Window dressing
Professor Henk Volberda studies new business models, strategic flexibility and management innovation at the Business School of the University of Amsterdam. He shares some insights on the subject of purpose: “Most companies are trying to find a balance between being profitable and sustainable, between their shareholders and stakeholders. When sustainability goals help with maximizing profits and minimizing losses, this balance is very easy. However, when an ethical purpose and financial purpose of a company counteract each other, it becomes a different story.”
5 min
TRENDWATCH
A critical note on purpose
Almost every week some large food company presents new sustainability goals or publishes results of a social equality program. Most companies have some form of purpose, next to making money. These kinds of initiatives should always be welcomed, but it does not take a great cynic to wonder how much value these promises have
Jurgen Elenbaas Sander van der Meij
Critique
After all, news publications do not explain which processes in these companies do not change, nor can we automatically assume these companies keep their promises. Some promises may be empty, just to please the public. If never examined, these suspicions may end up discrediting the companies that actually have good intentions. So, how do we discern which companies practice what they preach?
Sin of fibbing
Environmental claims that are blatantly false. For example, saying that a diesel car emits zero carbon dioxide into the air.
Sin of lesser of two evils
Environmental claims on products that have no environmental benefits to begin with. For example, saying cigarettes are organic.
Sin of irrelevance
Unrelated environmental issues are emphasized. For example, saying a phone is “CFC-free” when CFCs are already banned by law.
Sin of worshipping false labels
Creating false certifications or labels. For example, creating a fake certification to mislead consumers into believing that the product went through a legitimate green screening process.
Sin of vagueness
Environmental claims that are lacking in specifics. These claims sound promising, but don’t actually mean anything. For example ‘eco-friendly’ or ‘green’.
Sin of no proof
Claims that are not backed up by factual evidence or third-party certification. A company has to provide easily accessible proof of a claim, for example on the label or website.
Sin of the hidden trade-off
Issues that are emphasized at the expense of another potentially more concerning issue. For example, a company that emphasizes its low carbon footprint, while using a lot of poisonous metals.
The seven sins of ‘greenwashing’
Some firms do have a clear corporate purpose but do not stick to this in their actual behavior. This is called window dressing or symbolic adoption: they appear to have ethical goals such as social equality but in practice they don’t change anything in their strategy and processes. Volberda explains there are two techniques that help discern which companies put their money where their mouths are.
- Institutions, regulatory institutions, NGO’s and scientists check whether companies actually adhere to their goals and compare their way of working to the United Nations Sustainable Development Goals (UNSDG). The World Benchmark Alliance for example, examines the 2000 most influential companies on seven transformations, such as digital, social, and circular. Campbell’s, for example, is cited as a keystone company in the food & beverage transformation and the social transformation. PepsiCo is identified as a keystone company in the food & beverage, social, and circular transformation.
- One could check the annual (financial) reports of companies. Companies that actually care about their purpose, set Key Performance Indicators (KPIs) to measure the success of their strategies. The financial rewards of high-level managers should be based on their KPIs at the purpose level. Companies that do not set purpose-KPIs, make it hard for managers to adhere to ethical goals, as their reward is based on financial KPIs.
Purpose will become more important
Volberda expects that adhering to a purpose will become more important for companies in the future. Companies that focus on short-term profits are less likely to be financially sustainable in the long run. These companies are not innovative enough. In the European Union, governments and quality labels will expect companies to have a purpose. Besides, more and more shareholders solely invest in companies that have strong sustainability policies. He gives banks as an example, but also pension funds and investment funds.
Foodwatch
What is a purpose driven promise and what is an empty marketing statement? In Europe there is an NGO checking the worth of industry promises: Foodwatch. The organisation is active in four European countries, in France, Germany, Austria and The Netherlands. The company is funded by consumers; it does not accept funding from governments or the food industry. From this independent position, the organisation researches issues related to the food industry and informs the public about them. One example of their activities is a yearly ‘award’ for the most misleading food product.
To what extent are consumers able to discern the truth of companies’ promises? It takes at least some knowledge of various complicated subjects, such as finance, marketing, food systems, social and environmental problems. Not all consumers have that ability.
There is a large opportunity cost to study the intents of companies. Van den Bergh: “To give an example, some time ago it took me hours to research whether paper or ceramic cups were more environmentally friendly. This was a relatively simple subject and it took a long time to collect all the necessary information. Imagine how difficult it is for the average consumer to find the information on the inner workings of a large food company.”
The motivation of consumers to understand companies’ promises and be critical of them differs strongly between groups. Some groups of the population may not even care about the ethical factors of a food product. Yet even people that are interested in food and committed to sustainability goals, may not always be motivated to care. People think long and hard about buying a car, but it takes a lot to think about every product that’s a part of their daily groceries. When people see a sustainability label on a product, they quickly assume that it is good enough, without examining it critically.
Motivation, ability, opportunity
Although it is possible to discern whether companies are serious about their ethical commitments, this may be nearly impossible for consumers. Bram van den Bergh, associate professor at the Rotterdam School of Management, studies consumer behaviour: “I’m quite pessimistic about the ability of consumers to discern the truth of companies’ promises and goals.” A model that is often used in consumer behaviour studies describes three factors:
Consumer dependence
Van den Bergh: “Consumers depend on the research of NGO’s, consultancy firms and governments. The most prevalent way for consumers to use this information is by labels of all kinds. They do give useful information, however the labels have the same pitfalls as the purpose goals themselves: companies can create labels that don’t really mean anything. A useful tool for consumers are the famous ‘seven sins of greenwashing’, created by TerraChoice. Greenwashing is an example of what Volberda called ‘window dressing’ or ‘symbolic adoption’. These do not point out specific, complex problems in companies but enable consumers to be critical in a ‘entry-level’-way.
a critical note on purpose
Window dressing
Professor Henk Volberda studies new business models, strategic flexibility and management innovation at the Business School of the University of Amsterdam. He shares some insights on the subject of purpose: “Most companies are trying to find a balance between being profitable and sustainable, between their shareholders and stakeholders. When sustainability goals help with maximizing profits and minimizing losses, this balance is very easy. However, when an ethical purpose and financial purpose of a company counteract each other, it becomes a different story.”
A critical note on purpose
Almost every week some large food company presents new sustainability goals or publishes results of a social equality program. Most companies have some form of purpose, next to making money. These kinds of initiatives should always be welcomed, but it does not take a great cynic to wonder how much value these promises have
Jurgen Elenbaas Sander van der Meij
Critique
After all, news publications do not explain which processes in these companies do not change, nor can we automatically assume these companies keep their promises. Some promises may be empty, just to please the public. If never examined, these suspicions may end up discrediting the companies that actually have good intentions. So, how do we discern which companies practice what they preach?
Sin of fibbing
Environmental claims that are blatantly false. For example, saying that a diesel car emits zero carbon dioxide into the air.
Sin of lesser of two evils
Environmental claims on products that have no environmental benefits to begin with. For example, saying cigarettes are organic.
Sin of irrelevance
Unrelated environmental issues are emphasized. For example, saying a phone is “CFC-free” when CFCs are already banned by law.
Sin of worshipping false labels
Creating false certifications or labels. For example, creating a fake certification to mislead consumers into believing that the product went through a legitimate green screening process.
Sin of vagueness
Environmental claims that are lacking in specifics. These claims sound promising, but don’t actually mean anything. For example ‘eco-friendly’ or ‘green’.
Sin of no proof
Claims that are not backed up by factual evidence or third-party certification. A company has to provide easily accessible proof of a claim, for example on the label or website.
Sin of the hidden trade-off
Issues that are emphasized at the expense of another potentially more concerning issue. For example, a company that emphasizes its low carbon footprint, while using a lot of poisonous metals.
The seven sins of ‘greenwashing’
Some firms do have a clear corporate purpose but do not stick to this in their actual behavior. This is called window dressing or symbolic adoption: they appear to have ethical goals such as social equality but in practice they don’t change anything in their strategy and processes. Volberda explains there are two techniques that help discern which companies put their money where their mouths are.
- Institutions, regulatory institutions, NGO’s and scientists check whether companies actually adhere to their goals and compare their way of working to the United Nations Sustainable Development Goals (UNSDG). The World Benchmark Alliance for example, examines the 2000 most influential companies on seven transformations, such as digital, social, and circular. Campbell’s, for example, is cited as a keystone company in the food & beverage transformation and the social transformation. PepsiCo is identified as a keystone company in the food & beverage, social, and circular transformation.
- One could check the annual (financial) reports of companies. Companies that actually care about their purpose, set Key Performance Indicators (KPIs) to measure the success of their strategies. The financial rewards of high-level managers should be based on their KPIs at the purpose level. Companies that do not set purpose-KPIs, make it hard for managers to adhere to ethical goals, as their reward is based on financial KPIs.
Purpose will become more important
Volberda expects that adhering to a purpose will become more important for companies in the future. Companies that focus on short-term profits are less likely to be financially sustainable in the long run. These companies are not innovative enough. In the European Union, governments and quality labels will expect companies to have a purpose. Besides, more and more shareholders solely invest in companies that have strong sustainability policies. He gives banks as an example, but also pension funds and investment funds.
Foodwatch
What is a purpose driven promise and what is an empty marketing statement? In Europe there is an NGO checking the worth of industry promises: Foodwatch. The organisation is active in four European countries, in France, Germany, Austria and The Netherlands. The company is funded by consumers; it does not accept funding from governments or the food industry. From this independent position, the organisation researches issues related to the food industry and informs the public about them. One example of their activities is a yearly ‘award’ for the most misleading food product.
To what extent are consumers able to discern the truth of companies’ promises? It takes at least some knowledge of various complicated subjects, such as finance, marketing, food systems, social and environmental problems. Not all consumers have that ability.
There is a large opportunity cost to study the intents of companies. Van den Bergh: “To give an example, some time ago it took me hours to research whether paper or ceramic cups were more environmentally friendly. This was a relatively simple subject and it took a long time to collect all the necessary information. Imagine how difficult it is for the average consumer to find the information on the inner workings of a large food company.”
The motivation of consumers to understand companies’ promises and be critical of them differs strongly between groups. Some groups of the population may not even care about the ethical factors of a food product. Yet even people that are interested in food and committed to sustainability goals, may not always be motivated to care. People think long and hard about buying a car, but it takes a lot to think about every product that’s a part of their daily groceries. When people see a sustainability label on a product, they quickly assume that it is good enough, without examining it critically.
Motivation, ability, opportunity
Although it is possible to discern whether companies are serious about their ethical commitments, this may be nearly impossible for consumers. Bram van den Bergh, associate professor at the Rotterdam School of Management, studies consumer behaviour: “I’m quite pessimistic about the ability of consumers to discern the truth of companies’ promises and goals.” A model that is often used in consumer behaviour studies describes three factors:
Consumer dependence
Van den Bergh: “Consumers depend on the research of NGO’s, consultancy firms and governments. The most prevalent way for consumers to use this information is by labels of all kinds. They do give useful information, however the labels have the same pitfalls as the purpose goals themselves: companies can create labels that don’t really mean anything. A useful tool for consumers are the famous ‘seven sins of greenwashing’, created by TerraChoice. Greenwashing is an example of what Volberda called ‘window dressing’ or ‘symbolic adoption’. These do not point out specific, complex problems in companies but enable consumers to be critical in a ‘entry-level’-way.
5 min