Why Corporate Social Responsibility Matters Assessment Number 2 Case Study: Johnson & Johnson

Submitted by

Philippe Schwyn Student ID: 807FBBA009

Submitted to Mr. Jose Roberto L. Del Rosario, Jr.

Submitted on December 28, 2011

Outline:
1) First, assess the extent of CSR adoption in Johnson and Johnson by answering the following questions: a. Which levels of Johnson and Johnsons management are involved in the companys CSR initiatives? Has the company developed a comprehensive strategy that defines the borders of its CSR initiatives? If yes, explain the strategy employed by the company and comment on its comprehensiveness. Discuss specific CSR programs that Johnson and Johnson has initiated to implement its CSR strategy. Which of the following CSR areas do they cover? 1. 2. 3. 4. 2) Supply chain responsibility. Environmental responsibility. Social responsibility and Human Rights. Community Investment.

b.

c.

Second, assess the effectiveness of the implementation of Johnson and Johnsons CSR strategy by answering the following questions: a. b. Does Johnson and Johnson appear to have adopted a spirit of full disclosure? Are there discrepancies or contradictions between the companys stated CSR policy and its actions? What about between the companys policy and the actions of its subsidiaries and supply chain partners? If so, what do you believe are the reasons for these discrepancies? Is the company in voluntary compliance with SA8000? Is there a correlation between the companys profitability and the effectiveness of its CSR program over the last 3 to 5 years? Discuss your opinions relating to the motivation and the intent of Johnson and Johnsons management in leading a CSR effort.

c. d. e.

1. First, assess the extent of CSR adoption in Johnson and Johnson by answering the following questions:

a.

Which levels of Johnson and Johnsons management are involved in the companys CSR initiatives?

Johnson & Johnson is one of the most recognized socially responsible organizations among the Fortune 500 companies, which is reflected in consistent top listings both in the Harris Interactive National Corporate Reputation Survey and Barrons Magazine (JnJ 2012). The company has achieved such status due to a long running commitment to social responsibility, which in turn resulted in a number of commendable behaviours and very low scandalous incidents during the last several decades. Most frequently cited examples include swift and voluntary product recalls, especially the recall of their Tylenol painkillers in 1982. As far as online research can reveal, Johnson & Johnson does not have a CSR dedicated division to oversee the implementation and audit of policies, but instead established a corporate structure that ensures that all business decisions are subjected to its social values and growing of a socially responsible organizational culture. In such terms, all J&J employees are involved in the companys CSR initiatives, including its CEO and board of directors.
b.

Has the company developed a comprehensive strategy that defines the borders of its CSR initiatives? If yes, explain the strategy employed by the company and comment on its comprehensiveness.

Johnson & Johnson became an early socially responsible company under the Chairmanship of one of its founders sons, Robert Wood Johnson II. Heading the company to international success from 1932 to his death in 1963, Robert Johnson also established the socially responsible company credo and four strategic principles, which persisted to this day. The four strategic principles include: 1. To be broadly based in human health care 2. To follow a decentralized management approach 3. To manage for the long term 4. To focus on people and values The company credo is a one page document which summarizes to the following points to be followed in terms of importance.

First Responsibility - Customers Doctors, Nurses and Patients, Mothers and Fathers and other users of J&J products All J&J Products must be of highest quality The reduction of costs to offer reasonable prices Prompt and accurate service of customer orders Providing profit opportunities for suppliers and distributors

Second Responsibility Employees All employees are considered individuals Respect for personal dignity and merit Provide job security Fair compensation Clean, orderly and safe working conditions Respect and supportive of family responsibilities Freedom of expression (suggestions and complaints) Equal opportunities for those of equal qualification Provision of competent, just and ethical management

Third Responsibility Community Responsible behaviour towards local communities and the world community Support of good work, charities and fair payment of taxes Encouragement of civic improvements, health and education Sustainable usage and protection of properties, the environment and natural resources

Fourth Responsibility Shareholders J&J must make a sound profit Exploration of opportunities Continuation of R&D and innovation Physical expansion (purchase and introduction of new equipment, facilities and products) Recognition of mistakes and taking responsibility thereof Building of reserves and provisions for adverse times (JnJ 2008)

The above framework describes a very comprehensive CSR strategy with clear boarders and priorities. With its principles and credo, J&J communicates an understanding of its industry and strengths, clearly limiting itself to activities of expertize. Furthermore, all business decisions are to be subjected to these guiding principles, putting the customers first,

employees and the community second and third, and shareholder interest last. According to these principles, any project which does not satisfy all points included in the long-run should not be considered (JnJ 2008). While these principles are comprehensive and if implemented as intended forces the firm to provide important services for humanity in a responsible and sustainable way, there are several issues, I believe to be vital to a comprehensive CSR strategy, that are not included.

Modern-day CSR issues addressed in J&Js principles: Fair Trade Fair Trade is provided for in the companys first priority on customers, guaranteeing profit opportunities to its suppliers and distributors while focusing on socially relevant products. Human Rights Human Rights are provided for in the companys second priority on Employees, guaranteeing equal opportunities, fair compensation and a safe and inspiring working environment. The company further encourages its employees to engage in charitable or socially beneficial activities, which is proven to have a beneficial effect on personal psyche and is exercised by 80% of its workforce according to its 2008 sustainability report. Environment The environment is provided for in the companys third priority on the community, guaranteeing sustainable usage of resources. The principle further stipulates the promotion of and support of third party efforts for this cause, health and education. Issues not addressed in J&Js principles: Compliance and Auditing Johnson did not include provisions to force compliance with his principles nor setup internal or external auditing rules to keep corporate performance in check. This was also mentioned as a stakeholder critique in the Chairmans message of the 2008 sustainability report. While the company explains its commitment to improving this issue in the same report, there are some performance indicators mentioned and the company now employs Price Waterhouse Coopers (PWC) as an external auditor to its CSR activities.

Among several standards, mostly healthcare related, the company supports the Carbon Disclosure Project as one of the more popular ones. Other standards mentioned include the Global Reporting Initiative for the preparation of the sustainability report, however the company does not commit itself in usage. Johnson & Johnson currently ranks 62 on the general GRI score sheet. Transparency This addresses a similar concern as compliance and auditing. The companys principles and credo do not include any clauses on transparency, somewhat disallowing the public to measure J&Js compliance and performance on their own or external standards and indexes. Again however, the company has recognized the need for transparency and promises improvements in transparent sustainability reporting throughout its operations.

Corruption Both the companys principles and sustainability report make no mention of corruption. We would argue that for most international corporations, especially those supplying governments and health institutions around the world, this should be an important topic and taken notice of. Supply Chain Other than issues of fair trade the credo also doesnt require the companys suppliers or distributors to commit to J&Js CSR values. Independent of the company credo however, the firm has started to audit its supply chain according to its own extended principles. In 2008, it had audited 35% of its supply chain on child labour, production quality and other diverse issues. In 2009 it claims to have audited 98%. In summary, Johnson & Johnson has a long standing history of socially responsible behaviour that is no doubt the result of its early CSR adoption and visionary approach of Robert Johnson II. When reading the companys sustainability reports, one cannot help but notice that most of the language used emphasises good intentions rather than commitments, which perhaps is a reflection of the general CSR problem and vagueness of many contemporary efforts (e.g. UN Global Compact, GRI etc.). Most of these initiatives are guidelines and many companies can benefit from its branding by mere association rather than mandatory, auditable and punishable commitments. In these terms we would argue that Johnsons credo and principles have done a satisfactory job in committing his company to a long-term set of realistic guidelines that seem to have embedded itself in J&Js

corporate culture over time, even though there is certainly room for a more comprehensive and definite formulation of strategy.

c. Discuss specific CSR programs that Johnson and Johnson has initiated to implement its CSR strategy. Which of the following CSR areas do they cover? In addition to the before mentioned principles Johnson & Johnson in 2006 established a series of sustainability goals for 2010, which it summarized in two CSR programmes called Healthy Planet 2010 and Healthy People 2012. The two programs included the following goals respectively: Healthy Planet 2010 (Summarized) Transparency: 100% of manufacturing and R&D facilities are to provide public environmental sustainability information. Energy: 7% absolute CO2 reduction from 1990 levels and reduction of fleet emissions by 30% from 2003. Water: 10% reduction in water use from 2005 Waste: 10% reduction of hazardous and non-hazardous waste from 2005 Packaging: Elimination of PVC packaging in several sectors and strong increase of sustainable paper in office and packaging. Product Stewardship: all operating companies to establish sustainability plans and electronic products take back programs Environment: Subject all employees to recurring environmental education Biodiversity: All operating companies to establish sustainability plans for biodiversity Compliance: Zero accidental environmental releases; zero environmental violations While most other goals have been achieved by 2010, compliance experienced a slight negative trend towards year-end and was not achieved. The company reacted with more awareness programs and waste management training. Supply Chain: 100% of external manufacturers in conformance with J&J External Manufacturing standards. (JnJ 2010)

Healthy People 2012 Create, Promote and Sustain an Organizational Culture of Health Reduce Employment Health Risk Factors Promote a consistent Approach to the Deployment of Occupational health Services and Standards (JnJ 2010)

With the expiration of the Healthy Globe 2010 goals, the company has established new CSR goals for 2015 with anew program titled Healthy Future 2015. Healthy People will continue of course until its expiry in 2012. In line with J&Js credo, the program focuses on the improvement of peoples health, environmental sustainability and business vitality. To achieve such, the program includes goals across seven priorities. These include: Advancing global health through research and development for neglected diseases and affordable access to our medicines Advancing community wellness Enhancing outcome measurement in philanthropy Fostering the most engaged, health-conscious and safe employees in the world Building on our legacy in safeguarding the planet Partnering with suppliers that embrace sustainability Committing to enhanced transparency and accessing the power of external collaboration (JnJ 2010)

The program further stipulates well-defined measurement indicators and targets, which can be viewed in its 2010 sustainability report. Selected targets for include: All J&J products that address diseases of the developing world achieve WHO prequalication 20% absolute reduction in facility CO2 emissions. All suppliers in high-risk countries confirm awareness of and conformance with the human rights provision of J&J policies (JnJ 2010)

1. Supply chain responsibility. Healthy Globe 2010 to some extent covers the companys supply chain responsibility, as it requires 100% of its external manufacturers to conform to the companys eternal manufacturing standards. The target was achieved to 98%, which is an acceptable margin of error, given the dynamic growth and decentralized nature of the company. The problem with the 2010 goals however is, that external manufacturers only cover roughly 1000 of the companys 50000 suppliers. Healthy Future 2015 intends to extend this effort to more J&Js suppliers while increasing the share of diverse suppliers (e.g. minority and women owned businesses). The following two 2015 targets are aimed at increasing supply chain responsibility: All strategic suppliers have two or more publicly reported sustainability goals All critical employees receive human rights training

While J&Js efforts in supply chain responsibility are being increased, the efforts fall short of an extensive auditing program. Furthermore the company has stipulated sustainability standards for external manufacturers, but fails to extend such principles to all of its suppliers. This is understandable to some degree, especially given the companys high number of suppliers and the company may circumvent this problem by accelerating partnerships with new suppliers which are easier to audit, as they have lesser leverage over J&J (i.e. existing suppliers enjoy more leverage because it is a greater effort to terminate existing supply arrangements versus selecting the best of new competing ones). In any case, we would argue that the companys focus on supply chain responsibility is a moderate approach. 2. Environmental responsibility. Johnson & Johnson has made several advancements in terms of environmental sustainability with its Healthy Globe campaign and includes a series of more aggressive targets for 2015. Successes in 2010 included 9.5% reduction in water use compared to 2005, 25% reduction of hazardous waste and strong reduction of PVC packaging to the same base year. 2015 goals include the increase of on-site renewable energy to 50 megawatts, 10% reduction in absolute water consumption and 10% reduction in absolute waste disposal. 3. Social responsibility and Human Rights. Human rights is a topic of increased interest in recent years, especially with the emergence of continued slavery and human trafficking. Johnson & Johnson have included human rights and a dignified working environment already in their 60-year-old company credo and extends these values to its suppliers with its Healthy Future goals. As included above, the company will require all suppliers in high-risk countries to conform to its own human rights principles and will train its own employees dealing in such circumstances or subjected to potential human rights infringements.

4.

Community Investment.

J&J invests in the community primarily through a healthy workforce internally and through health oriented philanthropic activities externally. The increase of health levels among its employees is attended to by its Healthy People 2012 program, which includes free health checks and better health services throughout its offices internationally. In 2010 it has well achieved its targets for its US workers while staying slightly behind its 2012 targets abroad. For 2015 the company plans to achieve benchmark safety and health performance in the workplace. To benefit the community 2015 targets include 100 community health education

initiatives launched across 25 countries and an increase of the people reached by these initiatives. In summary, the company employs a fairly extensive CSR program internally which benefited from a long-standing history of socially responsible success. However, as J&J is doing well for itself and earns high critical praise for its responsible management, the company seems to lack somewhat in determination when it comes to enforcing its principles in its supply chain. Except for a strong position in human rights, compliance with J&Js principles seem largely voluntary.

2)

Second, assess the effectiveness of the implementation of Johnson and Johnsons CSR strategy by answering the following questions:

a.

Does Johnson and Johnson appear to have adopted a spirit of full disclosure?

There is wealth of links and information on the JnJ.com website explaining a multitude of policies, commitments, efforts and accreditations in the field of CSR. More recently the company has dedicated a large part of its websites solely to its CSR activities under the URL JnJ.com/responsibility and the company stated in its sustainability reports that 60% of its sites report their environmental performances. While the company certainly seems portray a strong commitment to CSR, activities in terms of transparency, while noted, have a tendency of being crowded out by the wealth of information on other topics, thus making it hard to understand the full extent of disclosure. In addition, almost all statements on its website and associated links merely explain good intentions rather than observable facts and figures and even though the sustainability report claims that environmental site performances are available on its website, its transparency link only explains that transparency is important, that the company is committed to it and that 60% of site have reported figures. Judging from this we would argue that the company has adopted a limited spirit of disclosure, not publicising individual site performances, especially in areas other than the environment. For example, it is not possible how many children under the age of 16 are working in J&J associated sites, for what kind of work and under what kind of circumstances. Furthermore, the company does publicize some factual numbers in its sustainability report; however, these numbers are to be read with caution, as it is up to J&Js discretion to formulate its CSR programs into areas of existing strengths while covering up chronic weaknesses. There are also little references to industry standards or weaknesses or comparisons with other companies. A more illustrative example of this is the countless listings of recognitions and awards under the GRI section of the responsibility page of JnJ.com. With literally dozens of awards presented it is difficult for the viewer to dissect relevant information, as it is unlikely for all these rewards to represent credible awarding bodies. Finally J&Js GRI rating of 62nd is not extraordinary and not posted on their website

and there is no more mention of an independent audit in the 2010 report.

b.

Are there discrepancies or contradictions between the companys stated CSR policy and its actions? What about between the companys policy and the actions of its subsidiaries and supply chain partners? If so, what do you believe are the reasons for these discrepancies?

Despite the arguments in the previous paragraph, we would argue that Johnson & Johnson largely commits to its social responsibilities, mainly because of its low incidents of scandals and strong performances in times of crisis. As scandals mainly include minor incidences with corruption, the company has been exemplary for the past several decades in terms of product recalls, admitting and attending to its mistakes. There have been no major issues of cover-ups or the like. Mild corruption on the other hand is a common issue in multinational companies who have to deal with government contracts on a regular basis and might even have to be accepted for the time being. With the information available to an outsider, of course, the companys CSR performance is presented in a comprehensive and consistent manner, however, we have to ask ourselves how a sustainability report claiming absolute CO2 reductions of 20% is compiled if only 60% of sites report their environmental numbers. This argument gains in relevance if we consider the figure being calculated to a base year of 1990 at which time it is improbable that any such numbers have been compiled.

c. Is the company in voluntary compliance with SA8000? The company doesnt make any official statement on its website about compliance with or SA8000 certified facilities. Given the stipulations in its credo on the working environment however we may assume that J&J complies, voluntarily in this case, with the standard. With its Healthy Future 2015 companies it also extends these standards to its suppliers.

d.

Is there a correlation between the companys profitability and the effectiveness of its CSR program over the last 3 to 5 years?

Comparing Johnson & Johnsons stock value and Gross Profit Margins over the past five to six years there is no, or negative correlation to its CSR programs over the same time as can be seen in the following two charts.

(Ycharts 2012)

(Ychart 2012)

e.

Discuss your opinions relating to the motivation and the intent of Johnson and Johnsons management in leading a CSR effort.

In our opinion, J&J has a vested interest in a strong CSR image, given that its products are not just consumer products, but consumer health products. With healthcare, medicines and similar products, trust is one of the most important factors in sales as potential customers will not buy products from a company that doesnt portray an interest in the betterment of society or value human life. One of the most publicised developments in Johnson & Johnsons sustainability reports is its employee health programs and health improvements. This makes a lot of sense, as it would probably be detrimental to have an unhealthy workforce represent the sales force of a leading health care provider.

Other Sources: 1) JnJCanada 2012, Awards and Recognition, http://www.jnjcanada.com/awardsrecognition.aspx 2) JnJ 2008, Sustainability Report 2008, http://www.socialfunds.com/shared/reports/1248455053_Johnson_Sustainability_Report_ 2008.pdf 3) JnJ 2010, Sustainability Report, http://www.jnj.com/wps/wcm/connect/f9f1148046e763e7b0b4bae02a8d6552/110421_FI NAL_J%26J_2010_ResponsibilityReport.pdf?MOD=AJPERES 4) Ychart 2012, JnJ gross margin & price chart, http://ycharts.com/companies/JNJ/gross_profit_margin#zoom=10