Leading Sustainable Organizations
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The pictures that came out of the southern African mountain kingdom of Lesotho in August 2009 were truly disturbing. A reporter from the London Sunday Times had found that a contractor to leading apparel brands, including Gap Inc., had allegedly dumped toxic materials into local landfills.1 Poor local children, some as young as five, had reportedly found razors and harmful chemicals while scavenging through burning refuse piles. “We itch all day and some of the sacks used to dispose the chemicals have powder that makes our hands and arms burn,” said one girl. Some children suffered from breathing problems, rashes and watery eyes. A subsequent CBS broadcast added a further, vivid twist: The contractor’s discharge of garment dyes and other contaminants into the nearby Caledon River had turned the water indigo blue, making it hazardous for local inhabitants. To make matters worse, some workers at the factory claimed management treated them badly. All in all, it was a brand manager’s nightmare.
A similar crisis 10 years before had led to global protests that went on for months, at considerable cost to the San Francisco-based company, employee morale and even the child workers themselves. However, this time the Gap responded swiftly and proactively to take steps to address the problems, and the Lesotho story soon died down. What had changed? In the intervening decade, the Gap had cultivated close relationships with labor groups, human rights organizations, governments and other stakeholders through sustained and action-oriented engagement — a long, hard process that had transformed a brand associated with sweatshops and child labor into a company recognized for corporate social responsibility,2 the kind of organization that people were willing to give the benefit of the doubt.
The Leading Question
How does stakeholder engagement work in practice?
- li>Stakeholder engagement is not easy; the process is often expensive and slow.
- Identifying and prioritizing stakeholders can enable a company to focus on developing relationships with a few key stakeholder organizations.
- Over time, Gap’s stakeholder engagement strategy has improved perceptions of the company.
Gap’s stakeholder engagement strategy transformed the way Gap approached inevitable ethical trading problems. However, the change did not happen overnight. Instead, management learned a number of key lessons over time.
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1. D. McDougall, “African Dream Turns Sour for Orphan Army,” Sunday Times, Aug. 2, 2009; and S. MacVicar, “Jean Factory Toxic Waste Plagues Lesotho,” “CBS Evening News,” August 2, 2009.
2. For example, Gap was recognized as one of the “World’s Most Ethical Companies” in the 2010 Ethisphere ranking, and Gap was ranked number 11 overall and number three on human rights in Corporate Responsibility magazine’s “100 Best Corporate Citizens 2011.”
3. For further discussion of the risks of insufficient attention to stakeholders, see N.C. Smith, M.E. Drumwright and M.C. Gentile, “The New Marketing Myopia,” Journal of Public Policy & Marketing 29, no. 1 (spring 2010): 4-11.
4. R.E. Freeman, “Strategic Management: A Stakeholder Approach” (Boston: Pitman, 1984), 53. For an updated account, see R.E. Freeman, J.S. Harrison and A.C. Wicks, “Managing for Stakeholders: Survival, Reputation and Success” (New Haven, Connecticut: Yale University Press, 2007).
5. See T. Donaldson and L. Preston, “The Stakeholder Theory of the Corporation: Concepts, Evidence and Implications,” Academy of Management Review 20, no. 1 (January 1995): 65-91; and R.E. Freeman, J.S. Harrison, A.C. Wicks, B.L. Parmar and S. de Colle, “Stakeholder Theory: The State of the Art” (Cambridge, United Kingdom: Cambridge University Press, 2010).
6. P. Kenyon, “Gap and Nike: No Sweat?,” BBC, October 15, 2000; and C. Decherd, “Cambodia Rejects Allegations of Child Labor in BBC Documentary,” Associated Press, October 5, 2000.
7. R.K. Mitchell, B.R. Agle and D.J. Wood, “Toward a Theory of Stakeholder Identification and Salience: Defining the Principle of Who and What Really Counts,” Academy of Management Review 22, no. 4 (1997): 853-886.
8. This model, originally developed by pharmaceutical company Novo Nordisk, is described more fully in S. Zadek, “The Path to Corporate Responsibility,” Harvard Business Review 82, no. 12 (December 2004): 125-132.
9. S. English, “Gap Admits to Running Sweatshops,” Telegraph, May 13, 2004. Gap social responsibility reports are available at www.gapinc.com/GapIncSubSites/csr/EmbracingOurResponsibility/ER_Our_History.shtml.
10. For a fuller discussion of this issue of upstream (supply chain) consequences of downstream marketer (and consumer) decisions, see N.C. Smith, G. Palazzo and C.B. Bhattacharya, “Marketing’s Consequences: Stakeholder Marketing and Supply Chain Corporate Social Responsibility Issues,” Business Ethics Quarterly 20, no. 4 (October 2010): 617-641.
11. D. McDougall, “Child Sweatshop Shame Threatens Gap’s Ethical Image,” Observer, Oct. 28, 2007.