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Chapter 1 – Introduction
1.1 Research Background The pharmaceutical industry is unlike many other industries, due to its nature of business that drugs can be remedies for life-threatening illnesses. Because of this certain nature that is attached to this industry, it is considered to have a large ethical responsibility towards the public, for example, providing affordable drugs to those who need it. It seems as if the pharmaceutical industry has a considerable interest to work on its CSR. (Nussbaum, 2009 p.69) It can be seen that the reason companies „do the right thing‟ are often perceived as strategic, defensive, and public-spirited. As CSR is not a one-way road, CSR actions can have profound (positive) effects on the company at their origin. (Kotler and Lee 2005, cited by Nussbaum 2008 p.69) Integrating CSR can therefore build a stronger reputation, attract and retain a motivated workforce, build a strong community relationship, and reduce regulatory oversight. The most forward-looking form of CSR is engaging as a business in social responsible business practises. These voluntary corporate business practises or investments to support social causes can have consequences on the business model itself. (Nussbaum, 2009, p.69) This particular approach to CSR might be especially adapted to address the pharmaceutical industry‟s moral importance to provide help for those who are in need. Companies who neglect their responsible business activities can become an easy target by the press and consumer groups. Leifebvre and Miller (2006) mention that pharmaceuticals have a moral obligation to society and to provide society with affordable drugs. (Leifebvre and Miller, 2006,cited by Nussbaum, 2009, p.68) It can be said that numerous pharmaceutical giants have disregarded this primary concern and have ignored their responsibility to society.
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The corporate critical research group Corporate Watch published a „list of crimes‟ from the pharmaceutical sector, these included: high prices, abandoning the poor, immoral marketing campaigns, and having a „no money no cure‟ attitude. Corporate Watch blames the pharmaceutical industry for practicing as it labels, „corporate inhumanity‟. The authors Finegold et al., (2005) revealed that the most listed biobusiness ethical issues were financial pressures, pricing, marketing and access, research ethics, governance, and global business. According to the Oxford English Dictionary, the term „pharmaceutical‟ as „relating to, or engaged in pharmacy, of the nature of a medicinal drug; of or relating to the manufacture, use of or sale of medicinal drugs‟. (Oxford English Dictionary, 2012) Furthermore, Van Egeraat and Barry (2008) specifically describe the industry as “a basic model of the value chain of the pharmaceutical industry includes the following segments: discovering, product development or clinical trials, process R&D, active ingredient manufacturing, drug product (formulation) manufacturing; sales and marketing; and corporate functions. (Van Egeraat and Barry, 2008) In addition, Barney and Hesterly (2006) mention that the “pharmaceutical industry includes all the companies that develop drugs and then patent and distribute the drugs to consumers.” (Barney and Hesterly, 2006, p.51) From looking at these definition examples, it can be inferred that the pharmaceutical industry includes pharmaceutical companies that are involved in research and development, test medicinal products, marketing, and distributing drugs to hospitals and pharmacies. It does appear that the term „pharmaceutical‟ or „pharmaceutical industry‟ is very broad indeed and will depend primarily on the type of pharmaceutical company and what they specialise in.
One of the challenges that pharmaceuticals have to face when creating initiatives that are linked to Corporate Social Responsibility (and sustainability) is the high expectations from stakeholders. As Nussbaum (2009) mentions, pharmaceuticals are “among the most admired and most criticised of all”. The industry‟s main product as we know is to provide medication that saves lives, however, other issues that 2
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surround the industry are seen in a negative way include costs, patent issues, and animal testing for example. Therefore having CSR initiatives in order must be thought in great detail as well as implementing tools that can help integrate and sustain socially responsible behaviour in a highly ethical industry. The concept of Corporate Social Responsibility is here to stay and socially responsibility does not fit „one size fits all‟ and comes in many different shapes and forms. This has interested the writer who will delve deeper into the concept of CSR and how it can „fit‟ a specific pharmaceutical company by using a case study approach.
1.2 Research Objectives The purpose of the research is to look at an industry that involves a lot of ethical and responsible issues. Danish diabetes pharmaceutical Novo Nordisk will be used as a case study to illustrate different methods of integrating corporate social responsibility in to their business model. The Danish pharmaceutical is a global and well known leader in insulin. From the 70‟s to the 1990‟s, the company was targeted by NGO‟s and the public with regards to product quality, public health, and business in South Africa. Novo Nordisk decided to take on an ethical approach with regards to its business practises. Back in 2004 the company formally made its management responsible for not only achieving financial targets but to concentrate on social and environmental issues, they adopted John Elkington‟s (1994) triple bottom line paradigm (economic (growth), ecological (balance), and social (progress)). Novo Nordisk incorporated the three main pillars of sustainability (economic, environmental, and social) into their corporate charter, which is aligned with many of its business practises to CSR and put in place many concrete actions.
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From adopting a more ethical way of thinking, Novo Nordisk has shifted from being a heavily criticised company to an admired and innovative company not just in its native Denmark but on a global scale. To actually make all three pillars of sustainability function with the company‟s daily business practises was pivotal for Novo Nordisk to become a well known CSR leader in the pharmaceutical industry. The first objective is to gain an insight into the notion of CSR through the lens of Novo Nordisk. The paper will look at the decision making process the pharmaceutical company goes through with regards to its responsible business practises. Furthermore, the second objective is to develop an understanding of the company‟s strategic approach and how they tackle CSR related issues in the pharmaceutical industry.
1.3 Research Questions It can be viewed that corporate engagement in CSR in the twenty-first century is changing and it its evident that many companies across Europe are integrating some form of CSR in their daily business practises. Companies today have to demonstrate to their stakeholders as well as to a sceptical audience that they are being true to their word and being socially and ethically responsible. This has got the writer thinking on how a company like Novo Nordisk faces these challenges of „doing good‟ in a highly competitive and ethical industry. The first question that the writer will examine will be how does a well-known pharmaceutical company sustain a responsible image in a highly ethical industry? Secondly to investigate what tools are needed to enhance a sustainable reputation and monitor socially responsible behaviour? In order to understand these questions, the term Corporate Social Responsibility will be touched upon in greater detail in the literature review and in chapter four the case study of Novo Nordisk will provide a greater understanding of what being responsible means to the insulin pharmaceutical company as well as going into detail on what tools and processes are used to monitor and sustain responsible behaviour.
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1.4 Structure The main objective of the introduction and the methodology (chapter 3) is to give the reader an insight into the purpose of inquiry and to provide an understanding of the research study. As previously mentioned in 1.3, the next chapter will consist of the literature review and focus on the concept of Corporate Social Responsibility by looking at various author‟s definitions and theories.
The intention of doing this is to demonstrate that CSR is a broad concept and that each company that adopts a CSR approach should define its responsible business practises according to specific strategies as well as company ambitions. Furthermore, the literature review aims to show that integrating CSR is no „one size fits all‟ strategy. In chapter 3, the methodology of the thesis will be discussed and will look at the chosen methodological processes that have been adopted for this research paper. An interpretivist paradigm has been used as well as viewing the world from an ontological perspective along with other research techniques mentioned in the chapter, plus looking at why these research methods have been used for this study. The fourth part of the thesis will be the case study on Novo Nordisk which will include a brief overview on the company‟s history as well exploring their reasons for integrating Corporate Social Responsibility into their business strategy. This chapter will also include models on the various tools that are used to sustain responsible business behaviour from using John Elkington‟s Triple Bottom Line approach to Novo Nordisk‟s very own tool, The Novo Nordisk Way of Management. The intention of the discussion is to look at the decision making process when implementing CSR regulations and practises as well as looking at these various tools and seeing how efficient they are and how they monitor and sustain social responsible behaviour. The thesis will be completed by assessing the research findings and then concluding the main findings in the conclusion. 5
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Chapter 2- Literature Review 2.0 Literature Review Defining the concept of CSR is not as simple as it may seem. Votaw (1973) once stated that “Corporate Social Responsibility means something, but not always the same thing to everybody.” (Votaw, 1973, p.25) Even today people are still confused by the hundreds of definitions that have been created by academic scholars. The concept of CSR, sometimes, is manipulated with ease to fit in with one preconceived notion or other that will please the chairman or the companies‟ shareholders. (Hopkins, 2006, cited by Zu, 2009, p.18) For example, some scholars define CSR as a systems approach and look at both the internal and external stakeholders, whilst on the other hand; others define corporate social responsibility as a purely voluntary and selfless act. Zu (2009) mentions that “this confusion is compounded by a proliferation of terminology in the area of business in societycorporate sustainability, corporate citizenship, corporate responsibility, business reputation, the ethical corporation, sustainable business and so on.” (Zu, 2009, p.18)
2.1 History of CSR definitions There is not just an overload of literature on the concept of CSR, the debate between society and the business world has been evident for decades, with a lack of consensus emerging on defining CSR. Furthermore, these so called flaws have leaded some businesses to consider the concept as purely corporate philanthropy, whilst others disagree with this notion of corporate philanthropy completely. CSR and its definitions have over time evolved. According to Carroll‟s (1999) research on Corporate Social Responsibility Evolution of a Definitional Construct, CSR was constructively defined back in 1950‟s which marks the birth of modern day CSR. Definitions grew over the 1960‟s and 1970‟s, for example Friedman (1970), stated that “the only business of business is business”, meaning that business has no other responsible purpose other than being economical.
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In addition, many scholars began to focus on the conceptualisation of responsible business. At the time many argued why businesses should undertake socially responsible behaviour and therefore the focus started to shift on asking “what is CSR?” Scholar Carroll (1979) came up with the first conceptual model that he described as „Corporate Social Performance‟ (CSP), (1) having a basic definition of CSR, (2) an overview of the social issues and social responsibilities, (3) a specification of the philosophy of response. (Carrol, 1979, p.499) As the concept started to grow even more, scholars had switched from asking themselves what CSR is and looking more towards on why businesses should engage in CSR activities? Plus whether companies that took part in social, environmental, and economical practises could succeed. Scholars around this period conducted studies and found mixed evidence on the link between CSR and financial performance. For example, Vance (1975) finds a negative link suggesting that corporate social responsibility is a cost for the firm and reduces its financial performance. (Aras and Crowther, 2010, p.290) Aras and Crowther (2010) also mention that “conversely, McGuire et al., (1988), Moussavi and Evans (1986) and Wokutch and Spencer (1987) find evidence for a positive relationship. Another group of studies found that there no link between CSR and financial performance, the studies previously mentioned did not explicitly measure the causality between both variables. During this time, many scholars (such as Caroll (1979) as previously mentioned) and academics preferred the term „corporate social performance‟ over the original CSR term, as some viewed that there was a link with CSR and financial performance. Geva, (2008) states that “although corporate financial performance (CFP) is only one, and not necessarily the primary, expected consequence of adopting a CSR approach, the giant bulk of empirical research on CSR contributions has focused on the relationship between the social and the financial performance of business corporations. (Geva, 2008, p.13) Again over time the concept of CSR was changing, scholars such as R. Edward Freeman (1984) introduced a stakeholder approach and again the big question the time had shifted to who should businesses target when being responsible? In Freeman‟s Strategic Management: A Stakeholder approach book from the early 80‟s, he mentions that our “worldview” or “paradigm” are changing and a new conceptual framework is therefore needed. He introduced the
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stakeholder theory to create a new way of thinking in the business world. Freeman quotes that “success in the “new” environment required a conceptual shift. It required the adoption of new concepts and ideas which dealt with owners and employees as a matter of everyday occurrence rather than as an exception.” (Freeman, 1984, p.7)
Furthermore, he defines stakeholders as those groups who have a stake in or claim on the firm which include the likes of customers, suppliers, employees, stakeholders, the local community, plus management playing the role as agents for these various groups. Although the literature on Corporate Social Responsibility has evidently expanded over time, despite the monumental contributions associated with the concept and scholars looking at various definitions throughout its history, there seems to be a missing aspect in the CSR framework. Some have mentioned that to distinguish CSR, the concept can be put into two categories (explicit and implicit). Sinzig (2010) mentions that “in this respect explicit CSR is describing those social practises that are clearly visible and which take place on a voluntary basis. On the contrary implicit CSR is describing those practises which normally do not fit into the definition of CSR, those which are not voluntary, but carried out due to laws and reputation and which are not explicitly stated on websites or reports.” (Sinzing, 2010, p.11)
2.2 Institutional theory and Sensemaking Another form of perspectives that have also come into play is institutional theory and sensemaking approach. The first perspective, institutional theory, can be seen as a frame for understanding CSR communication as a more sophisticated way for organisations and communications to consider the organisational environment. (Ihlen et al., 2010, p.76) Campbell (2007) argues that much of the literature on corporate social responsibility has been to some extent, too descriptive and should primarily focus on external mechanisms that influence whether corporations behave in a socially responsible manner or not, and to if they are influenced by the pressure of 8
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strong and well regulated state regulations plus the pressure of a system of well organised and effective industrial self-regulation. (Campbell, 2007) Shifting to the second perspective, the sensemaking approach also has the same critique of the institutional approach with regards to corporate social responsibility, it has been viewed that CSR has been approached from a rational perspective and too much attention has been centred on the notion of CSR activities.
Sensemaking has been described as “a process by which individuals develop cognitive maps of their environment.” (Ring & Rands, 1989, cited by Basu and Palazzo, 2005, p.127) Basu and Palazzo (2008) mention that sensemaking views activities such as CSR as resulting not directly from external demands but instead from organizationally embedded cognitive and linguistic processes. (Basu and Palazzo, 2008, p.127) Ericsson, (2001) views that from a perspective on sensemaking, organisations are seen as constituted by method models and social processes of making sense, in which meanings are assigned to things and events. (Ericsson, 2001, p.113) Companies are therefore evolving all the time from stakeholder interests, as well as from daily interactions with company employees. From looking at Basu and Palazzo‟s (2008) work on Corporate Social Responsibility: A process model of sensemaking, the pair put together an insightful framework to approach CSR. In their model which is based on sensemaking, they categorise three dimensions. In the first dimension, the cognitive dimension focuses on what companies think. The second dimension consists of the linguistic dimension which introduces the way of explaining company‟s reasons for engaging in socially responsible behaviour. In addition the third dimension, the conative dimension involves the behavioural element the company adopts, along with the company‟s commitment and its consistency of adopting responsible business practises. This dimensional model that they adopted aims at looking at corporate Social Responsibility in a different way from looking within the company. They therefore define the concept as “The process by which managers within an organisation think about and discuss relationships to stakeholders as well as their roles in relation to
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the common good, along with their behavioural disposition with respect to the fulfilment and achievement of these.” (Basu and Palazzo, 2008, p.131)
2.3 Stakeholders Stakeholder relationship management has been identified as a central factor when it comes to CSR. The likes of Caroll (2003), Elkington (2006), and Freeman (1984), stress the importance of managing stakeholder relationships as well as creating value for the company and various stakeholder groups. Freeman (1984) defines stakeholder groups as “any group or individual who is affected by or can affect the achievement of an organisation‟s objectives”; this definition is rather broad which could include a variety of internal and external stakeholders. The very idea of taking a stakeholder approach to CSR is that value creation becomes a joint process between the business and its various stakeholders. (Freeman and Velamuri, 2006, cited by Morsing and Lenssen, 2006, p.245) In addition, the two authors note that by engaging with stakeholders requires dialogue from internal and external stakeholders and dialogue is vital for the function of free society and capitalism. This leads to having a business built on honesty and openness by managing stakeholder relationships internally and externally and engaging in dialogue with these various groups becomes an essential factor with regards to corporate social responsibility. Value creation and stakeholder relationship management appears to be evident in Carroll‟s (2003) and Elkington‟s (2001) research. For example, Carroll mentions that the pyramid of CSR represents a stakeholder perspective and each four of the components in the pyramid of CSR (economic responsibilities, legal responsibilities, ethical responsibilities, and philanthropic responsibilities) addresses different stakeholders. (Carroll and Buchholtz, 2003, p.41) Moreover, Elkington and wheeler (2001) also argues with a multi stakeholder approach and quotes that “it is becoming clear that communicating effectively with stakeholders on progress towards economic prosperity, environmental quality and social injustice i.e. the triple bottom line, will become a defining characteristic of corporate social responsibility in the 21st century.” (Elkington and Wheeler, 2001, p.1) 10
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Though Elkington and wheeler agree with a stakeholder approach to CSR by using stakeholder communication and consultation as essential tools, it seems that he prefers one-way communication. Scholars such as Freeman however, emphasise the need for a two-way communication process with the addition of stakeholder dialogue. Jones (2005) views that the exchange between companies and their stakeholder groups is always two-way. Gruning (1990) proposes a „two-way symmetrical model‟ that involves dialogue between a company and the general public in order to achieve a mutual understanding, which moves public relations away from being perceived as manipulative to transforming and taking on board multiple attitudes from both interest of the company and stakeholder groups. Christensen and Jones (1996) mention that “two way symmetrical communication practises are moreover argued to become increasingly widespread as stakeholders become more critical and active in terms of CSR.” (Christensen and Jones, 1996, p.158) Similarly, Copenhagen Business School academics Morsing and Schultz (2006) view three types of stakeholder relations with regards to stakeholder relations and law companies engage with CSR communication. They mention the three CSR communication strategies as: the stakeholder information strategy, the stakeholder response strategy and, the stakeholder involvement strategy. Furthermore, they argue that one-way communication (favoured by Elkington and Wheeler) and two-way communication favoured by Freeman) are both important, however, there is an increase to develop a two-way communication process when it comes to developing CSR dialogue. “While one-way information of CSR initiatives is necessary, it is not enough for a corporation to build and maintain legitimacy.” (Morsing and Schultz, 2006, p.140) In kakbadse et al., (2005) research on Corporate social responsibility and stakeholder approach: a conceptual review, they recommend that companies should be placed on constructive and open dialogue with the aim of combining short-term performance with long term organisational wealth. An essential element that relates to stakeholder management is therefore dialogue between the company and its stakeholder groups in order to create shared value. Hummels (1998) suggests that the various interpretations of the legitimate claim of stakeholder groups on organisational purpose explains various sets of stakeholders, 11
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which leads to different (expected) distributions of benefits and burdens, of pleasures and pains, of values, rights and interests amongst interpretations. (Hummels,1998, cited by Kakabadse et al., 2005, p.289) From inferring from Hummels (1998) quote, various stakeholder groups seek different types of information about the company. The alignment of corporate CSR communication with stakeholder concerns is essential if corporations are to overcome the communication barriers and cash in on the reputational benefits of CSR. (Dawkins, 2004, p.109) From looking at these various academic viewpoints, it clearly shows that it is imperative for CSR communication to be coherent and effective, as well as communicating to individual stakeholder groups or else the company risks sending out conflicting messages which threaten the stakeholder‟s perception of the company‟s integrity. (Cornelissen, 2004, p.68)
2.4 A global view on CSR One thing that is quite interesting with regards to CSR is the scope of CSR in different parts of the world. The concept of CSR has an American origin that focuses on how companies can align society‟s expectations whilst at the same time making a profit. The development of CSR as a topic initially arose from the order to avoid and repair social damages. This stems from the American ethical tradition of the „moral minimum‟. (Simon et al., 1977, cited by Tencati and Perrini, 2011, p.59) However, in the past couple of years it has attained an audience reaching beyond the business society (Sahlin and Anderson, 2006) and where governments need to be engaged with this world trend of being responsible in order to be perceived by society as legitimate and transparent. There have been many studies conducted on a global scale to address corporate social responsibility between countries. For example, Maignam and Ralston (2002) discovered that in companies in different countries were different when it came to managerial practises and also stakeholder issues, as well as how they communicate and emphasise their CSR attitudes online. They found out from their research that European companies for example, appeared likely to try and create a socially responsible image by listing a number of practises that were linked to traditional promotions (such as reducing environment impacts) and
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production processes. In contrast, they quote on U.S. firms as “attempting to appear as socially responsible mainly by emphasising their involvement in initiatives that go beyond simple productions and promotion activities. (e.g., philanthropic programs, volunteerism).” (Maignan and Ralston, 2002, p.499) From their research it showed that the UK had a similar approach to the Americans by discussing CSR principles as well as mentioning codes of ethics on company websites, furthermore companies would also mention what they give to local communities via voluntary donations and solidarity activities. 2.4.1 A view of CSR in the developing world The situation in developing countries can be quite different than those of the developed countries. (Urip, 2010, p.14) Furthermore, Urip (2010) quotes that “although basically the principles of CSR are the same globally, each location calls for a different emphasis in the implementation of CSR. (Urip, 2010, p.14) For example, in Latin America, CSR is generalised as focusing more on issues such as poverty and social inequality rather than looking at environmental issues. For many Latin American companies the social contributions such as engagement with employees and local communities to improve the social lives of the society in terms of providing housing, education, and special health benefits, have been a part of their corporate vision. (Casanova and Dumas, 2010) Moving on to another part of the developing world, CSR in South Africa has been influenced by the need to respond to the legacies of apartheid and address local priorities. (Amao, 2011, p.66) Moreover, Amao mentions that in many parts of Africa, research has suggested that CSR is largely associated with philanthropy. (Amao, 2011, p.66) According to Aras and Crowther (2009) they state that “while such practises are common in Africa, it is very difficult to evaluate such acts to CSR.” (Aras and Crowther, 2009, p.144) Limbs and Fort (2000) had earlier posited that CSR agenda in Nigeria is a reflection of the firm‟s ownership structure, where firms are owned and governed by men who are both family and business heads, faced with the need to balance their interests and concerns in these two roles. (Limbs and Fort (2000), cited by Aras and Crowther, 2009, p.144) These dual roles that Limbs and fort (2000) mention are in addition to the Nigerian extended family structure of the eldest of the family who cares for the younger members and the less privileged 13
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has been held to form the framework of CSR practises in Nigerian society. Also, the strong religious influence on company practises with regards to CSR has also been touched upon. Embedded in CSR practises in Nigeria is the religious notion of gift and sacrifice, apparently, brought to limelight by the two dominant religions- Islam and Christianity. Urip (2010) quotes that “so for the less economically developed nations, it is important that CSR activities put some focus on the actions of sustainable wealth for the community, particularly for the lower-income society.” (Urip, 2010, p.16) From inferring from Urip (2010), this can be done by establishing the likes of community education schemes, health advice, good corporate governance, and quality assurance. Effective implementation of CSR in developing countries that have weak law enforcements, occasional financial and political instability, poverty, and a low educational level, requires also the machinery of an effective democratic government and civil society. (Urip 2010,p.19) In the developing world, it can be viewed that CSR is not a tool for solving poverty and a lack of work opportunities and corruption for example; however, it can be viewed as an essential instrument for companies to adopt and help governments support local communities and local structures.
2.4.2 Scandinavia Since this paper is based on a Scandinavian company, the tradition of social responsibility in Denmark for instance, social responsibility and democracy go hand in hand, the major developments started in the later stages of the twentieth century these ties are connected with the emergence of the welfare state plus having strong social democratic influences. It can viewed that Nordic business systems are at odds with the business society model of responsible business, this is because as Gjølberg (2010) puts it, “that CSR implicitly grants discretionary powers to business in issues of great social and environmental concern, while in a Nordic context such issues are considered to belong the public domain, to be decided through democratic, collective, or
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representative processes.” (Gjølberg, 2010, p.211) Scandinavian governments all have strong international profiles when it comes to issues on sustainable development, poverty, human rights, and environmental protection. From looking at these previously mentioned issues, these issues are therefore are all strongly linked with the concept of CSR. Gjølberg (2010) mentions in her paper Varieties of Corporate Social Responsibility (CSR): CSR meets the “Nordic Model” that there is a clear link with several elements of CSR that are particularly incompatible with fundamental values and politicaleconomic institutions in Scandinavia. From inferring from Gjølberg (2010), this situation where some CSR issues are incompatible, Nordic public policies on Corporate Social Responsibility will reflect the original CSR practises/model, however, these policies will be altered to fit with the Nordic Model. Moreover, it is more apparent that integrating and transforming CSR will be somewhat similar across each of the Nordic nations, due to the fact that there are a lot of similarities on their views on business in society. Other theorists argue that because Scandinavian countries mix social welfare with economic competiveness, there is what some have dubbed “Nordic capitalism”. It seems from a Scandinavian point of view that CSR is second best as a strategy that in other parts of the world is seen as a primary issue. This is obviously due to having a very strong welfare system in place as well as having a strong sense of government participation on issues based on community concerns. Birkin et al., (2009) research on A New Business Model for Sustainable Development mention in their paper that Nordic countries had acquired socially responsible and sustainable behaviours, which has been drawn to attention to the extent to which their society exhibited shared social values. In particular, they noted that importance was attached to (1) social equity within a consensus society and (2) a love of nature, and the degree to which of these were embedded in the culture of society. (Birkin et al., 2009, p.283) Moreover, Birkin et al., (2009) found from their research that in Danish society, industry is regarded as a „fair player‟ that acts in a responsible manner and abides with regulations. In addition, the scholars quote that “such decent behaviour
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anticipates benefits such as better quality employees, more general cooperation, easier availability of licenses and more liable consumer support”. (Birkin et al., 2009, p.284) The Danish government was the first of the Nordic countries to introduce policies labelled “CSR”. (Gjølberg, 2010, p.211) The Ministry of Social Affairs in the early 1990‟s launched many incentive schemes to encourage companies to employ the likes of immigrants, long-term unemployed people, and the handicapped. By the new millennium, a dramatic change in CSR policy took place as a result of bottom-up and a top down process that spurred the country‟s encounter with globalisation. Gjølberg (2010) mentions that “through this bottom up supply chain dynamic, a gradual shift in the conceptualisation of CSR took place in the Danish discourse from the narrow, domestic agenda on inclusive work-life issues towards a discourse in line with the international triple bottom-line approach to CSR. (Gjølberg, 2010, p.211) Furthermore, this top-down political process which uncovered an explanation gap which baffled the Danish authorities on why Denmark kept on topping competiveness and growth world rankings. Government interviewees from Gjølberg‟s (2010) research mention that this notion was linked to what they coined the „Danish Model‟. Hence, a new conception of CSR was born, which related to the discourse of competiveness, economic growth, and globalisation. It seems that Danish society provides some cultural traits that can drive the concept of CSR forward, Habisch et al., (2004) mention that Danish society can drive this process forward by having “a general competence for dialogue and negotiation, a willingness to engage and a broad sense of trust are cultural traits sought for in the quest for increasingly sensitivity towards a variety of stakeholders.” (Habisch et al., (2004) p.32) It can be said that it takes democratic discipline and communication skills to create a reasonable and satisfactory balance between diverse interests. Habisch et al., (2004) quote that “if Corporate Social Responsibility is about increasing sensitivity towards stakeholders, Danish managers seem to have a good point of departure.” This certainty does not mean that there are no challenges ahead with regards to Danish CSR. Like in many other Countries, CSR is a moving target. For example,
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what was perceived as responsible behaviour five years ago may not be accepted in today‟s ever changing business climate.
2.5 One size does not fit all Throughout this literature review, the writer has looked at a vast amount of definitions from early concepts to looking at a more of a sensemaking approach of the concept. It is clear that there are many useful and insightful definitions that many scholars and academics have covered, however, there is not-and most likely cannot be a precise definition of CSR, due to the fact that the definition and practises of the concept will differ from one country to another, and will evolve over a period of time, plus will also differ among companies. One agreed simplified definition that the writer has found is that “CSR is the result, implicit or explicit, of a firm, its role in society and its relationship with its internal and external stakeholders.” (Argandoña and Hoivik, 2009, p.12) This view reflects the tasks of owners and managers, but also stakeholders who have a divided impact on the company. The outcome will vary from business to business and will be linked with historical events, geography, legislation, society‟s expectations, as well as current trends such as global economic and financial pressures. Together, this forms the framework in which a company operates and defines how a company can develop and grow its CSR activities. Because the business world is always rapidly changing, it is therefore not possible to agree on an official or universal agreement on the concept because facts and ideas, society, philosophy, and the environment are all interconnected. As previously mention the concept has changed over time and will continue to do so in the future. By studying and researching many ideas and definitions for the purpose of this literature review, when CSR is defined, the concept must be broken down and studied by implicitly defining the whole set of interrelated responsibilities and roles in society. In addition, CSR is not simply a business ethics subject, but also linked with political ethics and social ethics that must be also taken into consideration. This is because the interplay between both state and private actors is changing and
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therefore when companies do business on a global scale for example, doing what they do domestically might be different on how they operate overseas and this something that has to be looked into when applying CSR initiatives. It is important to note that the notion of CSR is a „one size does not fit all’ concept as Carroll (1991) quotes that “part of the difficulty in defining CSR is the fact it is hard to determine what the concept practically implies for management due to for example the variations in corporate size, product offerings, profitability and resources, and in impact on society and stakeholders.”(Carroll, 1991, p.48)
Nussbaum (2009) puts company CSR reasons in four categories: (1) looks good (enhanced corporate image and influence), (2) feels good (increased ability to attract, motivate and retain employees, (3) does good (increased sales and market share, strengthened brand positioning, decreased operating costs), and (4) lasts longer (increased appeal to investors and financial analysts). CSR as a concept is not a „one-way road‟ approach; these responsible actions (as previously mentioned) can have positive effects on a business. Nussbaum (2009) quotes that “in more detail, CSR can help to (a) build a strong corporate reputation, (b) contribute to overall business goals, (c) attract and retain a motivated workforce, (d) reduce operating costs, (e) reduce regulatory over light, (f) support marketing, (g) build a strong community relationship and (h) leverage current corporate social initiative efforts and investments. (Nussbaum, 2009, p.69) According to Nussbaum (2009) many have argued that (a), (c), and (e) are the most relevant with regards to the pharmaceutical industry. Marrewijk (2003) accepts that the idea that a „one-size fits all‟ approach to CSR should be abandoned. In his research paper on Concepts and definitions of CSR and Corporate Sustainability: Between Agency and Communion, he implies that accepting various and more specific definitions comes down to an organisation‟s intentions, strategy and ambition levels according to the circumstances in which it operates in. The Dutch scholar has his own interpretation on CSR means to him which the writer also agrees with, “demonstrating the inclusion of social and environmental concerns into business operation and interaction with stakeholders. (Marrewijk, 2003, p.102) 18
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Although he notes that this definition can be perceived as being somewhat vague and quite broad, the writer agrees with this definition as stakeholder interaction is a vital part of the CSR agenda. In addition, Caroll (1991) mentions that “CSR represents societal expectations of corporate behaviour; a behaviour that is alleged by a stakeholder to be expected by society or morally required and is therefore justifiably demanded by society. (Caroll, 1991, cited by Smith et al., 2010, p.163) It can be concluded that from looking at this literature review that CSR as a concept is very complicated and broad. The writer stresses that the acceptance of providing a universal definition of CSR is not possible and therefore companies must decide on how they want to incorporate and define CSR which links directly to their industry, skills, and expertise. Not only will companies have to decide what CSR means to them, they will have to also face everyday challenges of being socially responsible and be able to walk and talk CSR effectively. This is something that will be shown in chapter 4 of this research paper.
Chapter 3 – Research Design
3.1 Research Philosophy The research philosophy that will be used will be an interpretive paradigm because the research is reflected by other author‟s assumptions and in addition will be more characterised by a more subjectivist stance towards the nature of science. The ontological assumption in this paper will take a nominalist viewpoint, which interprets the social world in an external context that is made up of concepts, names, and labels that are used to structure reality and make sense of the external world. The external world is therefore not assumed to consist of hard and tangible structures and exist independently of individuals. (Burrell et al., 1979, p.4) The term ontology comes from the Greek words “ontos” meaning “being” and “logos” meaning theory. “Being” is the extended term with the concept of existence subsumed under it. (Connaway and Powell, 2010, p.29)
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A „subjective‟ understanding has been adopted for this research paper; this is because subjectivism views the culture of an organisation as a resulting process of a continuing social enactment. Furthermore, subjectivists would argue that culture is something that is created through complex phenomena that includes social interactions and physical factors. Saunders et al., (2009) mention that “it is the meanings that are attracted to these phenomena by social actors within the organisation that need to be understood in order for culture to be understood.” (Saunders, M. et al., 2009, p.111) The third element of the research philosophy for this paper is to also take a constructivist perspective. This perspective argues that actors construct their own reality and they make sense of what others display to them. From a constructivist perspective, phenomena like CSR can be defined as social constructs that are filled with different meanings (Ihlen et al., 2011, p.473), these meanings are therefore institutionalised through various forms of processes that are then interpreted by many diverse actors such as corporations, the state, NGO‟s, etc. A less radical viewpoint on reality has been implemented in this paper as it is therefore perceived that there is a world both in a physical and social form can be seen from many different points of view. These assumptions that are created because it is argued that companies and the notion of Corporate Social Responsibility are social constructions that live and breathe in the social world but do not exist in the physical world; therefore the social world will be a major influence with regards to this thesis. This particular research paradigm will therefore lead the writer to discuss and conclude why Novo Nordisk heavily implements CSR into its strategy, secondly how the company manages the concept of CSR, and thirdly touching upon future research and recommendations.
3.2 Qualitative approach Qualitative research is ideal because it delves into the nature of people‟s viewpoints and perspectives. Examining the way Novo Nordisk integrates its responsible 20
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business practises using a case study methodology gives the writer a deeper insight on the pharmaceutical company‟s way of championing CSR practises. As Babbie (2010) mentions, “the qualitative researcher will often analyze and report data collected from specific, identifiable individuals. (Babbie, 2010, p.418) The main idea behind using qualitative data is that it involves a continual interplay between the theory and the analysis. Again, Babbie (2010) states that “In analyzing qualitative data, we seek to discover patterns such as changes over time or possible causal link among variables.” (Babbie, 2010, p.418) The strength of using qualitative research is that it has the ability to begin with a broad research question, allowing the question to be subsequently altered when meeting the respondents. Maxwell (2005) quotes that “the direct contact allows the researcher to validate his question by asking the respondents if they understand it and have a similar view on the underlying concepts.” (Maxwell, 2005, cited by Baumgarten, 2012, p.13) Researchers such as Morsing and Oswald (2005) (2009) and Hopwood et al., (2010) (who have conducted research and case studies on Novo Nordisk) would have used this approach when data collecting, by asking the respondents if they had similar views related to their research on Novo Nordisk‟s responsible business practises. Eisenhardt and Graebner (2007) stress that the ability of using qualitative data gives an insight into complex social processes, therefore this type of data will give the writer a better understanding and explore the concept of Corporate Social Responsibility and how pharmaceutical companies such as Novo Nordisk embed this strategy in their everyday business practises.
3.3 Case study approach The writer intends on using a case study approach from authors who have already collected qualitative data on the company. The purpose of using a case study is for investigating organizational structure and functions or organizational performance. Most researchers consider the case study to be relatively low in internal and external
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validity, but it certainly has the potential to be a valuable research tool. (Connaway and Powell 2010, p.80) Furthermore, using a case study as a research tool is important because it shows the bigger picture. It can also connect events with their environment in an integrated manner that starts with the research question and ends with findings and a conclusion.(Mandi, 2008, p.58) The case study methodology itself, is generally in the form of qualitative data that takes into account the company‟s perspectives, experiences, actions, etc. Various case studies on authors who have taken part in qualitative studies at Novo Nordisk will be used in the research. CSR can be developed by recognising patterns of relationships among constructs within and across cases and their underlying (logical) arguments. (Eisenhardt & Graebner, 2007). According to Yin (1994) case study research is preferable in this context, since it allows the investigation to retain the holistic and important uniqueness of daily events (Yin, 1994). The use of combining various case studies together is because the results of multiple case studies are considered to be more persuasive, and overall the investigation will be more robust (Yin, 1994). In other words, a meta-analysis has been adopted, when analysts begin a metaanalysis, they must identify the cases that they want to study (Ragin and Becker, 1992, cited by Rudel, 2008, p.18) Each case study has been picked because they illustrate how Novo Nordisk integrates CSR in the pharmaceutical industry as well as the tools they use to monitor social responsible behaviour.
3.4 Data collection Secondary data will be used in the research, the main reason for this is that this type of data is available at no cost and can be found via the internet, books, and journals, etc. The extensive use of secondary data reduces the possibility of “reinventing the wheel” by gathering primary data that someone else has already collected. (Wren et al. 2007, p.72) 22
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In contrast, there have been criticisms of using secondary data, for example, the accuracy of the data takes several things into consideration. Firstly, there is the question of whether the secondary data that has been found came from a primary or secondary source. The next point to look at is the organization that originally took part in the data collection. This leads to the question of what is the quality of their data gathering design? And what is the known creditability of their data collection? The age of the data is also vital, Wren et al., (2007) quote that “old information is not necessarily bad information; however, in many dynamic markets, up-to-date information is an absolute necessity.” (Wren et al., (2007) p.73) Lastly, the quality of the data sometimes can be unknown, again, Wren et al., (2007) mention that the reputation and capability of the collecting agency is important when assessing the quality of the data that has been provided. To gain an insight on the overall quality of the data, it may be worth knowing how the data was originally collected, for example, what sampling plan was used, what data collection was put in place, etc. The writer has taken this into consideration and has used the most recent case studies on the Danish pharmaceutical company in order to gain a more of an up- todate insight of the company and its CSR practises. The fact that Novo Nordisk is a company based on research and also known for having a high level of transparency, it is fair to say that the secondary data obtained from the company is accurate. Within the case study research the writer has triangulated secondary and qualitative data from other case study sources. By combining methods in the same study a researcher can partially overcome or counterbalance the deficiencies and biases that flow from single methodologies. (Mills et al., 2010, p.749) The documentation data will consist of books and research papers on Novo Nordisk and how they implement CSR, these secondary data resources are needed to develop an understanding of the company‟s strategy on CSR and how the concept is implemented.
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3.5 Reliability and Validity Reliability refers to the extent to which your data collection techniques or analysis procedures will yield consistent findings. (Saunders et al., 2009, p.156) Whilst on the other hand, validity refers to the methods that have been used to gain information and whether the data is reliable and correct. Validity in a nutshell is whether the information reflects the truth and whether it measures what is to be measured (Denscombe, 2000, cited by Korkchi & Roumbaut 2006) In this thesis the writer has carefully picked studies that have been put together by conducting interviews and observing Novo Nordisk, furthermore, the selected authors are known researchers in their fields of study and have a genuine interest in CSR related studies. However, using secondary data has been criticised because the user has no control over the data‟s validity and reliability. Zikmund et al., (2012) mention that although timely and pertinent secondary data may fit the researcher‟s requirements, the data could be inaccurate. The research methods used to collect the data may have somehow introduced bias to the data. As previously mentioned, the writer has tried to avoid having no control over the data‟s validity and reliability by choosing selective studies. Case studies at Novo Nordisk which feature in Finegold et al., (2010) book BioIndustry Ethics include in depth qualitative analysis of the Pharmaceutical company‟s practises as well as illustrating company questionnaires that are used when selecting responsible suppliers. Hopwood et al., (2010) who also created a case study approach on Novo Nordisk claim in their book Accounting for Sustainability:Practical Insights that “the case studies have been researched and written by a leading team of leading business and management academics from UK and continental European universities who have adopted the extent to which and how, sustainability information has been embedded with the regular operations of the case study organisations.” (Hopwood et al., 2010, p.3) Other Authors such as Morsing and 24
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Oswald (2005) and (2009) who are academics at the Copenhagen Business School and the London Business School respectively have also taken a similar approach by observing and collecting data at the Danish company. In addition, their research was also checked by Susanne Stormer who is the vice-president of Novo Nordisk. Parisi and Hockerts (2008) research on casual mapping, they conducted interviews with company employees to gain their viewpoints in order to develop an understanding of what indicators were to be implemented on their causal maps.
Chapter 4- Case Study of Novo Nordisk
4.0 Novo Nordisk Novo Nordisk A/S was founded in 1922 by August Krogh, a Danish Nobel Laureate in physiology. Krogh was inspired by two Canadian researchers who had extracted insulin from a cow‟s pancreas. Krogh‟s wife had type 2 diabetes and founded Nordisk Insulinlaboratorium to produce insulin for diabetic patients. Three years later, two former colleagues of Nordisk Insulinlaboratorium, Harald and Thorvald Pedersen created a rivalled insulin company called Novo Terapeutisk Laboratorium. By 1989, the two insulin companies merged and Novo Nordisk A/S was formed. Today, Novo Nordisk is a world leader in diabetes care and is also known for its hemostasis management, growth hormone therapy and hormone replacement therapy. The company previously dealt with the production of enzymes; however, a dermerger took place in 2000, which saw the birth of Novozymes. This new enzyme company took over all enzyme production processes, which left Novo Nordisk to strictly focus on healthcare. Employees of Novo Nordisk feel that the company‟s history has helped create the current corporate culture. (Finegold et al., 2010, p.302) The executive vice president of stakeholder relations, Lise Kingo states that “Novo Nordisk is founded on the passion for diabetes, for people, and for values- it is this seed that the company, as you see it today, has grown from.” (Finegold et al., 2010, p.302)
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The company specialises in four therapeutic areas: diabetes, growth hormone therapy, hormone-replacement therapy, and hemostasis management (blood-clotting agents). The company is a well-known leader in diabetes care throughout the world with a wide range of products that include injection devices, needles, and pharmaceuticals. Much of the company‟s success is due to patents it holds for insulin-deliverymethods, as there is no patent for insulin itself. (Finegold et al., 2010, p.302) Novo Nordisk not only has a strong presence in its native Denmark but also across Europe, in 2003 it was identified as the eighth largest pharmaceutical company and continues to grow and enter new markets. For example, “Novo Nordisk's latest investment represents the growing in focus on R&D in the emerging markets. Markets such as India and China continue to experience an increase in disease prevalence as a result of increased life expectancy and lifestyle changes that have occurred through rapid economic growth.” (NZ Doctor, 2012) The Scandinavian pharmaceutical company is a company based on research. In 2011 they spent DKK 9.628 million on R&D and sales grew by 11% in local currencies. (Novo Nordisk 2011 Annual Report, p.3) Lars Rebien Sørensen, the president and CEO of Novo Nordisk mentions that “this sales growth, combined with continued focus on efficiency of our operations, resulted in operating profit growth of 18% reported and 22% in local currencies. This is significantly above results for the general pharmaceutical industry.” (Novo Nordisk 2011 Annual Report, p.3) The share ownership of Novo Nordisk ensures that the organisation has a high degree of freedom, as it not open for takeovers, for example, from larger pharmaceutical companies. (Morsing and Oswald, 2005, p.3) Share capital of the company is divided into A-share and B-shares, the B-shares are listed in the Copenhagen, London, and New York stock exchanges. As reported in the 2011 annual report, Novo Nordisk B shares increased by 2.5%, the annual report mentions that this figure is believed to be linked with the development of the company‟s share price and being a leader in the ever growing diabetes care market as well as through encouraging progress made in research and development. In contrast, the A-shares are non-listed and held by Novo A/S (which is a private limited
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Danish company that is 100% owned by the Novo Nordisk foundation which was established with the merger in 1989) (Morsing and Oswald, 2005, p.3)
4.1 Using CSR as part of Novo Nordisk’s strategy Novo Nordisk has worked strategically with social responsibility and environmental issues for over a decade and in today‟s 21st century; sustainability is majorly incorporated into the pharmaceutical company‟s business strategy. Engaging with its stakeholders and also a firm believer in the concept of corporate social responsibility; Novo Nordisk has seen the importance of being able to trust, their CEO Lars Rebien Sørensen states that “public authorities and NGOs have sharpened their tone, and we must take them seriously, it is important to be open and honest about our stand and our actions. Trust has to be earned.” (Lars Rebien Sørensen, 2005, Cited by Morsing, et al., 2005, p.3) The executive management at the Danish firm have created corporate values and sustainability and integrated this philosophy into the company‟s corporate brand. Mads Ovlisen, Novo Nordisk‟s former chairman, expressed strong views in the business press on many occasions with regards to social responsibility. Furthermore, many business managers in Denmark agree that Mr. Ovlisen is the embodiment of corporate responsibility and sustainability. In addition, he has taken part in a number of government and business initiatives that relate to this topic, as well as teaching students about corporate social responsibility at the Copenhagen Business School. Back in 2004, Novo Nordisk modified its Articles of Association to explicitly commit itself to be economically viable, socially responsible and also to be environmentally sound. The company‟s investors endorsed this decision, as they regarded the company‟s strategic direction to be aligned with the company‟s business model. As the company‟s corporate vice-president quotes, “for the majority of our investors, financials, are still the most important- R&D (Research and Development) spend, sales prospects, etc. But we do benefit from investors taking a long-term perspective. It‟s not just our unusual capital structure – it‟s the fact that a lot of what we do, our business model, has a ten-year development lead time. So a lot of our 27
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institutional investors understand our concern with sustainability. They see the sustainability issues as a fundamental perspective on Novo Nordisk. In other words, we are less risky. (Corporate vice-president, cited by Hopwood, et al., 2010, p.216) The roots that lead to the company‟s interest regarding sustainability can be traced back to incidents that started in the 1970‟s. The company faced allegations that detergent enzymes were affecting the health of American employees who were involved in the production process. The ramifications lead to sales in the American market to fall; the management at Novo Nordisk became focused on the vulnerability of the business due to public opinion. In order to fix this problem, the company sought to recognise the broad set of stakeholders to whom the company owed a responsibility to, and therefore reflect on the impact that had been caused. By 1990, again Novo Nordisk was receiving more negative media attention. This time the media attention was about using genetically modified organisms, the Danish company this time was ready to initiate a more proactive form of stakeholder engagement, which was aimed at identifying and addressing the concerned issues that had been raised. Hopwood, A. et al., (2010) point out that the company successfully persuaded those involved in making the allegations to revise and correct them and, in so doing, to limit the extent of negative media coverage. (Hopwood, et al., 2010, p.217) The engagement led to employing one of the authors who was involved with the allegations on board, John Elkington who originally coined the term „the triple bottom line‟ in 1994. Elkington took a review of the company‟s business practises, and related them to the environment. A year later, Novo Nordisk set up its first sustainability strategy, which focused on the environmental concerns at the time. Ever since they created their first sustainability strategy back in the 90‟s, stakeholder engagement and trend analysis have become daily and essential tools which help the company to identify new concerns that are or possibly could be become new material.
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One of these company tools is the „learning curve‟, which aligns the processes of defining materiality with the integration of the company‟s business practises. Issues of importance for sustainability in Novo Nordisk have changed from a predominantly environmental focus to a focus that includes health, safety and bioethics issues, and a focus on how to integrate issues of social responsibility. (Morsing and Oswald, 2005, p.5) Figure 1 shows the learning curve that Novo Nordisk uses to reflect how issues related to sustainability are being integrated into the business. Stakeholder engagement is essential when identifying the relevant issues and helps shape the way the management deals with them. For every issue, indicators are identified in order to track and monitor performance, once the response has been defined.
Above: Figure 1: The Novo Nordisk Learning Curve (Cited in Morsing and Oswald, 2005, p.6) Effectively managing stakeholder relations became a strategic tool for Novo Nordisk better to understand their perspectives, and to be able to adapt to changing societal expectations. (Bennett, et al., 2011, p.297) Over the years this has gained the company a very valuable „trust capital‟. However, in 2001, the Danish pharmaceutical found itself being perceived in a negative way by the media. The situation this time was to do with a South African court case over patent rights; forty other pharmaceutical companies also took part. 29
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Novo Nordisk‟s reputation for listening to stakeholder concerns was challenged. The company who had participated in the case to defend the rights of the patent drugs, which can be said to be the core behind the pharmaceutical business model, the public‟s viewpoint was that Novo Nordisk was preventing poor people from accessing life saving drugs. The court case became a turning point on how the company acts within society. This is one situation where their learning curve would be useful and Novo Nordisk did respond to the backlash that they faced in Denmark with regards to the South African patent right case. They responded by investing in a number of initiatives that was created to help improve access to healthcare in the developing world. Grunig & Hunt (1984) mention that “the shift in approach reflects a change in the public perception of the role of business in society: today there is an expectation that business should assume responsibilities for contributing to solving general social problems. (Gruning & Hunt, 1984, cited by Bennett et al., 2011, p.297) The ramifications of this change from having originally a mindset of managing stakeholders‟ expectations to respecting their roles more as well the concerns they may have on behalf of the people and communities they serve, as well as the environment. This mind set is not to be taken in such a passive way, but also by taken action, and understanding the role of ethics and to foster sound decision making. At present, because of these negative connotations such as the South African court case back in 2001, Novo Nordisk provides insulin related products at a very low cost to the developing world. Such incidences from the past has influenced the ongoing development of one their key tools, the triple bottom line, and the company now includes a set target for the amount of sales and marketing representatives whom will be trained in topics such as business ethics.
4.2 The Triple Bottom Line Approach The notion of “Triple Bottom Line” (3BL) accounting has become increasingly fashionable in management, consulting, investing, and NGO circles over the last few 30
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years. (Norman and MacDonald, 2004, p.243) The main idea behind the triple bottom line approach is that a company‟s success should be measured not only by the financial bottom line, but also through social and environmental performances. From studying the literature review from Chapter 2, a common theme that did appear was the notion of stakeholder importance with regards to CSR. As Norman and MacDonald (2004) point out, “it is also a truism that firms cannot be successful in the long run if they consistently disregard the interests of key stakeholders.” (Norman and MacDonald, 2004, p.243) The apparent novelty of using the triple bottom line stems from its supporter groups such as communities, consumers, employees, suppliers, etc., should be quantified, calculated, audited, and then reported in a company‟s annual report. One of the more enduring clichés of modern management is that “if you can‟t measure it, you can‟t manage it”. (Norman and MacDonald, 2004, p.243) This is one tool in particular that is useful for communicating with various stakeholder groups by publishing social, environmental, and economic performances on an annual basis. Moreover, Skouloudis et al., (2009) mention that “many companies around the world have realised that conventional financial reports and related accounting methods alone are not sufficient to provide information in intangible assets and non-financial issues of the organisation.” (Skouloudis et al., 2009, p.298) The term “Triple Bottom Line” dates back to the 1990‟s, when management thinktank AccountAbility began to use the word in its work. John Elkington (as previously mentioned in 4.1) was behind the concept, the term found public currency with the 1997 publication of the British edition of John Elkington‟s Cannibals with Forks: The Triple Bottom Line of 21st Century Business. (Norman and MacDonald, 2004, p.244) The Danish Pharmaceutical uses the triple bottom line approach which links a set of key targets to sustainable and social responsible goals. Figure 2 illustrates specific indicators that are used as well as indicating the reasons for using them (impact). There are six strategic areas that are linked with Novo Nordisk‟s triple bottom line performance, they include: 1. Living our values;
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2. Access to health; 3. Our employees; 4. Our use of animals; 5. Eco-efficiency and compliance; and 6. Economic contribution
Above: Figure 2: Indicators of the triple bottom line performance (Cited in Morsing and Oswald, 2009, p.93 This main tool that is used at the company reassures that Novo Nordisk takes actions that are consistent with responsible and sustainable behaviour. Morsing and Oswald (2009) mention in their research that “all metrics used in the triple bottom line aggregate performance across all business units to present the full picture.” (Morsing and Oswald, 2009, p.92) By using the triple bottom line, transparent reporting is therefore a vital instrument for accounting performance and looking at social, environmental, and economic 32
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aspects. Susanne Stormer, the manager of corporate stakeholder relations quotes that “this is where we can account for our approach to doing business in a single document and cohesively present performance, progress, positions, and strategic initiatives as well as the dilemmas and key issues we face as a pharmaceutical company. Most importantly, what we present in the report is the result of our interactions and engagements with stakeholders. (Morsing and Oswald, 2009, p.92) 4.2.1 The DAWN (Diabetes, Attitudes, Wishes, and Needs) Programme An example of Novo Nordisk using its triple bottom line approach and involving stakeholder relations can be seen from the DAWN programme. The programme started in 2001 was aimed at exploring attitudes and needs of both diabetes sufferers and healthcare professionals to link critical gaps in the overall cure offering. Søren Skovlund, senior advisor of Corporate Health Partnerships, sees the key element as „the use of the DAWN study as a vehicle to get all the different people round the same table…bring patients, health professionals, payers, the media together to find new ways to work more effectively together on the same task. (Bessant and Tidel, 2011, p.63) The question that remains is why did Novo Nordisk get involved? One major reason is that the rules of the game around chronic disease management are in fact shifting. Bessant and Tidel (2011) state “for example, WHO (World Health Organisation) estimates that diabetes is a bigger killer than AIDS with around 3.2 million deaths attributable to the disease- and its complications-every year. (Bessant and Tidel, 2011, p.63) In addition, what is more alarming is that in the developing world, where one in ten deaths of adults aged 35 to 64 are due to diabetes (Bessant and Tidel, 2011, p.63), therefore chronic diseases such as diabetes are a major issue and it is something that healthcare systems are increasingly focusing on and trying to minimise the socio-economic burden of disease by reorganising the cure process and structure. These major shifts pose the risk that the product-focused pharmaceutical industry is falling behind. (Bessant and Tidel, 2011, p.64) The triple bottom line is implemented from taking part in the DAWN programme under the banner of the National Diabetes Programmes (NDP‟s). These 33
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programmes, rather than focusing on the product side of things, focus on supporting education of health care professionals and building clinics for diabetes in the developing world for example. The company CEO, Lars Rebien Sørensen argues by offering and advocating the right solutions for diabetes care will we be seen as a responsible company. If we just say “drugs, drugs, drugs,” they will say “give us a break!” This is clearly good practice-but the potential leaving about new approaches to care, especially under resource-constrained conditions, also represents important „hidden R&D‟ investment. (Bessant and Tidel, 2011, p.64) The primary underlying principle is to develop and test generic prototype plans which can be tested in various countries. One example is from Tanzania. Finegold et al., (2005) mention that “to reach out beyond their current customers, Novo Nordisk‟s Corporate Social Responsibility (CSR) programs have been found on developing infrastructure and knowledge in the world‟s poorest countries to help treat people suffering from diabetes. (Finegold et al., 2005, p.317) From looking back at the literature review, especially from 2.4.1 A view of CSR in the developing world, it was mentioned that particularly in Africa, CSR is conducted in more of a philanthropic approach. For example, Urip (2010) mentioned in the chapter that establishing the likes of community education schemes and health advice as well as helping local communities and local structures is a common CSR practice in the developing world. Novo Nordisk‟s CSR efforts in Tanzania were an early pilot. The insulin pharmaceutical began working with local diabetes associations as well as setting up clinics and hospitals, trained staff and providing relevant medical equipment. Finegold et al., (2005) mention that “they have learned that it doesn‟t help to just give a lot of insulin to a country; you have to train the doctors and nurses and build infrastructure.” (Finegold et al., 2005, p.318) Novo Nordisk‟s contribution in providing better healthcare in Tanzania and has given visibility to the possibilities in a chronic disease management approach. Bessant and Tidel (2011) state that “for example, before the programme someone with diabetes might have to travel 200 km to the major hospital in Dar-es-Salaam whereas now 34
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they can be dealt with locally. (Bessant and Tidel, 2001, p.65) This pilot approach which started in the early 2000‟s and the move is now towards finding undiagnosed sufferers and developing approaches to manage their diabetes in a way that they do not experience complications which is where the major costs arise from. This not only has implications for exploring a potential market for insulin but also moving Novo Nordisk into a broader area of healthcare management. Furthermore, the learning process for the company is about different national healthcare systems and how to work within them and bring change (such as in Tanzania).
4.2.2 Shared Value and the Triple Bottom Line Susanne Stormer, who is the vice president at the company, mentions in a CSR Europe general assembly event that “triple bottom line management is about value creation in two ways, it‟s about minimising the downsides (Figure 3), it‟s about managing risks, essentially it is about good housekeeping, that you are simply expected to do in maintaining the license to operate, the other part is about driving innovation and how you can drive revenues and how you can drive intangible values such as reputation, employee engagement, etc.” (Stormer, 2011) The company‟s triple bottom line approach caught the attention of world-renowned business theorist, Michal Porter from the Harvard Business School. In 2011, Novo Nordisk released a publication called „The Blueprint for change: changing diabetes in China’ the publication is based on how to strengthen the healthcare system as well as establishing local stakeholder relations which are key elements of Novo Nordisk‟s long term business strategy. Going back to Susanne Stormer‟s CSR Europe speech, the vice president mentions that “the approach we have taken is to try and assess how can we then create and capture and communicate what we call enhanced value, the shared value indicates that there is a pie of a certain size and what we are arguing is that we can actually make the pie bigger.” (Stormer, 2011)
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Above: Figure 3: Shared value using the triple bottom line (Cited in Novo Nordisk (2011) p.12)
From inferring from Stormer (2011) one way that the company has made the „pie bigger‟ is by targeting the developing world and using a philanthropic approach with regards to their CSR efforts. Moreover, by targeting areas where chronic disease is particular high, the notion of shared value can be used to help combat these diseases and illnesses as well as create an opportunity for future industry growth. According to Porter, “creating shared value is a panacea for all global health challenges. Some efforts will inevitably disappoint, and market failures will remain. Nevertheless, pharmaceutical and medical device companies have an extraordinary opportunity to help reduce global suffering and ill-health by building a competitive advantage in the low and middle income countries that will underpin future industry growth.” (Porter, 2011, p.52) 36
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Using this shared value strategy as well the triple bottom line in developing countries, a question that comes to mind is how the money is pumped into investing into developing markets. The CEO of Novo Nordisk Lars Rebien Sørensen mentions in Finegold et al., (2005) research that he defends the company‟s CSR initiatives to his stakeholders as “I had to ask our shareholders for the millions for the Diabetes Foundation. I can‟t guarantee a return for them but what I did tell them is that the energy this type of investment puts into the firm will increase our internal productivity; it increases our attractiveness as a company to work for by employees. Then the other aspect, that in the stakeholders‟ eyes is only speculation, is that the development of developing countries will benefit the world in the long-run.” (Sørensen, 2005, cited by Finegold et al., 2005, p.320) Increasing both shareholder and stakeholder trust, Sørensen has shown them that the company‟s CSR initiatives do increase the attraction of new employees and increase employee satisfaction. Today, with the triple bottom line as a business principle, Novo Nordisk takes a holistic view, seeking to balance concerns for all stakeholder groups with considerations of not only social issues in the developing world, but also environmental issues and sustaining long-term revenues. Novo‟s shareholder interaction and global issues can be seen in Figure 4. Kingo (2006) mentions about Figure 4 that “particular focus is given to the people whose healthcare needs Novo Nordisk serves. Throughout the value chain stakeholders are involved in developing more sustainable solutions: the organisation works with NGO‟s and the public sector in partnerships, learning with stakeholders.” (Kingo, 2006, p.29)
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Above: Figure 4: Novo Nordisk‟s Business Approach: priorities evolve around stakeholder needs and stakeholder success, with programmes in place at micro, meso, and macro levels. (Cited in Kingo, 2006, p.30)
By establishing a link between health as a main driver of wealth, it can be viewed that it has been possible to pursue triple bottom line strategies in a way that increasingly targets the core of business processes-or „making the pie bigger‟ as Stormer (2011) previously mentions- in markets and governance mechanisms. This approach is therefore shaped through extensive stakeholder engagement plus embedding organisational behaviour and responsible business operations.
4.3 The Balanced Scorecard The balanced scorecard is an internal management system and contains outcome measures in four perspectives, namely financial, customer, internal process, as well 38
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as learning and growth to give emphasis to soft factors such as knowledge building, internal process efficiency and customer orientation. (Cheng, 2010, p.5) Webber and Schäffer (2000), Kaplan and Norton (1997), and Ibid (2001) mention the four perspectives as:
The financial perspective indicates, if the transformation of a strategy leads to improved economic success. Thus, the financial measures assume a double role: on the one hand, they define the financial performance a strategy is expected to achieve. On the other hand, they are the endpoint of cause and effect relationships referring to the other BSC perspectives.
The customer perspective defines the customer/market segments, in which the business competes. By means of appropriate strategic objectives, measure, targets and initiatives the customer value proposition is requested in the customer perspective, through which the firm/business unit wants to achieve a competitive advantage in the envisaged market segments.
The internal process perspective identifies those internal business processes, which enable the firm to meet the target markets and those of the shareholders.
Finally, the learning and growth perspective describes the infrastructure which is necessary for the achievement of objectives of the other three perspectives. In this case, the most important areas are qualification, motivation, and goal orientation of employees, and information systems. (Figge et al, 2002, p3)
The balanced scorecard distinguishes itself from other management tools with its selection of non-financial and financial measures, which is related by a cause-and-effect relationship. This management tool communicates a holistic model that relates to individual efforts and accomplishments with business
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unit objectives. Secondly, the balanced scorecard is an essential feedback system for companies like Novo Nordisk to use, the advantage of the balanced scorecard is that it encourages employees to consider the impact of their decisions on profitability (Smith and Kim, 2005, p.70) Furthermore, they also mention that other advantages are not just localised and focused in the short term. As each department reaches its goal(s), it also helps the entire company become closer in attaining its targets. The balanced scorecard method therefore improves alignment among divisional or individual goals as well as the company‟s goals and strategies.
Linking the balanced scorecard with healthcare, Aidemark (2001) states that “managers in healthcare are inspired at seminars, conferences, and courses by consultants to modernise their management accounting system using the new miraculous treatment of the balanced scorecards.” (Aidemark, L.G., 2001, p.23)
Professionals in the medical industry see the possibility of using the balanced scorecard to put the likes of patients, process, and employees to the fore. Healthcare organisations have the freedom to design a balanced scorecard in any way that meets the organisations needs, but a balanced scorecard for a health care sector must attempt to accumulate the needs of many organisations thus, healthcare organisations can choose indicators that reflect their own specific mission, services, and programs, and operating environment. (Zelman et al., 2003, p.10)
Morsing and Oswald (2005) describe the balanced scorecard at Novo Nordisk as “The Balanced scorecard is the management tool for embedding and cascading the triple bottom line approach throughout the organisation. The scorecard is a vital element of the corporate governance set-up in Novo Nordisk and thus a very powerful tool to ensure integration of the sustainability approach into all business processes.” (Morsing and Oswald, 2005, p.10)
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The Danish pharmaceutical company has been using the management tool since the mid 1990‟s ad was primarily used as a finance initiative. The administration of the scorecards is dealt by the Finance, Legal, and IT departments; the involvement of these departments with regards to the scorecard is to facilitate workshops and to assist with setting targets, as well as to review and make changes to the balanced scorecard.
The pharmaceutical giant cascades the balanced scorecard down to the business unit level, which it translates into individual employees‟ own personal targets, which are set and reviewed upon a biannual basis. The balanced scorecard is specifically prepared for the organisation as a whole; the scorecard is then cascaded down to the executive VP level, from this level, each of the twenty senior VPs at Novo Nordisk has a balanced score card. Currently, Novo Nordisk has a total of twenty-four objectives in the company balanced scorecard. These twenty-four objectives are under four categories, (1) customers and society, (2) finance, (3) Business Processes, and (4) People and Organisation.
In order to facilitate the process of the balanced scorecard, each of these objectives is owned by one of the five executive areas at the company. For example, Corporate Stakeholder Relations has the responsibility for seven of the twenty-four objectives. They include:
1) 2) 3) 4) 5) 6) 7)
Increase internationalisation Support diversity Ensure talent development Ensure performance management Ensure superior company reputation Ensure environmental, social, and ethical performance Improve our collaboration with key stakeholders in diabetes care worldwide
(Morsing and Oswald, 2005, p.11)
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Above: Figure 5: An example of how the balanced scorecard cascades (Cited in Morsing and Oswald, 2005, p.13) The above example shows how the balance scorecard trickles down from the corporate side right down to the diabetes finished products. Using the diabetes finished products team as an example, formal monitoring takes place on a monthly basis, data on all KPI‟s (Key Performance Indicators) are then calculated and updated on the company‟s I.T. system. Each site manager at Novo Nordisk has to prepare a monthly report that explains any deviations from the set targets. Furthermore, any large deviation that the system points out has to be answered with a specific action plan. Informal meetings also take place; the purpose of these meetings is to reflect on performances and to see if their targets they have formulated have gone according to plan, and if not why.
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An essential part of the scorecard is that it is an important feedback tool, Kaplan and Norton (2007) quote that “a strategic feedback system should be able to test, validate, and modify the hypothesis embedded in a business unit‟s strategy.” (Kaplan and Norton, 2007, p.106) By establishing both short term and long term goals, within the planning process, executives are therefore able to forecast relationships between changes in performance drivers and the associated changes in the set goals.
4.4 Facilitation Facilitation is conducted by a small team of very experienced staff members, usually this small team is chosen by senior managers within the company. Tasks include assessing business unit performances in compliance with the fundamentals and values of Novo Nordisk‟s charter, they identify and share best practises across the company by collecting evidence from the sixty or so facilitators that are taken per annum and produce a report that is submitted to the executive management team. Hopwood, A. et al., (2010) quote that “the methodology of the facilitators in all the above tasks is much less quantitative in approach than TBL reporting or balanced scorecards.” (Hopwood, et al., 2010, p.228) Facilitation is not based on data, but based around interviews, it is a planned assessment based on the Novo Nordisk Way of Management within the unit or project that aims of developing the need for improvement. The facilitation process at Novo Nordisk consists of three stages. Firstly, the pre-facilitators stage, in which the facilitation is identified and tools to support the process, is created. Secondly, the facilitators meet with the individuals concerned and come to an agreement on how to make improvements. Lastly, a post-facilitation process is conducted; the facilitators are responsible for reporting back to the executive management team on their findings. The question therefore, is how important are the facilitators at transferring good practice? Holden (2002) points out that “the facilitators have become very knowledgeable about examples of good practice in virtually every corner of the company. It has been found that when a facilitator says to a particular unit „I have seen this instance of good practice‟, it has more impact than any other method that 43
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the company has devised.” (Holden, N., 2002 p.130) In addition, the company can certainly be grateful towards the facilitators for rooting out malpractices that affected Novo Nordisk worldwide. For example, in a certain country, two facilitators were able to unearth a malpractice that was not only a breach towards the company‟s code of conduct, but also a punishable offence in that country. The particular code of conduct was well known to Novo Nordisk, and for the first time the company was able to identify how this malpractice was being committed. Once all of this information had been sent to the company‟s Copenhagen headquarters by the facilitators, a meeting with all the senior managers that were responsible for regional businesses were immediately called. The result led to Novo Nordisk taking corporate action to stamp out this scam. It can be said that facilitation is a profound learning experience; one facilitator stated that the learning experience was like „a real life MBA‟, because being a facilitator exposes you to „every imaginable business situation‟. (Holden and Glisby, 2010, p.194) These many tools that Novo Nordisk uses definitely gives a learning experience, whether it‟s by using the balanced scorecard or by using facilitators, in addition following the Novo Nordisk Way of Management (which will be discussed in 4.5) and making sure members of staff understand it is essential with regards to how the company conducts its business practises.
4.5 Novo Nordisk Way of Management The Novo Nordisk Way of Management has been used since the late 1990‟s and is a framework that is designed to navigate the way in which every company employee and manager works around the world. This framework consists of three parts, The Vision, The Charter, and Policies. The first part the vision, explains what the company wants to achieve and the overall goals that relate to patients, society, and their members of staff. The vision states that “we will be the world‟s leading diabetes company. We will offer products and 44
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services in other areas where we can make a difference. We will achieve competitive business results. A job here is never just a job. Our values are expressed in all our actions. Our history tells us, it can be done.” (Sohm, 2007, p.12)
The second segment, The Charter, includes a declaration of Novo Nordisk‟s values that are accountable, responsible, ambitious, engage with its stakeholders, as well being open and honest, plus to be open to change. In addition, the charter also includes the pharmaceutical company‟s commitments to being financially responsible, environmentally responsible, and socially responsible (the three parts of the triple bottom line). The fundamentals is a list that each unit and team must abide by. The charter guides all companies that are associated with the Novo Group, and the employees commit to working within this guided framework. The third criteria, policies, illustrate goodpractice and ethical guidance regarding specific operational issues within the following areas: the environment, communication, finance, health and safety, I.T., people, legal, quality, purchasing, risk management, global health, and bioethics. Each given policy explains what it will do and how it will be done. Looking at the bioethics policy for example, Novo Nordisk aims to continuously improve bioethical performance. This means the company will:
Promote bioethical awareness throughout the company
Establish and ensure high ethical standards for: 1) Experiments on living animals 2) Clinical trials and use of human material 3) Gene technology
Set high ethical standards for our external partners, contract research organizations and suppliers and monitor their performance
Engage in stakeholder dialogue and partnerships and report on our performance
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Live up to the spirit, values, principles, and content of relevant conventions, laws and requirements
(Finegold et al., 2005, p.308)
Above: Figure 6: The Novo Nordisk Way of Management (Cited in Morsing and Oswald, 2005, p.8)
The staff at the Danish Pharmaceutical company feel that the Novo Nordisk Way of Management is not just simply a piece of paper, it‟s the way in which they work and take their roles seriously. Jennings says this about the Novo Nordisk management culture: “some people are more pragmatic than others, but they have a very clear set of values and a very clear vision. Management really drove the development of the Way of Management- and really drove the implementation of values into the company.” (Jennings, cited by Finegold et al., 2005, p.308)
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What is particularly interesting is viewing the Novo Nordisk Way of Management in other countries that the insulin pharmaceutical operates in. Lewis (2006) points out that “people of different cultures share basic concepts but view them from different angles and perspectives, leading them to behave in a manner which we may consider irrational or even in direct contradiction of what we hold scared.” (Lewis, 2006, p.xvi) Lewis‟ (2006) quote elaborates the notion of major challenges that are linked to intercultural communication. Because if people from different cultures share basic concepts, but view them from different angles, it will automatically generate a shared feeling within each culture which will emphasize their respective perception as being the „normal one‟. (Lewis, 2006, p.211) In Novo Nordisk Mexico for example, the HR manger explains, “sadly in Mexico we do not trust employees. However, we depart from this basic principle in the selection process.” (Hayton et al., 2012, p.374) In addition, another manager in Mexico commented on the same issue stating “there is a complete lack of trust in some firms in Mexico, and of course when you arrive at an organisation like Novo Nordisk Mexico, you say „can this really be true?‟ You have to pinch yourself to make sure you‟re not dreaming.” (Hayton et al., 2012, p.374) According to the manager at Novo Nordisk Mexico, “The biggest challenge in Mexico is to „erase‟ the type of behaviours that contradict the Danish culture and the Novo Nordisk Way of Management. We need to de-skill our „old‟ Mexican skills [and teach them] the „new‟ method of management.” (Hayton et al., 2012, p.374) Novo Nordisk Mexico is fairly new in the Mexican market and very small compared with other insulin companies such as American company Eli Lilly for example. An Hr manager at Novo Nordisk Mexico quotes that “it was very difficult for applicants to understand the firm‟s philosophy, the Novo Nordisk Way of Management [and the same was true] for many employees.” (Hayton et al., 2012, p.373) The company offers a bonus system to reward employees who recommend a candidate. This technique motivates employees not only because they receive a financial bonus, but also because of the element of trust that the company has with regards to employee 47
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recommendations during the recruitment process. A Mexican employee commented that, “Novo is a very organisation. This openness helps us learn from each other and the environment.” (Hayton et al., 2012, p.373) To avoid discriminating practises when hiring new candidates, managers at Novo Nordisk Mexico select their potential employees based on their job profile. Finegold et al., (2005) mention that during the recruitment process, Novo Nordisk pays particular attention to whether the candidate will fit with the company‟s culture and not just be able to perform well technically. (Finegold et al., 2005, p.310) The recruitment and selection manager at Novo Nordisk Mexico explains that “we have access to the main HR operational processes of the firm; however we needed to adapt it to the Mexican legislation. However, Novo Nordisk‟s philosophy is completely different from [that of] other companies that I have worked for (USA and Mexico). Now, I have to make sure that there is no discrimination in any of our HR subsystems.” (Hayton et al., 2012, pp. 373,374) The philosophy encompasses the organisational values and culture that Novo Nordisk tries to create around the world and make sure employees align the Novo Nordisk Way of Management in their everyday working environment. The HR manager at Novo Nordisk Mexico comments “across Novo Nordisk, we are working hard to implement a learning culture to help people build new competencies quickly.” (Hayton et al., 2012, p.375) It can be inferred that the Danish pharmaceutical company‟s challenge in Mexico is to make sure that the employees understand and believe the company‟s values and to encourage them to adopt these values from using the Novo Nordisk Way of Management. The CEO Lars Rebien Sørensen explains how this is perceived during an interview with the European Business Forum, “we have a distinct culture because we are aligned closely with our origin. We have a social responsibility; we have respect for the individual. It‟s nothing Danish other than we have an inbred understanding that companies cannot operate in a vacuum, and we depend on society and we need to make a contribution to be able to exist long-term.” (Schiller, 2007, p.58)
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4.6 Causal Maps From looking back at the literature review, it can be said that Novo Nordisk takes a sensemaking approach with regards to its CSR efforts. As previously mentioned in the literature review, according to Basu and Palazzo (2008), organisational sensemaking involves a tripartite view of its essential processes: cognitive, which implies thinking about the organisations relationships with its stakeholders and about the broader world (i.e., “the common good” that goes beyond what‟s good for business) as well as the rationale for engaging in specific activities that impact on key relationships. (Basu and Palazzo, 2008, p.8) In addition, the linguistic side which involves exploring the company‟s reasons for engaging in responsible activities; for Novo Nordisk, the linguistic side would be through their annual reports and reporting from using the triple bottom line as well as sharing information on the company website www.novonordisk.com . The final part, the conative side implies about the company‟s thinking about the broader world, for example, the common good that goes beyond the notion of what is perceived as what‟s good for business. It also takes into consideration the relationships and management with stakeholders (Figure 7).
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Page 49: Figure 7: Stakeholder Management at Novo Nordisk (cited in Parisi and Hockerts, 2008, p.54)
The Authors Parisi and Hockerts (2008) created causal maps at Novo Nordisk, the use of strategic programmes and actions were mapped when conducting semistructured interviews at the company. They mention in their research (Managerial mindsets and performance measurement systems of CSR-related intangibles) that “interviewees were asked to identify certain relevant positive and negative attributes of social performance.” (Parisi and Hockerts, (2008) p.53) Furthermore, respondents had to state the reason why the company had chosen to engage in such practises and whether these practises created a competitive advantage. By explaining this linguistic side of sensemaking, Parisi and Hockerts (2008) were able to collect CSR related intangibles that relate to corporate strategy. Massey and Wallace (1996) and Vennix (1996) have maintained that collective maps can be used to broaden problem solvers‟ perspectives by taking alternative views into account in the definition of a messy problem situation. (Massey and Wallace (1996), Vennix (1996), cited by Narayanan and Armstrong, 2005, p.143) Moreover, different perspectives assume to hold different models, and it is through the juxtaposition and combination of models that perspectives can be mediated. (Narayanan and Armstrong, 2005, p.143) Causal maps were originally devised to elicit mental models for individuals. (Axelrod, 1976; Eden, 1988; cited by Parisi and Hockerts, 2008, p.56) There are three types of methods that are linked to causal mapping; they are aggregate, congregate, and workshop mapping. Aggregate mapping aims at representing all individual maps in the collective map; this type of map includes all labels and links from each individual causal map. Parisi and Hockerts (2008) view that aggregate maps are ideal because this particular type 50
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of map represents a complete representation of a social system, and therefore allows all viewpoints to be represented. In contrast, Narayanan and Armstrong (2005) disagree and say that the aggregate approach does not emphasize the causal loops in the collective map. For this reason, it may not provide a full representation of social systems, because typically social systems consist of many actors with significantly diverse viewpoints. (Narayanan and Armstrong, 2005, p.145)The second type of mapping, congregate mapping, this approach centres on the identification of key causal loops that drive system dynamics. (Bougon, 1992, cited by Taticchi, 2010, p.119) The idea behind this particular type of mapping system is that stresses cause-and-effect relationships. Taticchi (2010) points out that “these maps are simpler than the sum of individual maps, so that all possible conflicting views of the social system are not fully represented.” (Taticchi, 2010, p.119) Furthermore, Narayanan and Armstrong (2005) stress that these causal loops are vital as they indicate a social system‟s identity and change as well as the system‟s complex behaviours. Lastly, the workshop mapping process focuses on a consensual framework which is put together at a group level. Workshops, or group meetings, are where the model is built by all participants, aided by the facilitator (the researcher) whose role is central for the success of the session. (Taticchi, 2010, p.119) This type of approach is mainly suitable for smaller groups and not recommended for large groups or organisations as it presents a limit of subjectivity, however this approach can be used alone or combined with other methods to improve a shared effort of collective mapping. Other researchers (Ackermann et al., 1997; Diffenbach, 1982; and Eden, 1989) have suggested that such combinations improve the group mapping outcome. (Narayanan and Armstrong, 2005, p.168) Parisi and Hockerts (2008) used a congregate mapping approach in their study at Novo Nordisk; this approach was chosen because having a strategic hypothesis is far likely to emerge from having a full representation of diversified points of view. The scholars mention that “during the successive interview sessions, the congregate map has presented to each interviewee and changed accordingly. The workshop mapping approach was dismissed due to the numerous possible shortcomings and the difficulty of aggregating all the interviewees at the same time.” (Parisi and Hockerts, 2008, p.56) Although they state that they used a congregate mapping approach, Figure 8 illustrates the company‟s strategies and actions which are related 51
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to building stakeholder trust and aimed at reducing business risks, increasing operational efficiency, pursuing product differentiation as well as creating a new market space.
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Above: Figure 8: The use of causal maps to represent strategies and actions at Novo Nordisk (cited in Parisi and Hockerts, 2008, p.57)
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4.6.1 Reducing Business Risk Many scholars have underlined the fact that a proactive stance on corporate social responsibility is often the result of a company strategy aimed at reducing the level of corporate risk. (David, 1973; Dyllick, 1999; Reinhardt, 2000; Yaziji, 2004; cited by Parisi and Hockerts, 2008, p.58) The interviews that took place when Parisi and Hockerts conducted their interviews at the company consisted with the previous argument; numerous strategic programmes were undertaken to minimise litigation plus regulatory and campaign risks. By doing so, the Danish pharmaceutical sustained their license to operate. In addition, the company also took action to maintain access to critical resources, and thus lowered their business risks. One type of business risk is a litigation risk. Parisi and Hockerts (2008) mention that “even unsubstantial rumours of potential litigation can provoke negative responses from analysts and shareholders. (Parisi and Hockerts, 2008, p.58) During Parisi and Hockerts (2008) research, a litigation issue at the time was a debate over the issue of GMO‟s (genetically modified organisms). In order to face this particular ethical issue, Novo Nordisk addressed on its website to all its major stakeholders that “we have no interest in hiding incidents of accidental GMO leakages. We want to tell openly and honestly about all aspects of our use of GMOs.” (Novo Nordisk, 2012) Moreover, Novo Nordisk GMO expert Knud Vad states that “we behave in openness when we deal with issues which cause public concern we see it as our obligation to communicate on any issue with a perceived risk to society.” (Novo Nordisk, 2012) One main driver for Novo Nordisk‟s engagement in CSR related activities over the years seems to have been based around media attention; particularly the risk of NGO‟s campaigning against the pharmaceutical giant. Campaign risk refers to the possibility of being attacked by NGOs as being representative of a whole sector. (Hockerts, 2006) Yaziji (2004) mentions in his research paper Toward a theory of social risk that this predominantly occurs if a firm is the market leader even if it is not the worst offender in the industry. Linking this with Novo Nordisk, the company‟s interest with regards to global human rights for example, being the market leader in insulin, the company faces the risk of being 54
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singled out by governmental and non-governmental organisations on issues that concern human rights across the supply chain. 4.6.2 Increased Operational Efficiency Building on the economic law of diminishing returns, past research has emphasized that any double dividends that firms may obtain from environmental management are likely to diminish fast. (Hockerts, 2006, p.14) The idea as Palmer et al., (1995) and Walley et al., (1994) put it as “that there are only a limited number of hanging fruit. Once these have been harvested firms can no longer expect cost advantages from proactive CSR measures. (Palmer et al., 1995; Walley et al., 1994; cited by Hockerts, 2006, pp.14,15) However, Parisi and Hockerts (2008) support a different position, in their research; they mention “as managers signal that a substantial gain is related to voluntary environmental initiatives.” (Parisi and Hockerts, 2008, p.58) They found out that the challenging voluntary emission target set by the company was directed at addressing regulatory and campaign risks. These actions were expected to carry a huge cost; however, as the voluntary programme was implemented at Novo Nordisk, there was a considerable cost reduction because of the increased cost efficiency. From their data it was revealed that employee motivation was a key element for driving productivity. Novo Nordisk stands out with regards to its proactive approach towards its employees, due to the fact that HR team is considered to be an integral success to the company. Furthermore, the two researchers quote that “numerous examples of activities were reported by interviewees, created in order to encourage employees‟ creativity, entrepreneurship and to help them adopt a balanced lifestyle.” (Parisi and Hockerts, 2008, p.59)
4.6.3 Product differentiation Parisi and Hockerts mention in their paper that other strategic factors were discovered when implementing causal maps at the pharmaceutical company. These were not as such internally focused, but are pertained to social marketing. 55
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Opportunities were taken to differentiate products on either a social or environmental line. Since patients, doctors, and other professionals in healthcare systems seem to be considered as the main indicators for CSR related activities, the company displays a strong endorsement of this policy. (Parisi and Hockerts, 2008, p.59) It appears from looking at Parisi and Hockerts research that one primary reason for Novo Nordisk‟s stakeholder engagement strategy appears to be to create and enhance its reputation in order to gain a premium price for its insulin products. Søren Skovlund who is the senior adviser in corporate stakeholder relations at the company mentions that there are many examples that can be found in Novo Nordisk‟s programmes, among which is the ability to cover all patients needs, from providing psychological support to insulin analogs and deliveries that are needed for every patient under the DAWN programme. (Skovlund, 2004) Parisi and Hockerts (2008) interviews indicated that not all of the company‟s investments were targeted at creating “blockbuster drugs”, but also to focus on curing diseases that affect a restricted amount of patients globally; and what has been dubbed as “orphan drugs”. An example of the so-called “orphan drug” is Novoseven®, created to treat haemophilia. By conducting various clinical trials, Novo Nordisk ia trying to prove its efficacy for other areas, for example, internal bleeding during operations. Therefore, the main strategic objective for this particular type of drug is to increase Novo Nordisk‟s wallet share of products whilst at the same time maintaining a good reputation with its patients and prescribers.
4.6.4 Creating a new market space The remaining critical success factor that was revealed from Parisi and Hockerts causal map research was the possibility of creating a new market space. The company‟s managers stressed the importance of integrating CSR issues into a long term strategy of entering new markets and into its exploratory product development. (Parisi and Hockerts, 2008, p.59)
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Access to healthcare in the developing world is a common theme, with a high impact on the industry‟s reputation. It was emerged from Parisi and Hockert‟s interviewee findings that Novo Nordisk is actively engaging in providing diabetes care in the DAWN project areas such as Tanzania, by providing a better access to healthcare as well as training nurses and doctors. Prahalad (2006) mention in his book The Fortune at the bottom of the pyramid, that as the country (Tanzania) is able to afford first class diabetes care, the company will have been a partner in the public healthcare system for some time; this will therefore have a considerable advantage over its competitors. (Prahalad, 2006) The research also indicated with regards to creating a new market space that greenhouse gases are a major issue, therefore, the company is investing in renewable sources such as wind power. Similar programmes have been put in place aiming to reduce energy resources and being more environmentally friendly.
Chapter 5 - Findings
5.0 Findings From looking at authors such as Morsing, and Oswald (2005) and (2009), Finegold et al., (2005), Parisi and Hockerts (2008), and Hopwood, A. et al., (2010) it is clear to see with all the tools Novo Nordisk uses, that it is a company that takes CSR very seriously. However, on a practical level, one thing that was noticed is the difficulties in embedding CSR with regards to the company‟s focus on both qualitative and cultural dimensions of management. A quote from a member of the non-financial data management team mentions that “I personally think that there are some barriers to full integration, and barriers in our (non-financial data management) departments towards the financials. I see challenges ahead in relation to a common understanding and language between the financial and the non-financial people, a whole cultural thing, a way of thinking. This is about two different worlds, but of course, we see the purpose of each other. We‟re just not on the same page in terms 57
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of what is material.” (Member of Non-Financial Management Team, cited by Hopwood, et al., 2010, p.224) It seems that there are a few „barriers‟ as the member of the non-financial team put it, for example, fully aligning both the financial and non-financial mechanisms will require collecting qualitative data on a monthly basis, Hopwood, et al., (2010) mentioned that for many such measure has never been the case. Furthermore, another thing that has been noticed was the issue of the KPI‟s (Key Performance Indicators) and the consistency of these targets. This has been recognised by the company, as the Senior Vice-President for Facilitation states that “we could be more structured in the way we define our KPI‟s-not just today but three or five years ahead. Long term targets – shareholders can follow them and establish proper expectations.” (Senior Vice President for Facilitation, cited by Hopwood, et al., 2010, p.227) The company‟s balanced scorecard also has its criticisms. There seems to be only a few sustainable areas that are directly linked with Novo‟s scorecard, such as environmental, diversity and talent development. In addition, the question remains on how far down the hierarchy the balanced scorecards are actually implemented. Novo Nordisk could develop a sustainable balanced scorecard (SBSC) that embraces economic, environmental, and social perspectives. The SBSC embeds the triple bottom line approach within the familiar balanced scorecard framework, making it easier to communicate and implement. (Hubbard, 2009, p.186) Furthermore, the simplicity of the SBSC means that it is easier to understand than the original balanced scorecard for the likes of senior managers and analysts and will still be considered as a performance management tool, much like the balanced scorecard. Hubbard (2009) mentions that “organisations are already under significant pressure to measure and report their social, environmental, and economic performance. In the not-too-distant future they will be expected to report their sustainable performance, too.” (Hubbard, 2009, p.190) He also points out in his research on adopting a sustainable balanced card that this will require companies to adopt a stakeholder viewpoint of value and create strategies that will take into consideration focusing more than simply shareholder performance.
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Although the pharmaceutical company reports its performances via its triple bottom line, Figge et al., (2002) mention that a company who has already adopted social and environmental strategies will play a prominent role with regards to the sustainable balanced scorecard. (Figge et al., 2002) In addition, they also quote that “overall the implementation of a sustainable balanced scorecard will enhance both, effective and efficient environmental and social management and sustained economic success. Such a situation translates into the simultaneous achievement of economic, social, and environmental goals, i.e. into strong corporate contributions to sustainability.” (Figge et al., 2002, p.27) This will not only help to make corporate performance more responsible and sustainable, but also to show the business value and good business of adopting value oriented social and environmental management. Overall, it can be said that adopting a sustainable balanced scorecard provides a strong management tool for value based and integrated CSR management. Figge et al., (2002) again mention that the sustainable balanced scorecard “helps significantly to overcome shortcomings of the often parallel approaches of environmental, social, and economic management systems implemented in the past.” (Figg et al., 2002, p.27)
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Above: Figure 9: A hypothetical sustainable balanced scorecard (SBSC) (Cited in Hubbard, 2009, p.189)
Going back to Parisi and Hockerts (2008) research from 4.6 to 4.6.4, it was revealed that the purpose of using causal maps is to improve the selection of indicators for the company‟s balanced scorecard. Over the years the company has developed socioeconomic models in order to evaluate the impact of their actions on different stakeholders, grouped in economic terms. (Parisi and Hockerts, 2008, p.60) Novo Nordisk is fully aware that many of their CSR policies have long term and positive financial returns in spite of the negative short term effects. (Parisi and Hockerts, 2008, p.60) However, it was documented in Parisi and Hockerts research that no attempt has been made to evaluate these effects in a systematic approach 60
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and to include it in the performance measurement system of the pharmaceutical company. Novo Nordisk argues that this is because of a lack of objective methodologies. Causal mapping is considered to derive indicators that allow management for example to disclose the perceived long term financial results that relate to investing in CSR-related intangibles. However, there were some limitations of using the maps; firstly the map structure is used to perform the evaluation, the map‟s information such as multiple positive and negative paths may not be taken into consideration. Moreover, Parisi and Hockerts revealed that different managers are likely to have different approaches to managing and measuring CSR related intangibles. The two researchers also mention that “the future development of the present research will be aimed at overcoming these limitations by extending the research to other firms and by mapping not only the managers‟, but also the stakeholders‟ perceptions of CSR.” (Parisi and Hockerts, 2008, p.62) This would therefore enable an improvement of the quality of the map as well as its ability to predict the future financial performances at Novo Nordisk. The causal maps did reveal some interesting points, particularly from the conducted interviews that there was an active engagement with its many CSR programmes such as DAWN as well as identifying new market spaces for the company to enter.
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Above: Figure 10: Implementing Causal Maps at Novo Nordisk (Cited in Parisi and Hockerts, 2008, p.61)
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With regards to Novo Nordisk‟s main other CSR tool, the triple bottom line; the triple bottom line management team is vital when creating a collaborative approach in managing CSR related issues where different functional areas of the business can therefore exchange their experiences and be involved in the development process. Feedback and the learning process within these many frameworks such as the Novo Nordisk Way of Management has had an important role to play, it could also be said that learning from past experiences such as the South African court case in 2001, has made Novo Nordisk a good example of how a company integrates CSR into its business practises. Though it can be said the success has also been down to the company‟s top managerial support. Morsing and Oswald (2009) research on the Danish pharmaceutical found that these tools that have been brought into play have ensured and integrated responsible business, their research indicates that the two scholars believe that there are other informal mechanisms that could contribute to ensuring a successful implantation of CSR practises. Morsing and Oswald (2009) mention that “this includes the role of the employee survey-eVoice-and the use of facilitators, but also a number of other “cultural tools” that are not traditionally regarded central for management control systems.” (Morsing and Oswald, 2009, p.96) For example, other cultural tools such as externally oriented partnership programmes with the likes of suppliers and NGO‟s have influenced the approaches that both employees and managers think and respond at the company. It can be said that this is not to say that these cultural tools such as external orientated programmes are not effectively brought into practice in the company or that they are not useful to use, just that the problem remains is the that their effectiveness cannot be measured by using traditional management control systems. Even though these cultural mechanisms are hard to measure from using traditional control systems, Morsing and Oswald (2009) quote that “we suggest that these cultural mechanisms are powerful aspects of successful leadership to implement a corporate sustainable strategy.” (Morsing and Oswald, 2009, p.96)
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Chapter 6 - Conclusion
6.0 Conclusion In conclusion, using these various tools from the triple bottom line to the Novo Nordisk Way of Management, the company has gained a successful CSR strategy; the pharmaceutical company feels that they have built a good foundation on which they pursue to keep sustaining for years to come. This has been done by integrating the concept into the vision, values, company strategies, the organisational culture, and business operations. It is clear that CSR is a „no one size fits all‟ concept as there are numerous opinions on what makes good responsible business. From looking back at the research, it is also clear that for any business or industry that each individual business should define the concept of CSR according to their business context which should encompass a variety of stakeholders as well as core expertise and skills. Another important aspect that was found from the research is that society and businesses are what can be described as „two sides of the same coin‟ and that in today‟s business world are expected to generate the notion of shared value for business as well as for society and the various stakeholder groups involved. This can be seen in Novo Nordisk‟s DAWN programme where the insulin pharmaceutical has helped lesser economic developed countries such as Tanzania, and provide diabetes care to those who are in greater need for insulin prescribed drugs. Harvard Business School‟s Michael Porter mentions that “companies should be transparent with global shareholders about their ambitions in low-and-middle-income countries. Specific shared value approaches, motivated by profit can be articulated for the benefit of the global health field.” (Porter, 2011, p.49) Going back to the DAWN programme, the programme has successfully increased awareness about the importance of psycho-social issues with regards to diabetes care and has contributed to the birth of wide-reaching national and regional educational activities as well as the facilitation of new dialogue between key stakeholders in diabetes, plus the revision of treatment guidelines in a number of 64
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countries. CEO Lars Rebien Sørensen states that “in moving from intervention to prevention- that‟s challenging the business model where the pharmaceutical industry is deriving its revenues! We believe that we can focus on some major global health issue-mainly diabetes-and at the same time create opportunities for our company.” (Lars Rebien Sørensen, cited by Tidd et al., 2005, p.11) What was learnt from stakeholder innovation from the DAWN programme was that the programme was an essential dialogue tool, with key opinion leaders, healthcare professionals, patients, and governments on how to improve diabetes care as well as understanding the real needs of both healthcare professionals and diabetes sufferers. The DAWN programme is definitely been a useful feedback mechanism for Novo Nordisk to use as well as help them improve their CSR practises worldwide and identify new potential markets such as India and China where there is a large number of diabetes sufferers. It can be said that paradoxically, the pharmaceutical industry has appeared to have fallen behind with this notion of CSR and innovation. In the past, the industry has clung on to the risk management approach. The DAWN programme has definitely put Novo Nordisk on the CSR and innovation map, this has been done by maintaining relationships with various stakeholder groups from patients, healthcare providers, the media, communities, NGO‟s, investors, etc. Kingo (2006) mentions that “this has been illustrated by the fact that today most of the big pharmaceutical companies are listed in the Dow Jones Sustainability Index, in which Novo Nordisk is currently rated as sustainability leader of the healthcare sector.” (Kingo, 2006, p.22) It can be inferred that Novo Nordisk‟s champion success in CSR, is mainly linked to its triple bottom line and balanced scorecard and other essential feedback tools and systems, however, Danish society has definitely had an influence. From looking at Birkin et al., (2009) research paper on A New Business Model for Sustainable Development, it was mentioned that Denmark has neither an elitist society nor an influential aristocracy in their country and is the „petit-bourgeois‟ who live and work closer with everyday people who are important and can made a difference in their society.
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In addition, what is interesting is that there is an argument against the emergence of classes who are not in touch with common everyday life; this has fascinated Novo Nordisk who found it extremely worrying that in a country such as the United kingdom for example, that Prince Charles who has been known for having an interest in sustainability and discussing environmental issues; the Danish pharmaceutical company argue that such initiatives need to involve and be undertaken by those who live and interact with everyday people if they are trying to be convincing.
By sounding convincing, taking a sense-making approach by using corporate branded vision, translating the vision into action by communicating the vision internally and externally to stakeholder groups, the challenge of corporate branding can be achieved, in Novo Nordisk‟s case the DAWN programme has illustrated this. With regards to CSR communication, the entire corporate branding identity is said to function by aligning the company‟s actions as well as by communicating. One way to gain a competitive advantage as revealed from conducting this paper is by using CSR as a way of branding a company. CSR has for decades been an integrated part of how Novo Nordisk is doing business and ethical values are translated into action by using the triple bottom line principle. (Novo Nordisk, 2012) By genuinely being responsible and not „window dressing‟ their CSR practises, this has given the company a well known image for CSR and sustainability. Morsing and Thyssen (2003) mention that “Novo Nordisk is the most conspicuous communicator about CSR and Novo Nordisk‟s sustainability reports have demonstrated convincing results of the triple bottom line performances.” (Morsing and Thyssen, 2003, p.9) Integrated CSR particularly in highly ethical industries such as the pharmaceutical industry should be able to survive during these current uncertain financial times. If the concept of CSR is purely integrated on a „window-dressing‟ basis, or perceived as an expensive activity, it can be inferred that CSR would be the first thing on a company‟s list to withdraw from. In today‟s business world, it should be noted that
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responsible business is about aligning business practises with the triple bottom line (social, environmental, and economic). Economically, to conduct business in a social and responsible manner whilst at the same time making a profit, or as Susanne Stormer (company vice president) previously mentioned, „making the pie bigger‟ and minimising the downsides. Novo Nordisk has illustrated that CSR should be walked as well as talked, walking and talking of the concept as shown leads to successful CSR integration.
Chapter 7 – Findings
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