MBA Programmes
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Table of Contents
INTRODUCTION:...........................................................................2
COMPANY INTRODUCTION:.............................................................3
CORPORATE GOVERNANCE IN ALLIANCE BOOTS:................................4
CORPORATE SOCIAL RESPONSIBILITY OF ALLIANCE BOOTS:.................7
ANALYSIS OF ALLIANCE BOOTS CSR:................................................9
CONCLUSION AND RECOMMENDATIONS:.........................................13
REFERENCES:............................................................................15
Introduction:
In recent time many empirical evidences and studies have shown that different
corporate governance provisions can significantly make an impact on shareholders
and other stakeholders (Bebchuk, Cohen & Ferrell, 2009). Companies are now more
focused on long-term societal, environmental and economical impacts rather than
looking for short-term profits. Corporate Governance (CG) and Corporate Social
Responsibility (CSR) have played an important role in promoting ethics, fairness,
transparency and accountability within the company and to its stakeholders.
Companies nowadays have to be additionally concerned about all its stakeholders,
both internal and external when making a decision (Jamali, Safieddine & Rabbath,
2008). Even though company circumstances keeps on changing time to time, the
companys corporate governance practices should keep on evolving accordingly to
meet the needs of those upcoming changes (Council, 2007).
According to Claessens (2006) there have been different definitions of corporate
governance and also it varies extensively, which can be sorted into two different
categories:
i) Behaviour patterns of the company it is concerned with the authentic behaviour of
the corporations. Like performance, efficiency, growth, financial structure, treatment
to shareholders and other stakeholders. This definition can be used for studying a
single company and country, which considers the way board operates, relationship
between labour policies and companys performance, role of various shareholders etc.
ii) The second category of definition is affiliated to normative framework. It looks
into the rules or policies according to which firms operate, like legal and judicial
system, financial and labour market. This type of definition can be used for
comparative studies.
Boots is a multinational pharmaceutical company and has been operating for more
than 150 years in healthcare industry. In 2006 Boots group was merged with pan
European company Alliance UniChem and together they formed Alliance Boots. This
report is critically assessing the corporate governance and corporate social
responsibility performance of the company, it is also looking into how those serve the
business case and to what extent the activities are guided by principles of stakeholder
accountability.
Company Introduction:
Originally established as Boots by John Boot in 1849, the company is now known as
Walgreens Boots Alliance, Inc. Boots merged with Alliance UniChem in 2006 and
formed Alliance Boots. In 2007 Kohlberg Kravis Roberts (KKR) and Stefano Pessina
bought Alliance Boots and it was for the first time when a private equity firm bought a
FTSE 100 company. Later in 2012, Walgreens bought 45% stakes of Alliance Boots
and the company is now know as Walgreens Boots Alliance, Inc. (Reference for
Business, N.D).
At present the company is know as Walgreens Boots Alliance, Inc. and was created
with merger of Walgreens and Alliance Boots in December 2014. Company is over
150 years old and currently operates in more than 25 countries that employee around
370,000 people. The company has over 12,800 stores in 11 countries; also it has over
340 distribution centres that deliver to 180,000 pharmacies, doctors, health centres
and hospitals in 19 countries (Walgreensbootsalliance, N.D.). But, for analysis in this
report the company will be looked into as Alliance Boots, before its merger with
Walgreens in 2014.
As per the Alliance Boots 2013-2014 annual and corporate social responsibility
report, before its merger company had its presence in over more than 25 different
countries with over 108,000 employees, dispensing over 250 millions items each year,
the company performed its operation with over 3,150 health and beauty retail stores
among which 3050 stores had pharmacies. It had over 370 pharmaceutical distribution
centres. Company had two different business activities:
Pharmacy-led health and beauty retailing Along with its associates and joint
ventures operated in nine countries. Operating 4,600 health and beauty retail
stores, among which 4,450 had pharmacies. Also Market leader in Europe in
pharmacy with increasing online presence.
Pharmaceutical wholesaling and distribution - Along with its associates and joint
ventures company supplies medicines, health care products and other services to
over 180,000 pharmacies from over 370 distribution centres in 20 countries.
Moreover when both principal and agent have different attitudes towards risk, as it is
likely that both can take different actions on a certain risk (Jensen & Meckling, 1976).
However, transaction cost theory accounts for the actual costs of outsourcing for
production of services and products. It includes cost for transactions, contracts,
coordination and search activities. These all costs should be considered when a
decision is being made in business, not just the present market price. Transaction cost
theory relates to decision of production and purchasing for the companies
(Williamson, 1996).
Whereas, stakeholder theory looks into internal and external relationship between
company and others, it looks into how these connections can influence the business
(Moon, Crane & Matten, 2005).
There have been several codes of conducts for analysing or evaluating corporate
governance of a company that fulfils all the above-mentioned criteria. Like there are
corporate governance codes by different bodies like Global Reporting Initiative,
International Finance Corporation etc.
In United Kingdom Cadbury Committee presented the first version of UK corporate
governance code in 1992. So, to analyse the corporate governance of Alliance Boots,
the UK Corporate Governance Code by Financial Reporting Council (Council, 2010).
is being used here that fulfils the criterias of agency, transaction cost and stakeholder
theory. The analysis of Alliance Boots corporate governance as reported in its annual
report 2013-2014, according to main principles of the UK Corporate Governance
Code is:
committees within the company. Like audit and risk committee, remuneration
committee and social responsibilities committee. But from the report it is not clear
what kind of decision-making power the members have.
Accountability With the analysis of annual and CSR report of Alliance Boots
2013 - 2014. It can be seen that in annual report company has focused more on
publishing companys growth, strategy for growth and financials. Very less has
company focused on corporate governance. All the reporting about corporate
governance is ephemeral. Company has looked into different risk for the company
but has reported it at a very concise level. Company uses Global Reporting
Initiative guidelines to publish their CSR report. Also company engaged with
KPMG that took a limited assurance engagement to look into designated features
of companys CSR report.
Overall the corporate governance structure of the company is good and to an extent
transparent. As the company is a group holding company all the shareholders or their
representatives are on board. But, for publically being accountable and transparent
company should publish their report in a more detailed manner. The real motivation
for publishing the reporting is not clear. It is tough to understand for whom the report
is being published.
When looked into the Alliance Boots CSR report 2013-2014, it can be seen that the
company has its own framework for CSR and calls it the Alliance Boots scorecard,
which is used across its businesses. The company has grouped its CSR into 4
different categories: Community, Environment, Marketplace and Workplace.
Community Company talks about working with the community in which they
perform their business. Company is trying to provide help in every possible way, like
by devoting time, energy and talent so that various causes can be supported via
fundraising and volunteering. Within the first CSR activity group community,
company is performing various activities like working on the issue of colorectal
cancer with one of Europes largest clinical cancer research organization, working
with community on healthcare issues, involving themselves in education and research,
fundraising, staff volunteering and giving.
Environment The second group of CSR activities is related to environment and also
company acknowledges the threat of climate change. The company is performing
different activities to reduce their carbon footprint. Like company is investing in
efficient technologies to have less CO2 emissions, developing sustainable products,
consuming less energy to manage carbon emission, having sustainable transportation
of goods from distribution centers to retail stores, focusing on waste reduction and
recycling more and modestly using water resource.
Marketplace The third CSR activities group is related to marketplace in the
framework. Company considers its partnerships as an important aspect for the
business, which helps in creating positive impact within the industry, customers and
patients. Company looks forward to responsible sourcing of its products and services
to meet set standards by the company and external suppliers, also company works
with local businesses and authorities to ensure importance of high streets are
maintained and conducts cause related marketing to find what difference can be made
in peoples lives.
Workplace The last and fourth CSR group in the framework. Company being in
healthcare industry talks about being considered about wellbeing of its employees.
Company provides regular training and development to all its employees so that
employees can progress in their professional life as well as so that they can meet the
challenges of the respective industry. Company inspires young talent and gives them
training, career opportunity and access to valuable work experience. Encourages
employees to live the health and well being values that company stands for, promotes
diversity at workplace, encourages both gender at work, regular training and
development programmes for employees and have proper employee engagement
programmes.
Using the framework provided by Brown & Fraser, 2006 the comprehensive traits of
CSR and SEA of Alliance Boots can be analyzed in three broad approaches: the
business case, stakeholder-accountability and critical theory.
Business Case Most of the CSR activities performed by Alliance Boots is focused
around healthcare, which gives an indication that companys purpose is to create
shareholder value using its CSR/ SEA. When looked into the CSR activities, company
is working on the issue of colorectal cancer with one of Europes largest clinical
cancer research organization, working with community on healthcare issues,
education and research, all these activities are focused around healthcare. When
looked into the causes company supports, it can be seen that company has donated
over 3 millions towards health causes in 2014. Company in its CSR for community
mostly talks about providing everybody with affordable quality medicines or
improving healthcare. Also company is working on issues like heart disease or
diabetes and is also promoting volunteering of staffs in care homes etc. Company
being in healthcare industry will get benefited out of its ongoing CSR activities, as it
will create or manage the existing brand image in UK and Europe. Company can get
the benefit of involving itself in CSR and being a good corporate citizen then can
create customer loyalty that will help in turning customers as companys brand
ambassador (Du, Bhattacharya & Sen, 2010).
In the environmental group of activities company is trying to develop sustainable
products. But, the need of developing sustainable products has been a key issue faced
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by companies anyway in 21st century; there have been increase in pressure legally, by
market and financially to develop sustainable products (Maxwell & Van der Vorst,
2003). Also company is reporting CO2 emission by its different sources but it is not
performing any specific activity to reduce it.
In their other activities for marketplace company is working towards sustaining
importance of high streets as most of the companys stores are in high streets so
eventually company will again get benefits from this particular activity. There has
been a severe decline among consumers confidence during the recession for high
streets, also with upcoming online retailing options it has hampered high streets a lot
(Wrigley & Dolega, 2011). Even if it is said that company is trying to create a winwin situation the company is the one who is getting most benefit out of this situation.
In the list of identified stakeholders listed by the company, shareholders have been
kept at third position after media and non-government organizations from which
company can get most harm. There have been lots of debates on the issue of
shareholder and other stakeholders, as said by Friedman there is only one
responsibility of a business to increase the profits without any dishonesty or fraud
(Smith, 2003).
Company has fixed its CSR/ SEA activities into 4 groups and is working around it.
Company has its champion in each business that takes care of implementing CSR
goals group wise at local level. There is a set approach of scorecard for each business
for defining CSR programmes. But, no proper performance mechanism or
benchmarking techniques can be seen for analyzing impact of CSR. The champions
generally use telecommunication to discuss their respective initiatives and only meet
altogether once a year for proper sharing of work done with social responsibility
committee.
Overall if looked into the business case of CSR activities by Alliance Boots the
activities are indicating that it is creating shareholder value, being a group holding
company shareholders are kept above rest of the stakeholders, most of the activities
performed are by company willingness but it shows company is trying to maintain
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brand image, have champions to manage CSR work locally and needs improvement in
CSR performance measures, benchmarking techniques and reporting mechanism.
Stakeholder Accountability - Though till date there are no mandatory CSR
implementation policies in UK. The government has been trying to take numerous
actions so that it can make companies more accountable towards its stakeholders
(Gov.uk, N.D.). The corporate objective of business has always been of value
maximization for its shareholders and other stakeholders. However, on the other hand
stakeholder theory states that a manager should take in consideration the interest of all
the associated stakeholders to the company. It not only includes shareholders but also
customers, employees, communities, government etc. (Jensen, 2001). Generally a
stakeholder can be a group or an individual, who can affect or can get affected by
prosperity of the organisation (Freeman, 1999).
When looked into the Alliance Boots sustainability report 2013 2014 it can be seen
that company has identified its stakeholders and talks about stakeholder engagement.
Company says stakeholder engagement leads to operate responsibly and address their
concerns by learning from their insights and experiences. It allows company to have a
diverse and broader understanding of stakeholder priorities, which helps company in
positive delivery of products and services ultimately impacting wellbeing of the
communities. Company has identified nine different stakeholders and have respective
engagement channel with each stakeholder.
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Critical Theory As per a report by Business & Human Rights Resource Centre
almost a fifth of top UKs public companies have failed to deliver proper reporting of
impact of their business on economic, environmental and social fronts (Business &
Human Rights Resource Centre, N.D.). Though there has been reporting by Alliance
Boots but it is not up to the mark of stakeholder accountability. Not only this but
company also bailed out of its commitment to renew its membership of Ethical
Trading Initiative that stops suppliers from using child and forced labor in the supply
chain (Mathiason, 2009). Clearly it can be seen that the Alliance Boots CSR/ SEA is a
business case not stakeholder accountability. Where company is trying to increase
shareholders value by profit maximization. Though company is involved in various
CSR/ SEA activities there is cynicism about actual accountability of the firm. Like in
Workplace group of activities company is reporting about gender diversity within the
organization, which is 68%. But one of Alliance Boots business is Pharmacy-led
health and beauty retailing. So, by default it will have more females, also in its
published CSR or annual report company is not reporting about gender diversity at
board level or in the top-level management. At board level there is only one female
representative, Ornella Barra Chief Executive of Wholesale and Brands.
Even though company claims that they are using Global Reporting Initiative format to
publish CSR reports it is not much effective. Also company engaged with KPMG but
to only assure selected aspects of CSR reporting, why not engaging firms at a broader
level.
Overall it can be said that even though company is publishing annual and CSR reports
it is only being transparent and accountable at a succinct level. By the published
reports it is hard to say for whom the reports are being published.
Corporate governance and CSR/ SEA are essential for a proper stakeholder
engagement, as it brings more transparency and accountability. Alliance Boots as a
company has been in operation for over 150 years. Though ownership of the company
has changed time-to-time, company has tried to maintain proper transparency and
accountability for its identified stakeholders through its corporate governance, CSR
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and reporting. There are some areas in which company can improve and make itself
better; some of the recommendations are as follows:
1) The company is a group holding company so it is not clear for which stakeholder
the report is being published. The actual motivation of report published is not
clear. Company should publish their report in more detailed manner. The current
published report is presented in brief.
2) The present report does not clearly state what are the decision making power of
the board members. More reporting on it should be done.
3) In report it is not clear what specific roles board members are playing in the board.
It should be mentioned in the report for more transparency.
4) The company is following the GRI reporting format for CSR but the report alone
is not clearly stating about impact all the activities performed. More detailed
reporting should be done about all the activities.
5) Company engages with KPMG to look into selected activities it should be done
for all the activities performed. Engagements for overall analysis should be done.
6) Overall if recommended then the reporting structure of company should be
improved to bring more transparency and accountability.
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