Institutionalising corporate citizenship: the case of Barloworld and its ‘Employee Value Creation’ process

Abstract

This article investigates the institutionalisation of corporate citizenship (CC) at Barloworld Limited, a diversified industrial enterprise. It describes a model that relates corporate identity, stakeholder engagement, internal structure and accountability and applies this model to a case study of Barloworld. The case study illustrates the importance of the company's corporate identity, or guiding philosophy, and its impact on organisational culture and management processes. The company's ‘Employee Value Creation’ strategy has comprehensively overhauled employee relations to achieve a high degree of employee commitment and participation. It institutionalises CC by integrating social or environmental issues into the organisation ‘from below’ and by helping employees understand why such issues matter to the organisation and are relevant to employees' responsibilities. Whereas the relevant literature emphasises the possible role of CC in creating employee commitment, this case study illustrates the reverse possibility: that employee commitment can be a catalyst for integrating CC into a company.

1. Introduction

Owing to the increasingly dynamic, diverse and complex nature of social and economic life across the world, the nature of doing business has fundamentally changed. The relationship between business and society is being realigned. Enterprises are frequently confronted by new and unforeseen demands. Responding to these expectations requires significant change within companies and in their external activities. It is, however, unclear how the roles, responsibilities and functions of business should be defined, given this transition. Enterprises are slowly starting to realise that a new strategic ‘fit’ is needed if they do not wish to jeopardise their ‘social licence to operate’ (e.g. Carroll, 1999; Zajac et al., 2000; Andriof & McIntosh, 2001; Holliday et al., 2002; Crane & Matten, 2004).

In response to these changes, the concept of corporate citizenship (CC) has become increasingly prominent in management thinking and practice. This is reflected, for instance, in the proliferation of CC-related initiatives and guidelines (including, in South Africa, the JSE SRI Index (www.jse.co.za) and the King II report on corporate governance – King Committee on Corporate Governance, 2002), and the increase in the publication of CC-related company reports (see www.globalreporting.org; Sustainability et al., 2004; KPMG & University of Amsterdam, 2005; and also the article by Sonnenberg and Hamann in this edition).

The essence of the CC concept is that doing business not only entails the creation of economic value but also has to take social and environmental issues (e.g. pollution, poverty, health, community development and inequity) into account. It implies that enterprises are recognising the importance of a wider contribution to society and learning to organise accordingly. This places new demands on existing business strategies, systems, policies and plans. They need to be revised, if not redesigned, to put the concept of CC into organisational practice (Carroll, 1999; Fussler et al., 2004; Jonker et al., 2004; Trialogue, 2005).

CC plays an important role in South Africa, particularly given the country's apartheid history. Even though the economy has become reintegrated into the global market, severe social problems such as poverty and disease persist. South African businesses are expected to play a prominent role in dealing with these problems, and this creates particular challenges and opportunities for the institutionalisation of CC (see also the introductory article in this edition). However, there is a marked absence of reliable, empirical information on these challenges and opportunities, and in particular there is a need for more case studies of companies grappling with the concept of CC. Case studies related to CC are important for some of the following reasons:

• They are a vital methodological tool for developing an in-depth, contextualised understanding of CC issues, whether at the project, organisational, or social level of analysis.

• They are an effective learning tool for companies faced with the complex challenges of their role in society, and they can be focused on issues that are relevant to the particular company.

• They are also an effective learning tool for students at undergraduate, postgraduate and executive level, because they can be used to immerse students in the multifaceted issues and dilemmas commonly encountered with regard to CC (UNISA Centre for Corporate Citizenship, 2005).

This article aims to contribute to the development of pertinent case studies by, first, describing a model that can be used to analyse the institutionalisation of CC within companies and, secondly, applying this model to a case study of Barloworld. This case study illustrates the crucial role of organisational culture and employee commitment in integrating CC into a company.

1.1 The analytical model

The model applied in this case study was developed in order to contribute to the South African CC debate by providing a methodological framework for gathering information on integrating CC in enterprises operating in South Africa (Appels & van Duin, 2004). It is also meant to provide a tool for companies to define how far they have integrated CC into their organisation's values, structures and processes. As there are many different ways in which a company could institutionalise CC (Jonker, 2003), the focus of this research was on characterising and assessing the diverse ways in which particular companies in South Africa have approached CC. The case study described in this article is one of several undertaken for the UNISA Centre for Corporate Citizenship Case Study Unit. The Barloworld case study is discussed here for its particular interest and contribution to the available literature.

The premise of the model is that in order be a ‘good corporate citizen’, CC values and principles need to be embedded in all the activities and processes of a company (Andriof & McIntosh, 2001; Holliday et al., 2002). In other words, CC should become an integral part of the corporate culture, or the ‘company's DNA’. This is particularly relevant in South Africa, where there is a lingering perception that corporate citizenship is about philanthropy or ‘corporate social investment’ (Trialogue, 2005; see also the introductory article in this issue).

At the core of the model is the Business Proposition, representing the enterprise's reason for existence (see Figure 1). Ideally, this statement should include some reference to CC. The model is based on four components, each focusing on one specific aspect of CC:

• (1) Corporate identity: the company's individual context and its sense of purpose regarding CC. This identity may be stipulated, for instance, in its vision and values, or it may be more intangible.

• (2) Stakeholder engagement: the way the company interacts with its external stakeholders, or those who are affected by or may affect the enterprise (Clarkson, 1995). It also includes the process of responding to the CC-related issues identified by these stakeholders.

• (3) Internal structure: the way the enterprise organises its internal affairs in order to achieve its CC objectives, with an emphasis on integrating CC-related issues in all aspects of the business.

• (4) Accountability: the communication and control mechanisms implemented in the company to ensure accountability both to internal and external stakeholders.

Figure 1: The conceptual model of the integration of CC into a business organisation

In terms of corporate identity, the model expects that the company leadership will develop a vision of the role and position of the enterprise in its context. This vision has to be crafted by means of interaction and dialogue with stakeholders, and on the basis of values such as inclusion and respect for diversity. It should be driven by a firm conviction of the company's possible contribution to society. Finally, this vision should be translated into strategies, plans and activities according to which management and employees can act. It requires that managers go beyond a one-dimensional economic perspective on their roles and responsibilities.

The applicability and value of the model was explored by conducting five in-depth case studies in enterprises operating in different sectors in South Africa. These showed that the model provides a useful systematic framework for describing and analysing the institutionalisation of CC, and offers companies a mechanism for assessing their progress in this regard. The case studies demonstrate the divergence of approaches to CC, including a diversity of strategic emphases.

The analysis also confirms that there is a hierarchical order in the components of the model (see Figure 1). Corporate identity provides the company with an overarching sense of direction with regard to CC. This offers a foundation for stakeholder engagement and the establishment of internal management structures and processes for dealing with social and environmental issues. It is also apparent that there needs to be close interaction between the stakeholder engagement, on the one hand, and the internal structures and processes, on the other. Once these operational elements are in place, the accountability measures provide external and internal stakeholders with an overview of the company's CC performance. This includes the publication of sustainability reports, as well as internal communication with employees.

1.2 Contribution of this case study

This article describes how the model was applied in a case study of Barloworld. The case study shows that by implementing a strategy for enhancing employee commitment the company created a significant catalyst for integrating CC-related issues into the company. This is an important finding because it extends and links two separate areas of the literature: first, there is a well-established set of arguments relating employee commitment to organisational performance, especially financial performance (e.g. Huselid, 1995; Becker & Gerhart, 1996). This article extends these arguments to suggest that employee commitment is also an antecedent to improved corporate citizenship.

Secondly, a number of commentators have argued that improved CC can enhance employee commitment, but they have not considered the reverse relationship (Dutton et al., 1994; Maignan et al., 1999; Peterson, 2004). For instance, while Maignan et al. (1999) consider organisational culture as an antecedent, they do not include employee commitment in this concept and instead consider it in terms of a potential outcome only. The Barloworld case study shows that the reverse is also true and that enhanced employee commitment can play a crucial role in implementing CC.

2. Case study of Barloworld

The aim of carrying out the case study was to investigate the way Barloworld integrates corporate citizenship into its business strategy and processes. The data gathering encompassed document research, semi-structured interviews and observation. Relevant documents included external corporate communications, such as annual reports, as well as internal documents, such as the company newsletter. They also included complementary sources of information, such as corporate websites, newspaper and magazine articles and subject-related literature.

Face-to-face interviews were conducted with senior management at corporate and divisional level (including the CEO of Barloworld, the CEOs of the various divisions, and a number of managers in diverse fields, such as corporate affairs, corporate social investment, finance and human resources). The interviews were guided by a protocol based on the model described above, although interviewees were encouraged to describe their experiences in a narrative style (Flick, 2002; Czarniawska, 2003). To enhance confidence in the findings, the interviews were conducted by a two-person team, with one researcher handling the research questions, while the other recorded notes and observations (Eisenhardt, 1989). Finally, data was generated through direct observation during site visits to various operations of different divisions.

2.1 Company profile and overview

Barloworld Limited was founded in 1902 by Major Ernest (Billy) Barlow as ‘Thos. Barlow & Sons’ in Durban, South Africa. Initially the company sold woollen goods, such as blankets and coats, but within five years it had evolved towards the supply of engineering components.

Currently, Barloworld consists of seven operating divisions, each with significant levels of strategic and managerial independence: equipment (sale and rental of Caterpillar machines and engines), industrial distribution (Hyster lift trucks and Freightliner on-highway trucks), motor (sale and rental of passenger and commercial vehicles), cement and lime (manufacture and sale of cementitious products and aggregates), scientific (design, manufacture, and distribution of scientific and laboratory equipment), coatings (production and sale of architectural and automotive coatings) and steel tube (manufacture and sale of steel tube and pipe, flanges, and fittings). In addition, the company has a growing logistics business (supply chain solutions, including warehousing and transport) and the operating divisions are supported by corporate operations, which include finance and treasury, technology, risk, human resources and other group services. The company employs approximately 26 000 people in 31 countries worldwide and it markets products and services in over 100 countries (Barloworld, 2005).

The company's stated goal is to create value for key stakeholders through leadership in every market in which it operates. In a number of its operations it acts as a dealer linking the manufacturer (e.g. Caterpillar, Hyster and a range of motor vehicle brands) with the customer in local markets. Value is added through sales, delivery of after-market services and provision of ‘total solutions’ to customers' needs. At the end of 2005, Barloworld's revenue was US$6149 million (R39 401 million) and the operating profit for that year was US$543 million (R3480 million). Forty-eight per cent of the revenue is generated in currencies other than South African rand. Barloworld has a simple shareholder structure with over 98 per cent of the shares held by institutional investors. Approximately 75 per cent of these are based in South Africa, with the balance being mostly in the United States and Europe (Barloworld, 2005: 7, 37, 94).

2.2 Barloworld's organisational culture and business proposition

A recurring theme among interviewees is that there is a ‘strong ethos of seeking to do the right thing’ (Mark Drewell, Head Corporate Communications, interview). These cultural norms and values are said to originate in the strong ideals of the company's founders, and they are meant to be implicitly understood by everyone in the organisation. Although they are not easily encapsulated in systems and processes, they pervade all aspects of the business. It is apparent, therefore, that interviewees and other corporate communications seek to portray an organisational culture that emphasises values that implicitly underpin CC (e.g. Barloworld, 2005). Reference is also made in this regard to the company's role as the first large South African company to recognise trade unions in the 1970s and its contribution to the political transition in the years preceding the country's first democratic elections in 1994 (e.g. Andre Lamprecht, Managing Director, Coatings Division, interview; Mark Drewell, interview).

This organisational culture is said to have played a crucial role in the far-reaching transition that the company underwent in the wake of apartheid after 1994. Like many other companies in South Africa, the company was faced with significant pressures to adapt to international markets by enhancing competitiveness and simplifying its corporate structures. This entailed the retrenchment of about half the company's South African workforce between 1994 and 1997 (from an original number of about 24 000) and a focus on a smaller number of brands.

This transition presented the company with significant challenges, and it needed to establish a new corporate identity and develop renewed commitment from its employees. With regard to corporate identity, the company developed the ‘Value Based Management’ (VBM) philosophy, described by the CEO in interview as follows: ‘We measure our business success by the extent to which [the operations] add value for all stakeholder groups within the context of our all-encompassing social and physical environment’.

The key stakeholders identified by the company are shareholders, customers, principals and suppliers, employees and the community (encompassing the social and natural environment). The company's stated business philosophy – ‘To sustainably create value simultaneously for all our stakeholders’ (Barloworld, 2005: 2) – is remarkable in that this is one of very few companies that explicitly emphasise the link between sustainability and stakeholders in their overarching vision statement. Furthermore, this approach to creating value simultaneously for all stakeholders is considered a crucial foundation for the company's success:

VBM is fundamentally different because it requires that we move beyond the traditional approach of trade-offs of profits versus environmental issues or customers versus suppliers, and search for solutions which add value for all. (Barloworld, 2005: 11)

2.3 Establishing employee commitment through the ‘Employee Value Creation’ process

A key component in the development of VBM during the late 1990s was a fundamental overhaul of the company's approach to employee relations. An enterprise-wide survey conducted in 1999 showed that employees had little understanding of the company's direction and their role in achieving its goals. Motivated by the findings of this survey, the overall transition in the company, and a belief that employee commitment was a prerequisite for financial performance, the company's leadership committed itself to a significant investment in a new approach to human resource management.

However, tools to ‘unleash the passion and capacity of people’ (Mark Drewell, interview) in order to create employee commitment were still in their infancy. In combination with the corporate policy of allowing significant managerial independence of the various divisions, each of the divisions initially implemented its own transformation of human resource strategy. The cement and lime division, Pretoria Portland Cement (PPC), was the first to develop far-reaching commitment and an innovative approach. This commitment within PPC was premised on, among other things, its relatively poor financial performance at the time and a resulting willingness to innovate.

As noted by PPC's Managing Director, the company saw the creation of a conducive working environment and the involvement of all employees as a high priority (Orrie Fenn, Managing Director PPC, interview). The company pioneered the ‘Kambuku’ strategy (named after a Kruger National Park elephant, meaning ‘a better life for all’) initiated by John Gomersall, CEO of PPC, and facilitated by Rob Burn, then Human Resources Director of PPC. The Kambuku process had excellent results at PPC and was subsequently recognised by Barloworld as the best practice strategy and formalised for implementation throughout the corporation in terms of the ‘Employee Value Creation’ (EVC) process.

The Kambuku/EVC process involves a complete change in the relationships and the management systems in the organisation. It commences with a three-day workshop involving all employees in each business unit. Based on skilled facilitation (initially by external consultants, but subsequently by specialised employees), these workshops have three key objectives:

• to connect people on a ‘human level’, allowing employees at different levels to relate to each other in more personal ways;

• to encourage managers to embrace more inclusive and engaging management styles, rather than a traditional command and control approach; and

• to stimulate transparency and clarify responsibilities, providing all employees with an understanding of how their respective roles contribute to organisational objectives – in the company's parlance, creating a ‘line of sight’ for each job.

The actual implementation of the EVC approach depends on a ‘relentless daily process of problem solving’ (Mark Drewell, interview). It involves daily, structured meetings in the workplace, known as ‘invocoms’ (involvement and communication meetings), as well as road shows and presentations to employees. The purpose of the invocoms is to provide an overview of the day's priorities and work programme, including the definition of the day's goals and focus areas. They also allow all employees an opportunity to raise issues of concern and to identify problems that need solving, preferably within the day. Importantly, the issues raised in the early invocoms frequently relate to personal issues rather than business objectives (Mark Drewell, interview). Once such issues have been responded to, there is increased confidence to raise more performance related concerns, such as relationships with management.

The invocoms and related tools offer employees a clear purpose and responsibility with respect to organisational objectives. This link is further strengthened by performance rewards and balanced scorecards, both for individual employees and business units (see Box 1). The guiding framework for these performance appraisals is the corporate business proposition, ‘to sustainably create value simultaneously for all our stakeholders’ (Barloworld, 2005: 2).

Box 1: Sguntsu Stemela: Barloworld CEO Award winner 2001

These dedicated discussion forums allow the early detection of problems and opportunities in the workplace, and they facilitate a collective problem-solving process. The agenda for invocoms is not stipulated by senior management, but rather relies on input from employees. This stimulates interactive discussion to get a better understanding of the issues at hand.

2.4 Benefits of the EVC process for CC

The overarching objective of the EVC process is to create a critical mass of dedicated and committed employees in order to enhance business performance. Significantly, this also facilitates the institutionalisation of CC in the organisation. For a start, employees frequently raise CC-related issues in the invocoms or related processes, such as community health or HIV/AIDS. These issues are then responded to in terms of the structured performance management systems. In effect, the EVC process thus provides a mechanism for CC-related issues to be integrated into the organisation ‘from below’, without some of the tensions that this generates in other organisations (Dickinson, forthcoming).

Furthermore, the EVC process provides employees with an understanding of why CC-related issues and systems are important to the organisation and relevant to their respective responsibilities. An illustrative example is that of a factory worker who could explain to the researchers what the purpose and implications of the ISO 14 000 series of environmental management system standards are. He was also able to explain its implications for his own role in the organisation. This is quite remarkable for an employee at that level and it suggests that the implementation of CC-related processes is enhanced by this kind of understanding and commitment.

2.5 Remaining challenges: spreading good practice and stakeholder engagement

Although the EVC process is widely respected at Barloworld, the company faces a number of challenges with regard to its widespread adoption. Although the principles of the EVC process are considered universally applicable as best practice, the conditions prevailing at PPC during its development and adoption of the Kambuku strategy are not necessarily universal.

A key requirement here is total commitment and understanding among the top leadership, and this did not develop evenly across all divisions. Indeed, there was some resistance to the EVC model, considering its experimental nature and its requirement that managers develop more engaging and less authoritarian management styles. In this respect, the relative independence of divisions' leadership from the corporate head office, which is considered one of the strengths of the Barloworld structure, was a constraint on implementing the EVC process in a more authoritarian manner.

It should also be noted that this article has emphasised Barloworld's relatively successful approach to developing employee commitment, with important benefits for the integration of CC. In other words, the emphasis has been on the corporation's internal structure (see Figure 1). However, the company faces significant challenges in terms of its stakeholder engagement component of CC. Given the divisions' relative independence, each of the divisions has implemented relatively separate stakeholder communication strategies. This has resulted in a diffuse and fragmented approach to stakeholder engagement, which furthermore results in disparate approaches to CC issues.

However, the company leadership acknowledges that the company has a strong internal focus and that a more proactive and comprehensive stakeholder engagement process is required. Such a process would also enable the company to identify and respond to broader sustainability issues, such as climate change (Mark Drewell, interview).

3. Conclusion

This article has argued that company case studies are important for enhancing our understanding of the challenges and opportunities of integrating CC into a business organisation. It has proposed a model to provide a framework for such case studies, premised on four interrelated components of the business proposition: corporate identity, stakeholder engagement, internal structure and accountability.

The article has discussed the Barloworld case study, with an emphasis on the way the company has enhanced employee commitment through its ‘Employee Value Creation’ process, thereby providing an enabling framework for institutionalising CC in the company. This complements the available literature, which has focused hitherto on the relationship between employee commitment and business performance, on the one hand, and the impact of CC on employee commitment, on the other.

Additional research into the relationship between employee commitment and the integration of CC could be of great value to enterprises grappling with these challenges (see Meyer & Allen, 1997, for a useful point of departure with regard to employee commitment). It could enhance understanding of the role and genesis of a critical mass of committed employees within an enterprise, which can serve as a catalyst for the institutionalisation of CC.

Finally, attention should be given to the design, support and investigation of more fundamental, holistic approaches to the institutionalisation of CC. In this regard, the notion of organisational learning holds great promise. This also entails a broader approach to employee commitment:

The nature of the commitment required to build learning organizations goes beyond people's typical ‘commitment to their organizations’. It encompasses commitment to changes needed in the larger world and to seeing our organizations as vehicles for bringing about such changes. (Kofman & Senge, 1995: 17)

The authors are also grateful to Suki Goodman and Paul Prinsloo for valuable comments on an earlier draft.

Additional information

Notes on contributors

Ralph Hamann

Respectively, Faculty Members at the Centre for Corporate Citizenship; and Head of Research, Centre for Corporate Citizenship, UNISA. Research for this paper was conducted for the UNISA Centre for Corporate Citizenship Case Study Unit, which is supported by FirstRand Foundation. The authors are also grateful to the Catharina van Tussenbroek Foundation for financial assistance and to Jan Jonker for guidance in developing the model applied in this paper. This research was made possible by the generous support from various employees at Barloworld. Special mention must be made of Mark Drewell, who facilitated many of the interviews and gave invaluable advice.