Diageo: drinking responsibly, working responsibly

Zanna Rodrigues

 

Posted in: Strategy, Waste

Diageo: drinking responsibly, working responsibly

January 01, 2006

The shiny, happy image of alcoholic beverages has taken a knocking in recent months. During discussions around 24-hour licensing laws, which were introduced on November 24, a less appealing vision of drunken louts engaging in alcohol-fuelled anti-social behaviour usurped the well-heeled, hip ambassadors that are usually seen in commercials for alcohol. Footballer George Best’s untimely and much publicised death provided a moment for the media to examine the otherwise taboo topic of alcoholism and its social impact. So it is no surprise, as Geoffrey Bush, Director of Corporate Citizenship for alcoholic beverage manufacturer Diageo tells Briefing, that the promotion of responsible drinking is number one on the company’s list of CSR priorities. What is perhaps surprising, however, is that despite its youth – the company formed just eight years ago – and despite social ambivalence towards its core products Diageo has still managed to make its way onto the Global 100, a list of the world’s most sustainable corporations.

A brief history of Diageo

Created through the merger of Guinness and Grand Metropolitan in 1997, followed by the acquisition four years later of Seagram’s wine and spirits brands, Diageo is the world’s largest premium drinks business. Its products are manufactured on six continents and sold in 180 countries. In 2005, it had an annual turnover of £9.03bn and employed over 20,000 people. Household names among its brands include J&B, Baileys, Gordon’s Gin, Pimm’s and Guinness. The business comprises both supply functions – manufacturing, packaging and warehousing – and demand functions – distribution, marketing and sales. Diageo makes around four-fifths of its products itself, with the remainder manufactured by companies in which it has a minority holding, or under contracts with commercial partners.

Embedding CSR

Despite the breadth and depth of its operations, Bush says the company has embedded CSR on a worldwide basis. Policies, processes and measures for managing responsible drinking, environmental issues and reporting have been implemented at a country, regional and global level. He makes this achievement sound simple: “Our policies and processes are agreed at the start with input from managers across the business. These flow from the company values, which are firmly embedded in the business culture”.

The secret of the company’s success seems to be in its people, helped in no small measure by leadership from the top: “Managers fully understand the importance of CSR for our company’s reputation and its license to operate? it is something our employees expect us to do, and they expect us to do it well”.

Strategic thinking

CEO Paul Walsh heads the Corporate Citizenship Committee, which is responsible for overseeing Diageo’s CSR strategy. This cross-functional committee comprises senior executives drawn from across the business, to ensure that the strategy is international in scope and covers every aspect of the business. The committee meets once or twice annually to set priorities, and CSR performance is reported on at least annually to Diageo’s board of non-executive directors.

The steering group works together with a series of sub-groups, which both advise on the development of and help implement policies around specific issues. The most important of these is the Responsible Drinking sub-group, whose members span several functions including Human Resources and Marketing, to ensure that the company’s approach encompasses every facet of the business, from product, to employees, to consumers. Sub-groups are also set up on an ad-hoc basis to deal with emerging issues, such as human rights. Stakeholder engagement plays a key role in informing the work of these sub-groups. For example, Diageo consulted extensively with socially responsible investors, not-for-profit organisations and peer companies in crafting its human rights policy. But while the company does pay careful attention to outside expectations, the acid test for any policy is whether it can be implemented and its performance measured.

From policy to practice

The task of policy implementation falls partly within the remit of Diageo’s Audit and Risk Committee, which is responsible for ensuring compliance with codes of practice, for example Diageo’s wide-ranging and thorough code of marketing practice, introduced in 2002. All brand and PR teams are trained to use the standards, which include sections that address underage drinking, responsible drinking and drinking and driving. An in-country senior manager must sign off every new advertisement or promotion against the code. The code appears to be effective. In the past three years, the UK’s Advertising Standards Authority has upheld just one complaint about a Diageo advertisement. Diageo has subsequently shared the code with the alcohol industry to spread best practice: “We see it not so much as a point of differentiation, but as something that industry needs to do”, says Geoffrey. But Diageo remains ahead of the pack in tackling the issue, on paper at least. A criticism that has been levelled at the code, however, is that even if advertisements designed to appeal to 25 year olds adhere to the letter of the code, in terms of the content and the medium in which they appear, they may still capture an audience below the legal drinking age.

Getting employees on board

Responsible marketing isn’t the only way in which Diageo tries to encourage responsible consumption. Working for the company is not a ticket to unlimited free drinks and a life of hedonism. Instead, all employees are expected to be ambassadors of the company’s responsible drinking policy, in whichever market they work – living proof that ‘responsible drinking’ is not an oxymoron, even outside the office.

Tackling the supply chain

The company is also addressing the issue in its supply chain, most notably at the point of sale through its globally applied Responsible Server programme. Launched in Brazil, the initiative raises awareness among bartenders of methods to discourage punters from drinking too much too quickly. Over 24,000 trainee bartenders have taken part in the programme, which has been replicated in twelve countries including Colombia, France, Jamaica and Nigeria.

It is a challenge to extend responsible business practices throughout a supply chain with far-reaching forward and backward linkages. Diageo uses a risk-based approach to prioritise which issues to tackle. The work is never done – even when processes are in place and targets achieved, the company is constantly on the lookout for emerging issues. Bush speaks of the need to be vigilant in order to remain ahead of the game. But, he adds: “It is a never-ending challenge to maintain the balance between social expectations and commercial sustainability”.

The social life of business

CSR is firmly in the spotlight, partly because the public increasingly expects multinationals to provide the miracle cure for the great problems of poverty, water and HIV/AIDS. Bush’s take on this is that while business has capabilities that it can bring to bear in tackling the issues, it can only act within certain parameters, and achieves most by working in partnership – whether with other business, not-for-profits or government agencies. For example, Diageo is a member of the International Center for Alcohol Policies, a think tank promoting understanding of the role of alcohol in society to help reduce the abuse of alcohol worldwide. It is engaged in dialogue with the public health community, industry, governments and a wide range of international agencies through this body.

Diageo’s role in tackling social ills is also visible through its community involvement activities. In its 2005 CSR report, the company says: “the challenge is about using human and financial resources to create positive and long-term change within our communities. We focus these resources, concentrating on key themes and working in partnership with others.” At its inception, Diageo committed to invest one per cent of its operating profit in communities around the world. In 2005, a total of £2.26m was invested, amounting to 1.2% of operating profit.

A portion of this funding is dispensed by the Diageo Foundation, which steers and develops the company’s approach to community investment. Businesses around the world may submit proposals to the foundation, which considers each project on the basis of its predicted business and community benefits. For this reason, much of the funding is awarded to programmes in developing countries, as it is in these markets that need and impact are often greatest. Diageo’s community work in North America and Europe, on the other hand, tends to focus on responsible drinking.

If awarded funding, each business is responsible for managing its selected project, but the Foundation provides support in the form of toolkits and sharing of best practice. One of the key tools for measuring the impact of its community investments is the London Benchmarking Group model, which the company uses at a global level. Diageo is a founding member of the LBG and over the past ten years, it has accumulated a detailed knowledge of its spending in the community. It is able to use its LBG data to track the impacts of its investments so far, and compare programmes across markets.

There are two key challenges in managing community programmes – one is that they should be sustainable in the longer term once Diageo’s initial support has concluded. The second is in ensuring that where employees are directly involved in a community project, focus and effort are maintained. This requires careful management, since business commitments must always be the priority.

Independent external evaluation plays an essential role in assessing the effectiveness of Diageo’s approach to community involvement. An evaluation of the impact of flagship community programme Tomorrow’s People Trust, an organisation to tackle long-term unemployment, indicates that in twenty years the trust has helped 382,000 people into employment, with the benefits to society estimated at £450m. Diageo invested £25m in helping to grow the trust, which has now become a legally independent entity.

Diageo in dialogue

Community involvement is one way of building an interface with the outside world. Thorough stakeholder engagement is another. Diageo’s key stakeholders are its investors, employees, commercial partners, government, community, the media and its brand consumers. All of Diageo’s markets are required not only to draw up plans to ensure appropriate engagement with these groups on specific issues, but also to report on these plans. The most important of these stakeholder engagement plans is, of course, on responsible drinking. According to Bush, one of the biggest difficulties in engaging with stakeholders is building genuine trust. “It takes time to build trust,” he says, “for stakeholders to trust that you will do what you say you will and that you are dealing with the issue in a proper balanced way.”

Acting on stakeholder feedback is of prime importance to Diageo. When the company’s Australian CEO realised that the industry’s responsible drinking strategies were not considered to be a sufficient response to societal concerns, he took a 6-month sabbatical to try to rectify the situation. Consultation with governments and not-for-profits eventually led to Australia’s first National Alcohol Strategy, which was followed by the UK’s own alcohol strategy, launched by Prime Minister Tony Blair at Diageo’s London offices.

Its good to talk

Intimately linked to stakeholder engagement is reporting, one of the key tools used to communicate Diageo’s progress on CSR with a range of stakeholders. Following the publication of its first full ‘triple-bottom-line’ CSR report in 2003, Diageo brought together a forum of specialists in relevant aspects of corporate citizenship who it invited to challenge its reporting process. In its two most recent reports, Diageo used the indicators of the Global Reporting Initiative. “We continue to refine the range of measures we use to track our performance to provide shareholders with a meaningful picture of our business. Measuring performance is an essential part of improving it,” the company says.

Clearly this presents a range of challenges for a trans-national company, but Diageo reports that over the past year, it has made advances in “widening geographical coverage, in defining measures consistently and in accurately reporting performance data.” The company has now reported on, or is preparing to report on CSR in Australia, Canada, East Africa, Greece, Ireland, Jamaica, Korea, Nigeria, Poland, Scotland, Seychelles and Spain. By reporting at national, regional and global levels, Diageo is able to offer its stakeholders both a global perspective and to drill down to issues with local resonance.

Its global report is prepared in accordance with GRI guidelines, so that readers can track the company’s performance over time and make comparisons with similar companies. The company uses the London Benchmarking Group Model to report on community investment and is currently engaged in an ICAP-mediated process to agree on common standards of reporting on the social aspects of alcohol, which will make company comparisons easier in the future.

Corporate Citizenship Briefing, issue no: 85 – January, 2006

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