Cadbury's - MMU Business School

Module:Accounting society and the environment-Michael Prodromou-ID:09979434

Name: Michael Prodromou

ID: 09979434

Tutor: Jack Christian

Course: Msc Accounting and Finance

Module: Accounting Society and the Environment

Assignment: 2

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Introduction

In recent years, large domestic and multinational companies have lost the public‟s trust due to unethical social and environmental behaviour. In order to boost and gain back the public‟s interest, trust, and minimize risks of losing or damaging their reputation different approaches and theories are available.

This paper will present a critique of the social and ethical policies that Cadbury follows, and will address the question of whether these policies are actually kept in practice. As such, this paper is split into five parts and the conclusion that address the following objectives:

- Part one will explore Cadbury‟s history, from the early 1824 until today and its key developing dates.

- The goal of part two is to offer a review of Corporate Social Responsibility definitions, and explain them.

- Part three will address Cadbury‟s stance on CSR and will focus on the scandal that Cadbury became involved in the middle of 2006 with the contamination of salmonella in its products.

-Moving on to part four an overview of legitimacy theory and whether this is used as a means and not as an end in itself,as well the importance of having embedded reputation risk management and reports on CSR in an organisation.

-Part five will comprise of the reaction and improvements of the company and added on that suggestions for enhancement operations and behaviour.

And thereafter through the great German philosopher Immanuel Kant the conclusion will take place.

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Part 1

Cadbury, a trade name loved and known all over the world, operates in the global confectionery market. Going back in 1824, in Birmingham, Bull Street, John Cadbury opened a small grocery shop. Later on in 1847, Benjamin - John‟s brother - joined the firm and

Cadbury became a family business. In 1879, four miles south of Birmingham in Bournville, the new factory-village of Cadbury was set-up.

From then onwards, Cadbury grew and developed into one of the most well-liked chocolate trademarks. Another significant date for Cadbury was in 1969 when it merged with

Schweppes, a merge that lasted up until 2008 where they officially split. More recently in

2010 Cadbury accepted the bid of £11.5b by the US food company Kraft.

Cadbury currently operates all over the world by having factories in Austrania New Zealand,

Canada, Malaysia India, Indonesia, Africa, USA and employ‟s more than 45.000 individuals.

Now, Cadbury does not only have a good reputation for its delicious chocolates but for its social, ethical and environmental policies as well.

Part 2

Companies all over the world have recognised the importance of being seen as socially responsible and by doing so the market rates them as a more reliable companies.

There is no single definition for CSR, but the following could give an indication of what it is.

CSR is defined by the European Commission as:

"A concept whereby companies integrate social and environmental concerns in their business operations and in their interaction with their stakeholders on a voluntary basis.”

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(http://ec.europa.eu/enterprise/policies/sustainable-business/corporate-socialresponsibility/index_en.htm)

Two more definitions are the following:

“CSR encompasses the economic, legal, ethical and philanthropic expectations placed on organisations by society at a given point in time” (Carroll, 1979:

500 in Valentine and Fleischman, 2007: 657)

“Social responsibility has been defined as taking more than just the immediate interests of the shareholders into account when making a business decision”

(CIMA Learning system 1)

With the above definitions in mind it can be claimed that a company, which complies with and upholds CSR principles becomes accountable to a wider pool of stakeholders beyond shareholders. On the other hand, CSR as a voluntary disclosure could be seen by the companies as a way to improve how people perceive them, or even to gain a competitive advantage by doing so.

The question is whether those charged with governance perceive CSR report as a way of sustainable development or as a way to increase public confidence and thus increase profits.

Part 3

As already mentioned, Cadbury does not only a good reputation for its delicious chocolates but for its social, ethical and environmental policies as well. The following statements by

Cadbury are an indicator of its proclaimed stance on this matter:

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“Cadbury Schweppes is committed to growing responsibly. We believe responsible business comes from listening and learning, and having in place a clear CSR vision and strategy. It also comes from having the processes and systems to follow through and an embedded commitment to living our values.”

And again:

“We see CSR as a positive contributor to our competitive strategy.

Increasingly we think of it as more about doing responsible things profitably than just doing the profitable things responsibly” http://www.cadbury.com/OURRESPONSIBILITIES/OVERVIEW/Pages/csrvisionandstrateg y.aspx

Cadbury strengthens its ethical position by integrating “fair trade” into is products. Fair trade is an organised social movement which tries to help producers in developing countries to be paid better prices in the context of more ethical and sustainable standards. Thus, in its 2006

CSR report it claims the following:

Our products

“We offer top quality, safe products. We use innovation, responsible marketing and ethical sourcing to deliver choices to our consumers”.

(Cadbury CSR report 2006)

In late June 2006, Cadbury Schweppes as it was called back then, was forced to recall over a million of the most popular CADBURY chocolates in the UK and Ireland due to Salmonella contamination. What caused the contamination was a leak in a pipe at a Cadbury‟s plant, in

Marlbrook, Herefordshire from which waste-water was spilled into the chocolate mixture.

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Salmonella is a type of bacteria that attacks the stomach and could cause diarrhoea, headaches, stomach cramps, fever, and possible blood in the faeces. Though Cadbury knew the possible contamination as early as the first days of 2006 it did not inform the health authorities. Instead, the Food Standard Agency (FSA) was the one that revealed the contamination after an increasing number of salmonella cases.

The puzzling question is how could a company such as Cadbury with its excellent reputation take more than five months to report the contamination?

Cadbury‟s management had decided that the level of contamination did not warrant any further action. “The level we found was so incredibly low that we decided there was no need to inform the FSA,” said a spokesman. (Leake and Walsh 2006) This contradicts what the bacteriologist Professor Hugh Pennington of Aberdeen University said: that the safe level of salmonella is “zero”. This, in my opinion, is also the common sense response. Nevertheless,

Cadbury argued that the levels of salmonella were minuscule, a claim which is countered by what the Food Standard Agency claimed: “that salmonella contamination of ready-to-eat food was potentially so serious that it should have been reported immediately”. (David Derbyshire

2006)

In July 2007, Cadbury pleaded guilty to nine health and safety charges including distributing unsafe chocolate to the general public, and failing to inform authorities. (Carroll 2009:76)

Now, how could someone make sense of the good Cadbury‟s reputation and the scandal?

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Part 4

Legitimacy theory is one of the general theories put forward seeking to explain the reasons behind social and environmental disclosures.

According to Suchman,

“ Legitimacy is a generalized perception or assumption that the actions of an entity are desirable, proper, or appropriate within some socially constructed system of norms, values, beliefs, and definitions” (Suchman, 1995, p. 574, emphasis in original)

Mathews (1993, p. 350) provides a good definition of legitimacy in this context:

“Organisations seek to establish congruence between the social values associated with or implied by their activities and the norms of acceptable behaviour in the larger social system in which they are a part.”

In other words, legitimacy implies that the activities of an organization are perceived to correspond to the socially constructed norms, rules and values that the society in which they operate upholds.

Conor Carroll in his article “Defying a Reputational Crisis – Cadbury‟s Salmonella Scare:

Why are Customers Willing to Forgive and Forget?” has as its primary objective to illustrate the importance of having embedded crisis management plans for a possible crisis event.

Cadbury‟s brand name may not have survived in case that strategic reputation risk management and corporate social responsibility reporting were not embedded into the company‟s culture.

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Added on that,I truly believe what Bebbington argument that: “there is also evidence that organisations attempt to manage their reputation risks by means of their CSR report”

(Bebbington et al, 2008: 341.)

Therefore companies integrate CSR reports in order to gain competitive advantage or even to increase profits.

Part 5

Improvements:

"Quality has always been at the heart of our business, but the process we followed in the

UK in this instance has been shown to be unacceptable”.

"We have apologised for this and do so again today. In particular, we offer our sincere regrets and apologies to anyone who was made ill as a result of this failure.

"We have spent over £20m in changing our procedures to prevent this ever happening again."

As drawn from the above Cadburys people acknowledge the inefficient controls and apologized for the indignity.

As well the expense of 20m indicates that they have taken more seriously the quality of the products.

But still, the question remains the same. Are these improvements made for the ultimate society and various stakeholders or for the sake of profit maximization and reputation?

Suggestions:

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“Internal control facilitates the effectiveness and efficiency of operations, helps ensures the reliability on internal and external reporting and assists compliance with laws and regulations”.

Stronger internal controls which will be embedded into the company‟s culture and followed by all the personnel will boost the integrity of a company.

Internal controls should be capable of responding quickly to potential threats, and ensure that the appropriate level of managers is informed in order to tackle the problem.

As well rigorous evaluation of the procedures and people as well is a necessary component of an effective organization.

On the other hand internal controls is just a system controlled by individuals. Thus without the willing of human beings nothing can be achieved.

Conclusion

Immanuel Kant “A categorical imperative would be one which represented an action as objectively necessary in itself, without reference to any other purpose”(ibid: 78)

Kant who was a great German philosopher stated that morality should be based on categorical imperative.

The categorical imperativein an obligation to act morally without any self interest.

To put it in more simple words an action has moral worth if it is done for itself without reference to any other purporse.

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Therefore it is very unlikely that Multinational companies such as Cadbury which have as primary purpose the profit maximasation and shareholders wealth to integrate CSR reports for the humanity.

REFERENCES

Bebbington, K.J., Larrinaga-Gonzales, C., Moneva, J. (2008), Corporate social reporting and reputation risk management, Accounting, Auditing & Accountability Journal , 21 (3) 337-62.

Campbell, D., Craven, B,. Shrives, P. (2003), Voluntary social reporting in three FTSE sectors: a comment on perception and legitimacy, Accounting Audit & Accountability journal , 16 (4) 558-581.

Carroll, C. (2009) Defying a Reputational Crisis – Cadbury‟s Salmonella Scare: Why are

Customers Willing to Forgive and Forget? Corporate Reputation Review , 12 (1) 64-82.

Valentine, S. and Fleischman, G (2008) Professional Ethical Standards, Corporate Social

Responsibility, and the Perceived Role of Ethics and Social Responsibility, Journal of

Business Ethics 82 (3), 657-666.

Tilling, Matthew. "Refinements to Legitimacy Theory in Social and Environmental

Accounting." Working Paper No. 04-6. Commerce Research Paper Series . Adelaide,

Australia: Flinders University School of Commerce, 2004.

BBC,.(2010) „Timeline: Cadbury's long history.‟ BBC. [Online] 19 th

January. [Accessed on

9 th

March 2010] http://news.bbc.co.uk/1/hi/england/8467489.stm

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Walsh, F. (2006) „Salmonella outbreak costs Cadbury £20m.‟ The Guardian. [Online] 3 rd

August. [Accessed on 13 th

March 2010] http://www.guardian.co.uk/business/2006/aug/03/food.foodanddrink

Derbyshire, D. (2006) „Salmonella scare hits Cadbury‟s chocolate.‟ Telegraph. [Online] 30 th

June. [Accessed on 14 th

March 2010] http://www.telegraph.co.uk/news/uknews/1522153/Salmonella-scare-hits-Cadburyschocolate.html

Thelwell, E. (2007) „Cadbury faces unlimited salmonella fines.‟ Telegraph. [Online] 15 th


March 2010] http://www.telegraph.co.uk/finance/markets/2810539/Cadbury-faces-unlimited-salmonellafines.html

Murray, R., Muspratt, C. (2006) „Salmonella scare to cost Cadbury £20m.‟ Telegraph.

[Online] 3 rd

August. [Accessed on 10 th

March 2010] http://www.telegraph.co.uk/news/uknews/1525448/Salmonella-scare-to-cost-Cadbury-

20m.html

BBC,. (2006) „Cadbury faces £20m salmonella hit.‟ BBC. [Online] 2 nd

August. [Accessed on

11 th

March 2010] http://news.bbc.co.uk/1/hi/business/5237208.stm

BBC,. (2007) „Cadbury fined £1m over salmonella.‟ BBC [Online] 16 th

July. [Accessed on

12 th

March 2010] http://news.bbc.co.uk/1/hi/england/6900467.stm

BBC,. (2006) „Cadbury salmonella scare probed.‟ BBC [Online] 24 th


March 2010] http://news.bbc.co.uk/1/hi/uk/5112470.stm

BBC,. (2010) „Cadbury agrees Kraft takeover bid‟. BBC [Online] 19 th

January. [Accessed on

14 th

March 2010] http://news.bbc.co.uk/1/hi/8467007.stm

Cadbury. (2006) Corporate and Social Responsibility Report 2006. [Online] [Accessed on

10 th

March 2010] http://www.cadbury.com/SiteCollectionDocuments/2006CorporateSocialResponsibilityRepor t.pdf

Cadbury. (2010) Our responsibilities. [Online] [Accessed on 14 th

March 2010] http://www.cadbury.com/ourresponsibilities/Pages/ourresponsibilities.aspx

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