Case Studies in Sustainability Management

The oikos collection Vol. 3

Jordi Vives Gabriel, Jordi Vives Gabriel

• Publisher: Routledge
• Year: 2017
• ISBN:
  9781351287708
• Edition: 1
• Topic: Business
• Subtopic: Business General
• Index: Business

With the rapidly growing importance of sustainability and corporate responsibility in a globalised world, management schools are increasingly integrating long-term economic, environmental and social issues into their teaching and research. Climate change, poverty, labour standards and human rights are among the many topics that future decision-makers will need to face in their careers. Business education needs to reflect this new reality and provide a broadened understanding of value creation in order to create economic capital while developing social and preserving natural capital.

Case studies can be important tools for creating learning processes on different levels - students are forced to struggle with exactly the kinds of decisions and dilemmas managers confront every day. In this reflection of reality, the values and goals of the student are systematically challenged. This can be especially valuable in the context of sustainability management - organisations are now continually forced to value the different aspects of sustainability and their interrelations: How do social issues impact the economic bottom line? How can an environmentally sound strategy create a positive impact on employee motivation and thus have measurable impact on economic performance? What comes first and why?

This third collection of oikos case studies is based on the winning cases from the 2010 to 2013 annual case competition. So what makes an excellent case in sustainability management? These cases have been highly praised because they provide excellent learning opportunities, tell engaging stories, deal with recent situations, include quotations from key actors, are thought-provoking and controversial, require decision-making and provide clear take-aways. These cases are clustered in three different sections: "Large Corporations and Corporate Sustainability Dilemmas", "Managing Stakeholder Relations" and "Sustainability as a Source of Differentiation Strategies". Case Studies in Sustainability Management will be an essential purchase for educators and is likely to be a widely used as a course textbook at all levels of management education.

Online Teaching Notes to accompany each chapter are available on request with the purchase of the book.

Part I
Large corporations
and corporate
sustainability dilemmas

CASE 1
Embedding sustainability at
Novo Nordisk

The compassion vs competitiveness dilemma*

Debapratim Purkayastha and Adapa Srinivasa Rao

How to strike the right balance between business and global health? Again, we were challenged by stakeholders... We set out to show that it is possible to be a profitable and a responsible business. We strengthened our approach to sustainability, now revolving around the right to health and the need for improved diabetes care, actions to combat climate change, ethical business behavior, human rights, and how we can connect the dots.ⁱ

Lise Kingo, Executive Vice President and Chief of Staffs, Novo Nordisk, in 2011

The Danish pharmaceutical company, Novo Nordisk, was named as the most sustainable company in the world' by the business magazine Corporate Knights¹ for the year 2012. Another Novo group company,Novozymes A/S was also ranked fourth in the list of global 100 most sustainable corporations in the world (See Exhibit I for the top 20 companies in the list). Novo Nordisk received the recognition for a number of sustainability related initiatives that it had taken over the years since it had first faced a controversy regarding its business practices in the late 1960s. It started two important initiatives, viz. the Novo Nordisk Way of Management and the Triple Bottom Line philosophy to evolve as an organization with a key focus on sustainability.

Over the years, Novo Nordisks business grew substantially and it emerged as a leader in the global insulin market. In the new millennium, Novo Nordisk's new sustainability strategy placed global health at the center of its sustainability initiatives. According to Novo Nordisk's vision statement, the company strove to find the right balance between compassion and competitiveness. From then on, Novo Nordisk started selling its products at a subsidized price in some of the poorest countries around the world. Despite all the efforts that it took to protect the interests of all its stakeholders, in 2010, Novo Nordisk was severely criticized by patients and NGOs when it stopped selling its drugs in Greece when the crisis-ridden government there ordered a 25 percent cut in the prices of all medicines sold in the country. Novo Nordisk was accused of putting profits above corporate social responsibility. Though the issue was settled later with the resumption of the sale of all its products in Greece, the episode badly dented the image of Novo Nordisk as a company with a focus on sustainability.

Faced with increased regulatory scrutiny and stakeholder activism, the challenge before the senior management of Novo Nordisk was how to tackle the issue and embed sustainability further in the company. According to them, as a global healthcare company focused on diabetes treatment, they had to often face the compassion vs competitiveness dilemma and the conflicting demands of multiple stakeholders. In their words: 'Even though our core business philosophy requires us to make a difference where we can, there are significant dilemmas involved for us as a company. What role should we assume in developing countries? How can we develop new sustainable business models? How will our investors respond to such business models? How do we avoid creating unhealthy dependencies between us and our project partners?'ⁱⁱ

Background note

Novo Nordisk, a global leader in insulin, was formed in 1989 through the merger of two Danish companies, Novo Industri A/S and Nordisk Gentofte A/S. Novo Nor-disk's roots can be traced to Nordisk Insulinlaboratorium, which was founded in 1923 to produce insulin. Novo Nordisk pioneered many breakthroughs in diabetes treatment.

After the merger, Novo Nordisk A/S rolled out a lot of innovations like prefilled insulin syringes, oral treatment syringes, rapid acting insulin, etc. By the late 1990s, it started focusing more on international markets. In 2000, Novo Nordisk A/S was demerged into three separate companies—Novo Nordisk A/S (Novo Nordisk), Novozymes A/S, and Novo A/S. After the demerger of Novo Nordisk A/S, Novo A/S was made the holding company of the Novo Group and was wholly-owned by the Novo Nordisk Foundation. Majority shares in both Novo Nordisk and Novozymes A/S were transferred to Novo A/S. While Novo Nordisk continued to focus on pharmaceutical products and services, the enzymes business of Novo Nordisk A/S was transferred to Novozymes A/S. In the decade that followed the demerger, Novo Nordisk expanded its business across the globe and emerged as a leading pharmaceutical company in the area of diabetes care. By 2011, Novo Nordisk employed 32,000 people in 75 countries and marketed its products in 190 countries. For the financial year 2011, Novo Nordisk's revenue was Danish Kroner² (DKK) 66.35 billion (See Exhibit II for the income statement of Novo Nordisk from 2007 to 201l).ⁱⁱⁱ It was placed 18th on the list of top pharmaceutical companies of the world by revenue.

History of sustainability at Novo Nordisk

In the late 1960s, Novo Nordisk faced severe stakeholder criticism for the first time in its history. During the 1960s, Novo Nordisk's predecessor, Novo, had started producing enzymes through new production processes of fermentation of microorganisms. These new processes used genetically engineered microorganisms and led to the evolution of a successful new product line of enzymes. These enzymes became important ingredients in many products, like detergents. Environmental organizations and activists alleged that the use of enzymes developed by Novo could cause skin allergies in people who came into contact with them. They also alleged that the dust generated during the production process of the enzymes could have serious effects on the health of Novo Nordisk's workers. An activist called Ralph Nader started a movement against the laundry industry in the US which created a stir both in the US and around the world. The sales of Novo fell dramatically between 1970 and 1971 due to the concerns raised by activists. Nearly 700 employees of Novo lost their jobs due to the crisis. Novo responded swiftly and developed dust-free enzymes which did not pose any risk to its consumers or employees. The sales of Novo's enzyme products rose soon and enzyme production became an important part of Novo's business in many countries like Denmark, the US, and Japan. This episode made Novo realize the importance of keeping the interests of all stakeholders in mind. Since then, Novo, and subsequently, Novo Nordisk, focused on producing products which did not affect the health of consumers and which were environmentally friendly.

Novo Nordisk took its first significant step toward sustainable development in 1989 when it conducted its first environmental management review. It took this significant step as an element of its proactive stakeholder strategy in the days when environmental reporting was not compulsory for companies like Novo Nordisk. From 1991, it started organizing visits of its laboratories and production facilities for representatives of NGOs as part of its stakeholder engagement strategy.^iv In 1992, some people from Novo Nordisk attended the United Nations Conference on Environment and Development (UNCED) Earth Summit organized in Rio de Janeiro. The summit made Novo Nordisk realize the importance of environmental protection and led to its reinforcing its commitment to sustainable development. Commenting on the impact that the 1992 Earth Summit had on Novo Nordisk's commitment to sustainable development, Novo Nordisk's Executive Vice President and Chief Of Staffs, Lise Kingo (Kingo), said, 'We came back from Rio with a better understanding of how huge an agenda environmental protection was, how many stakeholders were involved, and that many other companies were taking an interest. It was a real eye-opener.'^v In 1994, Novo Nordisk published its first environmental report. It became the first company in Denmark and one of the first in the world to publish an environmental report.^vi The report contained details regarding resource consumption, emissions in its production processes, and the use of animals in its experiments. The environmental report was followed by Novo Nordisk's first social report in 1998. And since 1999, Novo Nordisk started publishing annual reports on sustainability which integrated its environmental, social, and economic concerns.

Novo Nordisk way of management

In 1996, Novo Nordisk introduced the Novo Nordisk Way of Management (NNWM) to serve as an overall guidance system to reach its strategic goals. NNWM served as the value-based governance framework for the company. It described how people at Novo Nordisk put values into action and defined the principles to be followed by the company while doing business.^vii NNWM offered a broad framework of guidelines to the employees and covered Novo Nordisk's activities beyond the products and manufacturing operations. The central part of the goal was to integrate and implement the various sustainable business practices of Novo Nordisk. NNWM consisted of three parts, viz. the vision, the charter, and global company policies (See Figure 1.1 for Novo Nordisk Way of Management and Exhibit III for its building blocks of sustainability).

Figure 1.1 Novo Nordisk way of management
Source: Novo Nordisk A/S: Sustainability Report 2003, www.novonordisk.com.

The vision of NNWM set the direction for Novo Nordisk. It expressed what goals Novo Nordisk was striving to achieve, how the company wanted to achieve its goals, and how the company was guided by its values to strike the right balance between its commercial interests and acting as a responsible business. The Charter explained the company's values, commitments, fundamentals, and follow-up methods. The values highlighted the company's commitment to the Triple Bottom Line and sustainable development. Fundamentals were a set of 11 management principles to ensure it stayed focused on its business objectives, customers, compliance, collaboration, and sharing of better practices, and quality mindset.^viii Follow-up methods provided a systematic documentation of the performance of all material areas of Novo Nordisk. The global company policies set global standards for its managers and gave operational guidelines on 13 specific areas related to its business.

In addition to coming out with an innovative way of managing its activities through NNWM, Novo Nordisk took steps to ensure that the entire organization understood and followed it. It had developed a methodology consisting of three elements: facilitators, sustainability reporting, and balanced scorecard. The facilitators were a group of 16 senior professionals at Novo Nordisk's holding company Novo A/S. These facilitators traveled in pairs and visited all the business units and levels of the whole organization once every three years. They performed a well-planned and structured assessment of the implementation of NNWM within a project or unit. The main objective of the facilitation process was to develop agreed upon actions for improvement. The facilitation process consisted of three stages. The first was the pre-facilitation stage in which the scope of the facilitation process was iden...