on the greatest number of people. Putting it into context, reducing the fruit content of the products will cause loss to the greatest number of people while enriching the few shareholders. Sourcing from non-sustainable sources will disadvantage the few suppliers while benefiting the greatest number of consumers. Similar sentiments are expressed using the common good approach, where Innocent Drinks has the duty of making positive contributions to communal life. This approach advises that decisions at Innocent Drinks should favor the general will of the most people.

The duty framework is a non-consequentialist theory. Duty based approach is classified under the deontological ethics. According to Kant (2017), human beings have to possess good intentions because there is a supreme being watching over every decision and action. Kant argues that human beings have to make the right decisions regardless of the consequences (O’Brien 2019). Applying this framework to the two proposals creates a dilemma in the sense that, the board of directors might justify their action as motivated by good intentions. They might note that they must make decisions that ensure the posterity of the organization and its shareholders and not necessarily, serve the interest of the stakeholders. On the contrary, the duty-based approach might motivate the board to think of alternative options instead of pursuing proposals 1 and 2.

The virtue framework encourages honorable decision making by the board of directors. Assuming that the board of directors is made of people with honorable character traits such as a strong commitment to ethical leadership, integrity, fairness, respect to employees and customers, loyal relationships with all stakeholders and a genuine concern for the people and the environment, then they will consider alternative solutions rather than the two proposals (Scholz & Smith 2017). The first proposal is not virtuous since it fails to honor the firm’s commitment to delivering quality products. The second proposal will encourage exploitation of some actors in the supply chain. Therefore, it does not conform to the ideals of an ethical organization.

• Developing a Proposal

Innocent Drinks is a progressive company that needs to survive the harsh economic conditions in the fruit drinks industry. As noted in the case study, the industry is highly volatile in the sense that any slight increase in cost, has adverse impacts on the financial returns of the organization. Given the rising input costs as a result of unpredictable weather patterns, rising transport costs and climate emergency, it is prudent for the company to consider proposals that are both ethical and socially responsible. In this regard, two main proposals will strike a balance between ethics and CSR; product development and vertical versus horizontal integration.

• Product Development 

The idea to come up with this proposal was motivated by the Ansoff growth matrix. This strategic model provides an elaborate and ethical guide on how to develop products and markets. According to Schawel and Billing (2018), the matrix proposes that organizations can leverage and maximize their returns on investment by adopting four main strategies—market penetration, product development, market development and diversification. In the case of Innocent Drinks, market penetration and market development might not be viable proposals at the moment because of the low supply of juices. Instead, to ethically solve the challenge, diversification and product development could be viable solutions. Product development involves conducting research and coming up with new products for an existing market (Eckardt 2018). This strategy demands that the organization develops new competencies that enable it to either modify the current products or introduce completely new ones that appeal to the consumers.

Innocent Drinks needs to introduce new products that use available resources. This includes researching and introducing products such as coconut water and vegetable smoothies. The proposal to introduce these two products is justified by the triple bottom line (TBL) framework which urges organizations to commit to environmental and social concerns by balancing profits, planet and people. As a result, introducing these two products will help explore locally available materials which are organically sources. As a result, Innocent Drinks will be protecting the environment, promoting local communities and making profits in the process. Using these sustainably sourced raw materials, the firm can research on how best to combine them to come up with different natural flavors that will not only be differentiated and sustainable but also satisfy the consumers and make them consume more. Since the company is committed to selling natural organic products, the product will appeal more to the health-conscious and vegan consumers. This proposal will enhance the reputation of the organization in the eyes of the stakeholders while optimizing return on investment for the shareholders (Eckardt 2018). This is a win-win for both the shareholders and all the stakeholders.

• Vertical versus Horizontal Integration

The pressure to maximize returns on investment can be countered by diversification. According to the Ansoff matrix, diversification entails developing new products for new market segments. It is the riskiest strategy for any firm to pursue because most firms lack the core competencies. However, it is the most rewarding. Diversification coincides with both vertical and horizontal integration. According to Herger and McCorriston (2016), horizontal integration is a form of diversification where a company acquires another company in the same company. The intention of such acquisitions includes diversifying services and product offering, realizing economies of scale, reducing competition and increasing the size of the firm. It further increases the chances of accessing new markets and customers. If this strategy is adopted by Innocent Drinks, it could have to acquire rival firms producing smoothies and juices. Alternatively, it could acquire a firm with non-sustainable supply chain and manage it as a subsidiary. This strategy will help Innocent Drinks to retain its reputation as an ethical and sustainable firm, while the acquired firm will focus more on maximizing returns. Regardless, this option might not be the most ethical and sustainable proposal. As a result, vertical integration presents the second-best proposal to the board of directors.

Vertical integration is a form of diversification where a business acquires another business operating in the production processes in the same industry. In the case of Innocent Drinks, vertical integration means acquiring a firm involved in producing raw materials for the fruit drinks industry (Snyman & Kroon 2015). This option will enable Innocent Drinks to monitor the processes on the downstream side of the supply chain, thus lowering costs. It will further capture downstream profits and access alternative distribution channels that could help in lowering production costs. The result will be a total control of the supply chain, increased sustainability and optimal returns for the shareholders (Pellinen, Teittinen & Järvenpää 2016). This proposal is viable since it endears to the stakeholders by serving their vested interests in many ways. For instance, it promotes caring for the society by producing sustainable and healthy products. It also saves the environment as it promotes sustainable and ethical sourcing of raw materials.

This part is rather weakly addressed. I suggest you develop a proposal/idea clearly and then discuss using may be TBL framework or Carrol’s model that how it serves the need. Product development may not be a good idea as they are worried about the cost of existing products.