Developing CSR in retail–supplier relationships: a stakeholder interaction approach

Abstract

The purpose of this research is to explore how a stakeholder interaction perspective can add to the understanding of the dynamics of the process of corporate social responsibility (CSR) development in retail buyer–supplier relationships. Firstly, we find that interaction with suppliers and other stakeholders seems to have a pivotal role in the development towards sustainable retail supply chains. Secondly, and by addressing the phases of initiation, implementation and maturation of CSR development, we find that the role and intensity of interaction in stakeholder interaction changes over time and that the salience of particular stakeholders can be pivotal in the phases of the process of CSR development. Thirdly, we find that there is not necessarily one active and one passive party in the stakeholder interaction. Although suppliers in developing countries are typically asked to follow codes of conducts of retailers, suppliers are also acting and taking initiatives, and organizing themselves to better meet the demands on CSR.

Keywords:

• CSR
• stakeholder
• interaction
• supplier relationships
• retail industry

Introduction

The general discourse in business studies, particularly the discourse in the field of corporate social responsibility (CSR), clearly points to the fact that our society is expecting much more from firms than merely a competitive product or service (e.g. Porter and Kramer 2006; Zadek 2004). However, every now and then, and quite frequently in recent years, media report how retail firms fail to live up to societal expectations on sustainability. The consequences of such failure can be tragic, as in the Ali Enterprises factory fire in Pakistan in 2012 or the Rana Plaza factory collapse in Bangladesh in 2013. In the retail sector, in which actors typically buy products rather than producing them, and therefore to a great extent rely on external actors to produce goods, managing CSR is particularly challenging. This is because retailers are typically held accountable for the actions of other actors in the supply chain, despite their lack of immediate control of production (e.g. Andersen and Skjøtt-Larsen 2009; Elg and Hultman 2011; Lund-Thomsen and Lindgreen 2014; Perry, Wood, and Fernie 2015).

Due to, for example, the use of external suppliers, analysis of complex business practices in the retail sector needs to appreciate that no firm works in isolation, and in order to realize business-related goals associated with sustainability, retail firms need to communicate, negotiate and collaborate with both internal and external actors, or stakeholders. Although the response to sustainable behaviour and the meaning and impact of CSR activities may differ among stakeholders (e.g. Maignan and Ferrell 2003; Maignan and Ralston 2002; Mitchell, Agle, and Wood 1997), recent research increasingly emphasizes the role of CSR as an important factor in the general competitiveness of firms (e.g. Marin, Martin, and Rubio 2017; Vilanova, Lozano, and Arenas 2009) as well as for retailers more specifically (e.g. Elg and Hultman 2016; Ganesan et al. 2009; Lee, Fairhurst, and Wesley 2009). In this study, we define CSR by embracing the widely applied definition outlined in the seminal work by Davis (1973, 312), as ‘the firm’s consideration of, and response to, issues beyond the narrow economic, technical and legal requirements of the firm’. Although CSR is voluntary in some sense, it is yet necessary from other points of view. It is a social ‘license to operate’ in relation to firm stakeholders (Porter and Kramer 2006). To a large extent, existing literature discusses the CSR activities of a focal firm as a response to external stakeholders. Corporate social responsibility research on supplier relations in developing countries tends to regard the retailer as the active party, informing and monitoring suppliers as well as governing compliance (e.g. Elg and Hultman 2011; Maon, Lindgreen, and Swaen 2011). Although it is well known that suppliers are important in the development of retail competitiveness, there is still need for additional comprehensive empirical research on the role and influence of suppliers and other stakeholders in the development of CSR in retail–supplier relationships. Furthermore, and as indicated in this study, the development of CSR is an ongoing and dynamic process; research on the implementation of CSR in buyer–supplier relationships usually does not have a process perspective, and neither does it consider how stakeholders may drive or obstruct the different phases of the process.

A review of the literature on CSR in supplier relationships shows that the suppliers have an important role in the development towards responsible retail (e.g. Elg and Hultman 2011; Perry, Wood, and Fernie 2015; Spence and Bourlakis 2009). Our research aims to contribute to the literature by addressing CSR development as a dynamic process that emphasizes the interaction between the firm and its stakeholders, and in particular the interaction with suppliers. The stakeholder perspective is an established theoretical lens in the literature on CSR, and is driven to a great extent by the broader and well-established body of literature with a stakeholder perspective on business practice (e.g. Clarkson 1995; Donaldson and Preston 1995; Freeman 1984; Maon, Lindgreen, and Swaen 2011; Mitchell, Agle, and Wood 1997; Whysall 2000). In a diverse range of topics, research has shown that an interaction perspective can add new insights on complex business phenomena (e.g. Ford and Mouzas 2013; Hultman et al. 2012; Johnsen et al. 2006; Turnbull and Valla 1987). The purpose of this research is therefore to explore how a stakeholder interaction perspective can add to the understanding of the dynamics of the process of CSR development in retail buyer–supplier relationships. In our efforts to shed additional light on this process, we will focus on stakeholder interaction and stakeholder salience.

Buyer–supplier interaction in CSR development

The idea that a firm needs to take responsibility and manoeuvre its operations within a market system in such a way that it does not have a negative impact on the society in which the firm is embedded, and thereby influencing its reputation as a good citizen, is not new. The origins of the modern concept of CSR can be traced back a few decades through seminal work (e.g. Bowen 1953; Caroll 1979; Mason 1960). The discourse on CSR has distinctively shifted from whether to how a firm should take responsibility (e.g. Bhattacharya and Sen 2004; Smith 2003), and today, CSR is a natural ingredient in business practices although the interpretation, the criticality and the practices may differ significantly between firms and sectors (e.g. Elg and Hultman 2011). Despite the shift in general managerial approach towards CSR, it is still critical that firms can identify a business case for CSR, i.e. a link between competitive advantage and CSR (e.g. Porter and Kramer 2006). Several studies have argued the relevance of CSR in a retailing context due to, for example, the disaggregated and complex nature of the industry the role of a range of stakeholders in creating the retail experience (e.g. Burt 2010; Dawson 2000).

The development and realization of CSR practices is a complex process, and previous research has made efforts to describe and explore the sequential steps from doing nothing to doing a great deal with regard to CSR (Maon, Lindgreen, and Swaen 2011). The idea of CSR development as a process that unfolds through stages of increasing maturity and engagement has been elaborated on in previous research (e.g. Bolton, Kim, and O’Gorman 2011; Hughes 2005; Maon, Lindgreen, and Swaen 2011; Spence and Bourlakis 2009; Zadek 2004). Models of CSR development typically describe phases or stages (e.g. Bolton, Kim, and O’Gorman 2011) or modes of organization with various levels of commitment (e.g. Hughes 2005). Maon, Lindgreen, and Swaen (2011) provided an exemplary review of previous scholarly examinations of the more general development process of CSR practices. For the purpose of our study, we consider the implementation of CSR to be a process that is divided into three steps, as outlined by Bolton, Kim, and O’Gorman (2011): initiation, implementation and maturation.

CSR development in buyer–supplier relationships – an interaction perspective

Approaching complex business phenomena with an interaction approach has a strong tradition in the literature on buyer–supplier relationships (e.g. Håkansson and Ford 2002). The idea of interaction provides new and challenging perspectives on fundamental constructs within the management literature; processes, structures and actions. Our focus on suppliers as key stakeholders in CSR development and interaction can be motivated by the fact that production in the retail sector is typically outsourced and that retailers, therefore, typically lack immediate control over production (e.g. Andersen and Skjøtt-Larsen 2009; Elg and Hultman 2011; Lund-Thomsen and Lindgreen 2014; Perry, Wood, and Fernie 2015). The literature on CSR development with focus on supplier relationships is rather fragmented and includes topics like: development and implementation of codes of conduct and code compliance (e.g. Rahbek Pedersen and Andersen 2006), supply chain stakeholders in CSR development (e.g. Schneider and Wallenburg 2012), the use of suppliers in development of CSR (e.g. Simpson and Power 2005), development of local presence in supplier markets and establishment of local purchasing offices (e.g. Jia et al. 2014), the role of sustainability factors in supplier selection (e.g. Reuter, Goebel, and Foerstl 2012) and approaches with regard to supplier collaboration and auditing (e.g. Vachon and Klassen 2006). In a recent research note, Lund-Thomsen and Lindgreen (2014) described the problems associated with compliance-based models of working with CSR in global supply chains, and propose a cooperation-based approach to CSR development, i.e. advocating buyer–supplier interaction and collaboration in purchasing practices.

One important component in CSR development in retail–supplier relationships is the development and implementation of a code of conduct. This is particularly true for the retail sector, where codes often are directed towards supplier practices and used as a communication tool towards a range of stakeholders, i.e. owners, customers, suppliers, employees, NGOs and others (e.g. Rahbek Pedersen and Andersen 2006). A code of conduct is a document setting the standards for CSR activities and the most common means to express and implement social responsibility (e.g. Kolk and van Tulder 2002). In the literature, codes of conduct are regarded to reduce the risk that supplier problems will have a negative influence on consumer attitudes and brand image but they can also be difficult to enforce and monitor (e.g. Ganesan et al. 2009; Rahbek Pedersen and Andersen 2006). As firms attempt to control supplier compliance with a code of conduct, new challenges surface. Previous research has noted that few codes of conduct address implementation or consequences of non-compliance (e.g. Kaptein 2004; Kolk and van Tulder 2002; Kolk, van Tulder, and Welters 1999).

Scholars, in their attempts to better understand CSR development in supplier relationships, have also investigated the importance of a local organization that supports the governance of CSR in the supply chain and involves suppliers and other stakeholders in the process (e.g. Andersen and Skjøtt-Larsen 2009; Jia et al. 2014; Lindgreen, Swaen, and Johnston 2009; Mamic 2005; Schneider and Wallenburg 2012; van Tulder, van Wijk, and Kolk 2009). Setting up a local purchasing office is an important step in the development of global sourcing, including the development of designated CSR development officers or teams (Jia et al. 2014). In their case study on the global furnishing retailer IKEA, Andersen and Skjøtt-Larsen (2009) pointed at the importance of educating and encouraging both internal and external stakeholders with regard to implementation of CSR practices in global supply chains and note that, besides training, the knowledge level of purchasing office personnel was continuously enhanced through exchanges of experience among the employees involved, auditors and supplier representatives.

In line with those advocating a more collaborative approach to CSR practices in supply chains, Vachon and Klassen (2006, 2008) identified two contrasting approaches to CSR development in the buyer–supplier relationship interplay: monitoring and collaborating. The monitoring approach is based on the idea of arm’s length relationships, and entails that a supplier needs to govern and control its suppliers, inspecting and stipulating and ultimately also punishing the non-compliers. The collaboration approach is based on the idea of interaction, where a supplier has to collaborate and focus on education and training suppliers, engaging in joint problem-solving and knowledge exchange with suppliers.

A stakeholder approach to CSR development

Approaching business phenomena with a stakeholder perspective has its origins in the literature that provides an extended view of firm boundaries, and identifies and models the groups which are stakeholders of business practice (Clarkson 1995; Donaldson and Preston 1995; Freeman 1984). The origin of this perspective is often attributed to Freeman (1984), although we also can find traces of the origin of a stakeholder perspective in the works of Rhenman and Stymne (1965). In his widely cited contribution to the field, Clarkson (1995, p. 106) defines a stakeholder as a person or group that has, or claims, ownership, rights or interest in a firm and its activities, past, present or future. Whysall (2000) outlines 12 different stakeholder groups relevant in a retailing context, and demonstrates that each stakeholder group has its own important CSR dimensions.

Stakeholder theory is intimately linked to the literature on CSR since it provides a framework on how firms should manage stakeholder interests and treat stakeholders appropriately (e.g. Laczniak and Murphy 2006; Öberseder, Schlegelmilch, and Murphy 2013). Engaging and interacting with stakeholders with regard to CSR is a diverse and growing field of research – dissecting various roles and approaches to stakeholders with regard to CSR development, and which stakeholders to approach (e.g. Morsing and Schultz 2006; Nijhof, de Bruijn, and Honders 2008; Pater and van Lierop 2006). Morsing and Schultz (2006) outline three types of stakeholder interaction strategies: stakeholder information, stakeholder response and stakeholder involvement. Here, the authors point at the variety of approaches that firms can adopt when managing towards sustainable practices and show that the strategies vary in focal point and stakeholder roles, degree of interaction and CSR management tasks.

Developing a systematic approach to ensure CSR in the supply chain is a complex process, and research shows that a focal firm, in order to initiate, implement and mature with sustainable practices (Bolton, Kim, and O’Gorman 2011), needs to inform, communicate, negotiate or collaborate with both internal and external stakeholders (Maignan, Ferrell, and Hult 1999) to reach realization. Due to the nature and variety of stakeholders, the literature on CSR development has focused on a variety of stakeholder interaction types and managerial issues. For example, interest has been directed towards stakeholders in terms of consumers (e.g. Öberseder, Schlegelmilch, and Murphy 2013), employees (e.g. Bolton, Kim, and O’Gorman 2011), suppliers (e.g. Elg and Hultman 2011), NGOs (e.g. Nijhof, de Bruijn, and Honders 2008), investors (e.g. Groening and Kanuri 2013), press and media (e.g. Whysall 2004), governments (e.g. Albareda et al. 2008) or transnational or global institutions (e.g. Brammer, Jackson, and Matten 2012).

In this study, we apply the idea of CSR development as a process, and for the purpose of our study we consider the implementation of CSR to be an internal organizational process divided into three steps as outlined by Bolton, Kim, and O’Gorman (2011): initiation, implementation and maturation. We apply this framework to study buyer–supplier relationships in developing countries and the interactions that might take place during the three phases. Furthermore, we argue that the impact of secondary stakeholders during this process should also be considered in order to fully understand the development of the process. Few authors have discussed stakeholder influence during an interaction process and acknowledged that the importance of different stakeholders as well as the nature of their influence may vary over time. Mitchell, Agle, and Wood (1997, 854) introduces the notion of stakeholder salience, i.e. ‘the degree to which managers give priority to competing stakeholder claims’. Three factors are suggested to explain the influence that a certain stakeholder will have upon the firm: power, legitimacy and urgency. Power derives from critical resources controlled by an actor that may be used to impose its will upon the focal firm (cf. Pfeffer and Salancik 1978). Legitimacy concerns the actor’s support from generally accepted social norms, values, etc., institutionalized in a society (e.g. Meyer and Scott 1983; Ranson, Hinings, and Greenwood 1980). Furthermore, Mitchell, Agle, and Wood (1997: p. 867) define urgency as ‘[…] the degree to which stakeholder claims call for immediate action’. Using these criteria, managers can decide which stakeholder interests should be prioritized at a certain point in time. A key feature of this framework is that none of these attributes are fixed in time. While this approach has been used to some extent by other scholars (e.g. Agle and Caldwell 1999; Parent and Deephouse 2007; Tarnovskaya 2012), it has not been applied to analyse the development of a certain inter-firm relationship over time and how secondary stakeholders may impact the primary relationship. We will, however, use stakeholder salience in order to explain how secondary stakeholders may influence the development of social responsibility aspects in a certain supplier relationship and the nature of this impact in the different stages over time. For example, we suggest that a certain stakeholder may create legitimacy for a focal firm’s claim to implement social responsibility in a supplier relationship.

CSR development and stakeholder interaction – a case study approach

The purpose of the research outlined here is to explore how a stakeholder interaction perspective can improve our understanding of the dynamics of the process of CSR development in retail buyer–supplier relationships. To fulfil our purpose, and to capture the nature of the dynamics of the process over time, we have designed our research as a case study (e.g. Eisenhardt 1989; Stake 1995; Yin 1994). With an in-depth longitudinal case study, it is possible to generate unique insight into the complex nature of retail–supplier relationships and the context in which such relationships are embedded (e.g. Halinen and Törnroos 2005). Here, we present our attempt to capture the case of Clas Ohlson and their CSR development process longitudinally, i.e. as a process of change over a longer period of time rather than as a one-off event (e.g. Pettigrew 1990). Scholars within several fields have pointed at the need for more case-based and comprehensive empirical research (e.g. Dubois and Araujo 2007; Ellram 1996; Ghauri 2004; Halinen and Törnroos 2005). Our selection of Clas Ohlson as our case is based on its suitability as an instrumental case for our exploratory purpose (Yin 1994). Clas Ohlson is a well-established international retailer operating in several countries throughout Europe. Here, the instrumental value of Clas Ohlson is the accessibility of its dynamic and on-going CSR development. By means of an in-depth case study on the CSR development process of Clas Ohlson, our primary objective is not to seek generalizations, but rather to create a credible and thick (e.g. Geertz 1973) case description through which we can conduct analysis by systematically structuring the data and channelling the insights gained into development of the CSR practices of an international retailer (e.g. Dubois and Gadde 2002; Miles and Huberman 1994).

The collection of empirical materials was initiated in 2011, with visits to the headquarters of Clas Ohlson and its central warehouse in Sweden as well as visits to purchasing offices in Shanghai and Shenzhen. In order to capture the richness of the case and to follow the phenomenon within its real-life context, supplier visits in China were conducted in Dongguan and Shanghai. The visits to suppliers gave us the opportunity to accompany the CSR and purchasing teams of Clas Ohlson during their daily tasks, as well as to ask questions and make first-hand observations. In a first phase, we also conducted interviews with key respondents that could provide us with a historical account of the development of CSR in the firm and its supply chain prior to 2011, as well as some critical events that occurred in 2005 and 2006. During 2012, in order to complement our upstream investigations with a downstream perspective on CSR development, we also conducted several interviews with store employees and consumers covering the perceptions of store employees and the role of CSR in the buying behaviour of consumers in-store. We also carried out interviews with NGOs that Clas Ohlson interacted with in the process of developing its CSR practices. More than 30 interviews, sometimes with more than one respondent, were conducted between January 2011 and October 2012 in Sweden and China (Table 1). The interviews were typically semi-structured, with open-ended questions following an interview protocol. Using semi-structured interviews enabled us to have a clear direction in the discussion with respondents, and the open-ended questions enabled us to reduce potential bias (e.g. Fontana and Frey 1994).

Table 1. Empirical materials.

Time	# of interviews	Type	Purpose/aim	Sources
January 2011–August 2011	9	Phone interviews and meetings, including observations and visits to Clas Ohlson headquarters and stores	Preparing the study and getting an overview of the CSR work at Clas Ohlson	Interviews with staff at HQ in Insjön and the sales, CSR and purchasing organization
September 2011	13	Interviews and meetings, including observations and supplier visits, and visit to Clas Ohlson’s purchasing office in Shanghai	Data collection through visit to gain rich insights and first-hand observations on CSR development in buyer–supplier relationships	Interviews with staff at the purchasing office in Shanghai and representatives from the supply side (Dongguan and Shanghai)
April 2012	10+	Interviews and observations at Clas Ohlson’s stores in southern Sweden	Data collection through observations and interviews to get an idea of buying behaviour and a better case context	Interviews with store employees and consumers in southern Sweden
May 2012–October 2012	4	Phone interviews, interviews and meetings, including visit to Clas Ohlsons’s purchasing office in Shenzhen	Follow up the study and additional data collection	Interviews with staff in Sweden and interviews with staff at the purchasing office in Shenzhen

Continuous collection of empirical material in the form of documentation, both public and undisclosed, has been conducted since 2011 and onwards. Although the empirical material is somewhat dated, the case provides important insight into CSR development over time and is therefore an important contribution to the literature. Since the study was conducted, the management of Clas Ohlson have taken several additional steps in the CSR development of the firm. Analysis of our empirical material has been carried out in overlap with the field work, which is common practice in the qualitative research domain as a means to systematically combine theory and empirics (e.g. Dubois and Gadde 2002; Miles and Huberman 1994). The collection, structuration and analysis of our empirical material have primarily been driven by a combination of theoretical sources; e.g. the phases of CSR development (e.g. Bolton, Kim, and O’Gorman 2011), the interaction perspective (e.g. Håkansson and Ford 2002) and concept of stakeholder salience (e.g. Mitchell, Agle, and Wood 1997). Our analysis focused on sorting and reducing the empirical materials by creating of a chronological display (e.g. Table 2) of the process of CSR development in the case of Clas Ohlson, thereby enabling us to compare and contrast our findings with previous research. The literature on qualitative analysis provides good advice on how to achieve credibility in case research (e.g. Lincoln and Guba 1985; Miles and Huberman 1994; Stake 2010). For example, Lincoln and Guba (1985:301–315) discuss that credibility of a study of our kind can be increased by prolonged engagement, persistent observation, triangulation, referential adequacy materials, peer debriefing and member checks. In our work, such measures were adopted. For example, in order to ensure accuracy in our case description, representatives from Clas Ohlson validated our material (i.e. administrating fact checks, confirming observations and giving feedback on case description and analysis).

Table 2. CSR development in supplier relationships – the case of Clas Ohlson 2005–2012.

	Initiation (2005–2006)	Implementation (2007–2009)	Maturation (2010–2012)
Key events	• Top management attention beyond having a code of conduct • Code of conduct presented in 2005 • Procedures for systematic supplier monitoring developed in 2006	• Membership in UN Global Compact in 2008 • Purchasing office and CSR team in operation in 2008 • Implementing the reporting standard GRI • Implementing procedures and increasingly auditing suppliers and an annual CSR report from 2007/2008	• Communicating CSR progress in detail; non-compliance, goals, activities and challenges • Implementing a system for supplier education • Completing the full circle of audits in the Asian supply base • Implementing a grading system for suppliers (red, orange, yellow and green)
Interaction with suppliers	• Arms-length relationships, typically via intermediaries • No permanent local presence in key sourcing markets • No regular audits of supplier practices	• Arms-length, initiating a system for monitoring of suppliers – focus on information and education • Initiating regular contacts with suppliers through local presence	• Balancing arms-length with collaboration enabled through local presence – focus on production process improvements • Identifying key supplier relationships and reducing supplier base
Interaction with secondary stakeholders	• Hunter-prey relationship with NGO’s • Strong external pressure with focus on deficiencies on supply chain control • Building code based on OECD and UN Global Compact standards	• Development of stakeholder collaboration, in particular with NGO’s and consultants to perform initial supplier audits in 2007/2008 • Initiating association and partnerships to increase knowledge and legitimacy	• Gaining legitimacy and trustworthiness through association, participation and partnerships to support long-term change • Focusing on openness and dialogue, increasing communication on CSR progress
Key managerial tasks	• Analysing the business model and business processes and the causes of the critique from NGO’s • Setting up a roadmap and assigning resources to adequate CSR attention • Identifying relevant stakeholders and interaction partners • Initiate planning for an organization to manage CSR in the supply chain	• Setting up an integrated organization to pursue CSR in the supply chain • Launching procedures to secure CSR in the supply chain • Setting up priorities and linking CSR to general business goals • Establishing measurements and action plans to cope with • Non-compliance	• Prioritizing among actors in the supply chain, reducing the supply base • Providing detailed reports on CSR progress • Adapting business model in terms of systems integration, planning and reporting • Making arrangements to increase the efficiency in CSR activities in the supply chain

CSR development and stakeholder interaction – the case of Clas Ohlson

Clas Ohlson is an internationally expanding Swedish retail firm and one of the biggest hardware store chains in Scandinavia. At the beginning of 2012, Clas Ohlson had about 150 stores concentrated to in Sweden, Norway, Finland and the UK and a total turnover of approximately 600 million euro and approximately 4000 employees. The expansion of retail stores began initially in Sweden and subsequently continued in Norway with the first store opening in 1991 and parallel with continued growth in these markets also in Finland with the first store opening in 2002 and in the UK when the first store opened in 2008. Clas Ohlson offers a range of about 15,000 products through a multichannel retail model consisting of stores and online sales. By duplication of a unique business concept, an easily recognized store format, five product categories (hardware, home, multimedia, electrical and leisure), a combination of own and supplier brands providing the customer with alternatives and in-store information regarding its origins and history, Clas Ohlson has successfully balanced its retail expansion with maintaining its image of being a Swedish small-scale hardware-dealer with a rich history and tradition. As most other retailers, Clas Ohlson’s business model is built on excellence in retailing rather than in production, i.e. Clas Ohlson does not engage in production but in sourcing from a large network of suppliers. In 2012, the firm sourced its range from 600 suppliers situated in about 30 countries. Approximately 65% of the range was sourced from Asia, either directly from suppliers in Asia or from European suppliers with production in Asia.

CSR development – initiation

In 2005 and 2006, the management of Clas Ohlson came under serious pressure as the Swedish NGO SwedWatch issued two critical and investigative reports regarding their purchasing operations in China (SwedWatch 2005, 2006). The reports clearly dented a long-standing positive public image. The first report pointed at the lack of a systematic approach and prioritization of the social and environmental responsibilities that need to follow sourcing operations in developing countries. The second report, presented as a benchmark of Clas Ohlson and national competitors, followed up the progress on developments concerning both social and environmental responsibilities and concluded that Clas Ohlson, among other things, lacked local presence, control over its supplier practices, functional integration of CSR in its organization and did not systematically follow-up on code of conduct compliance. When interviewed, a senior employee, working as category manager at the time of the report, made the following comment:

It became obvious that we needed to get ahead of competition and not just cave in. Ending up as the one singled out, as the bad guy, on the news bill was not a position that we wanted to get stuck with. The discussion going on internally concerned that we were Clas Ohlson, a public company, and that we had to get going so that we could stand straight-backed behind our code and so that this would not be in the way for our continued development as a retailer.

Clearly, public scrutiny had significant impact on the top management attention, and the decision to go ahead and focus on deficiencies on supply chain control. In the initiation phase, part of the problem could be referred to the business model of Clas Ohlson at the time, where sourcing operations were mediated via trading agents. The agents, who capitalize on access to market knowledge, had no immediate intention to share information about their suppliers and this made it difficult to follow CSR practices. When faced with the critique from SwedWatch, Clas Ohlson readily acknowledged the need to organize its operations in order to regain the initiative and start monitoring CSR practices in its supply chain. Clas Ohlson was noted on the Stockholm Stock Exchange in 1999, and the negative publicity following the publication of the SwedWatch reports, combined with subsequent pressure from investors, sparked the attention of top management to how CSR should be developed (rather than if CSR should be developed) and governed in the firm’s supplier relationships. In retrospect, the relatively brutal wakeup in 2005 was seen as a necessary and positive change in direction of strategic attention and pooling of resources internally. The change in direction of strategic attention was heavily influenced by pressure from large shareholders. For example, a major investment manager sold all its shares in Clas Ohlson after a re-evaluation concerning Clas Ohlson’s CSR image. When interviewed, the executive with coordinative responsibility for CSR at Clas Ohlson at the time commented on the developments from 2005 and onwards:

A lot of things in our work create distraction away from these things [CSR] – we are no different than others on this matter. I would like to put it this way; that there is a clear external pressure from important stakeholders is critical in order to get complete focus on a certain question. Our dialogue with stakeholders’ influences what is put on the corporate agenda. I cannot see that we would have come this far if it was not for this pressure.

During the turbulence following the publication of the reports in 2005 and 2006, Clas Ohlson published its code of conduct, stating what they expected from their suppliers and what customers could expect from them. During its development, the management made sure that the code of conduct, drawn up in collaboration with an external party, was making use of international frameworks for CSR such as the UN Global Compact initiative and the OECD guidelines for multinationals and various relevant UN and ILO conventions. One key challenge for Clas Ohlson was to clarify the necessity to follow the code of conduct for the suppliers, even though it was sometimes difficult for suppliers to comply as local culture and stakeholder interests occasionally clashed. When interviewed, an executive at a manufacturer supplying Clas Ohlson with electronics accessories (e.g. adapters, charging cables) explained through an interpreter:

[As an example on challenges regarding CSR …] our workers want to earn more money through overtime work. Our challenge is to balance reduction of overtime and increase compensation at the same time. In China, overtime compensation is high [… and an] important aspect when hiring and attracting staff.

CSR development process – implementation

During the years that followed initiation of CSR practices, Clas Ohlson made a significant leap in terms of managerial attention concerning CSR. In, 2006 Clas Ohlson published its first separate annual CSR report, providing information concerning its increasing work to secure CSR in the supply chain. In 2007, the first local recruitments were made for the CSR team at the local purchasing office in Shanghai. In the early phase of implementation, it was necessary to involve external expertise to perform the initial supplier audits. In 2007/2008, Clas Ohlson conducted approximately 40 supplier audits and in 2008/2009, when a local office and CSR team was in operation in Shanghai, Clas Ohlson performed approximately 350 audits of which their own staff did most. Through local presence, the CSR team at Clas Ohlson enabled increased regularity in contacts with suppliers. The strategy was to investigate sources of products with origins in Asia where Clas Ohlson either used intermediaries or purchased products directly from suppliers, and to do a full scale evaluation of this particular part of the first-tier supply base. When interviewed, an executive with insight in how Clas Ohlson approached CSR at the time commented:

Our stakeholders [in his view, investors and NGOs] would probably prefer us to focus on risk and then prioritize some areas, and focus on these rather than working with the whole supply base. However, we have decided that we will initially work with the whole supply base [in Asia] and based on the information we get focus either geographically or in some other way [at a later stage].

Implementing a system to secure CSR in the supply chain was a complex task, and in order to verify the quality of the audits performed, Clas Ohlson used an external consultant agency to assure quality by doing parallel audits. The bulk of the suppliers took on the challenge to improve their operations as a way to gain competitive strength. Furthermore, several of the suppliers had met similar demands from other customers, some of which were ahead of Clas Ohlson in terms of securing CSR in the supply chain. At those suppliers we visited during our field work, a common denominator was that they found CSR progress as a competitive advantage and worked actively to meet the demands of Clas Ohlson and other clients, for example by organizing their CSR practices in designated teams, to create an effective interface with the CSR teams of their customers. An executive at a manufacturer of electronic products (e.g. CD-players, alarm clocks) commented:

[We] already experienced CSR audits when we started to work with Clas Ohlson in 2007 […]. We have 7-8 people [the firm had approximately 1000 employees] working with CSR. One department head [CSR team manager] and then people spread out in the organization.

Although some suppliers were actively working with CSR before Clas Ohlson, this firm also phased out several suppliers based on lack of willingness to comply with the code of conduct. During these first years of auditing, interaction with suppliers was typically arms-length and controlling, focusing on information and monitoring and offering education to suppliers. In 2009, Clas Ohlson implemented an auditing structure based on the Global Reporting Initiative (GRI) standard and initiated procedures that integrated CSR in business policy and practice – marking the steps towards maturity in CSR practices. The CEO summarized these steps in the annual report in 2009, commenting on the operations in 2008/2009:

To increase our proximity to our principal purchasing market in Asia, we opened a purchasing office in Shanghai for the company, which serves as a supplement to purchasing via handling agents. We can intensify our partnerships by being closer to our suppliers. In addition, we gain better control over efforts to ensure that our suppliers meet our environmental and ethical requirements and comply with our Code of Conduct. Our responsibility for people and the environment permeates our entire organization.

CSR development – maturation

In 2010, Clas Ohlson started to operate also from its second Asian office in Shenzhen and, in the years that followed, stepped up its efforts secure CSR in the supply chain even further. After reaching the full circle of audits in the Asian supply base, the focus shifted towards reaching increased efficiency in audits and follow-up procedures. Through an increasingly integrated and cross-functional organization, Clas Ohlson arranged its efforts towards securing CSR in the supply chain through a system for CSR documentation (e.g. assessment documentation, action plan and follow up on non-compliance), a system for CSR education (e.g. suppliers, employees, auditors and trading agents) and a system to grade suppliers according to a range of colours; green (meets the requirements), yellow (identified instances of non-compliance), orange (identified high-risk instances of non-compliance), red (identified instances of zero-tolerance non-compliance). In 2011, the purchasing manager commented on CSR from his perspective:

Purchasing is taking part of the work concerning CSR, but there is also a support function that operates locally. This is clearly an improvement, since product category managers are integrated in the process. Of course, we have auditors out there, but to make sure that we guarantee the quality, we work with a traffic light list with four levels; green, yellow, orange and red. […] We do a rating of our suppliers. We want to help them, which why we are doing this. We want them to increase quality in the factory. Our goal is not to undermine their operations, but help them come through this stronger than ever.

During 2011/2012, Clas Ohlson performed 617 audits, some of which were the second cycle. Of these audits, 606 resulted in the identification of some instance of non-compliance with the code. Since the beginning of the revision of CSR practices in 2007/2008, the approach to suppliers and their role in the development of CSR in the supply chain had grown. The supply base had been reduced and a direct relationship with suppliers was now the modus operandi. To match the organization set up by Clas Ohlson, several suppliers had also set up their own CSR teams to meet the request from customers to develop CSR in their respective supply chains. Interaction with suppliers was now typically collaborative, with focus on long-term improvements of production processes, also in the second tier of suppliers. If a supplier got a remark in the CSR compliance report, a corrective action plan (CAP) was set up to follow-up on the changes that needed to be done. An executive with insight in how Clas Ohlson approached non-compliance at the time:

You don’t just leave the audit, but provide suggestions for improvements. […] A protocol that clearly states where the supplier does not reach our targets – there is dialogue. We are not there to mess with them. We give them a time to improve schedule a new evaluation. Then the audits continue biannually. […] Overtime is our biggest problem in China; almost all our suppliers are struggling with this. Our role is to go in and have a look at how we can assist them with production improvements and this is nothing that one man can do, it requires quite an organization.

The way Clas Ohlson is reporting progress in CSR has over the period changed significantly, with an increasing degree of detail and openness: procedural steps, degree of and measures taken concerning non-compliance, CSR-related goals and how these are integrated with general business goals, actions performed and challenges in the process. The CSR development in supplier relationships, for example through the increased presence in the Asian sourcing market, has enabled Clas Ohlson to manage supplier selection based on their CSR performance and also, in a proactive and collaborative manner, influence design, the choice of materials, manufacturing methods and conditions including workplace and working conditions, and environmental impact.

The role and nature of stakeholder interaction in CSR development: analysis and discussion

In this section, we will outline, analyse and discuss three important empirical observations that emerge from our fieldwork. In Table 2, we summarize the development over three phases in the case of Clas Ohlson, based on the structure outlined by Bolton, Kim, and O’Gorman (2011). Firstly, a key empirical observation in this research is the pivotal role of stakeholder interaction in the development process, both as an important driver of change, and perhaps even more important, as part of the managerial route towards accomplishing CSR development in supplier relationships. Some previous attempts (e.g. Zadek 2004) to study CSR development in stages seem to have focused instead on the development process from a focal firm perspective (cf. interaction) and more generally (cf. buyer–supplier relationships). We can also confirm previous research (e.g. Simpson and Power 2005), by showing that the initiation of CSR development in general, but particularly concerning CSR in the supply chain, was in our case study significantly influenced by stakeholders and the pressure from shareholders, and NGOs to move forward to develop excellence in CSR. Through external pressure, Clas Ohlson made considerable leaps in terms of managerial attention concerning CSR. The case of Clas Ohlson shows that supplier interaction is a necessary component of business practice, to gain momentum, understanding and progress in the process towards CSR development in retail–supplier relationships.

Secondly, another key empirical observation in this study is that the role and intensity of interaction change significantly over time through the phases of initiation, implementation and maturation of CSR development. Several studies (e.g. Hughes 2005; Maon, Lindgreen, and Swaen 2011; Spence and Bourlakis 2009; Zadek 2004) with a distinct CSR development focus have distinguished stages and characteristics or operational postures or modes in each stage with great merit, but few studies have specifically looked at the buyer–supplier interaction. We have focused our attention on the interaction with suppliers and with secondary stakeholders in the managerial route towards accomplishing CSR development in supplier relationships. In the case of Clas Ohlson, the relationships with suppliers moved from being arms-length and controlling to a more balanced approach where dialogue and collaboration and focus on long-term change support them to adapt and improve production processes. This change in approach corresponds well with previous research that has outlined monitoring and collaborating as two contrasting approaches to CSR in supplier relationships (e.g. Vachon and Klassen 2008). However, our study points at both the coexistence of these two approaches and that a retail firm like Clas Ohlson needs to mature into being more collaborative. Since suppliers, in turn, also use a network of suppliers, audits beyond the first-tier layer of suppliers are necessary, which has in previous research been discussed as a marker of maturity in the management of CSR in retail–supplier relationships (e.g. Elg and Hultman 2011). Over the years, Clas Ohlson has taken several steps to reorganize its sourcing operations into a more manageable supplier base: supply base reduction, increased control through direct supplier relationships, local presence have all been necessary steps to really make a difference.

Although the primary focus in this study has been on supplier relationships, (i.e. suppliers as one group of primary stakeholders), additional insight from our research is that the changing role and intensity of interaction are also valid for other stakeholder groups. Clearly, it was instrumental for the process, both for initiation and for the momentum in subsequent steps, that this CSR capacity was a key priority for shareholders. However, building capacity to manage CSR in supplier relationships cannot be done in isolation. In the case of Clas Ohlson, when setting up a roadmap for the development of CSR in supplier relationships, external input on what to do, when to do it and partly also how to do it came from these stakeholder groups outside the primary sphere of stakeholders. Over the years, Clas Ohlson used its relationships with secondary stakeholders to build a systematic approach and to gain legitimacy and trustworthiness through association, participation and partnering with NGOs and other networks, in particular in Asia. The approach vis-à-vis these secondary stakeholders also changed over the course of the development process towards securing CSR in the supply chain. Previous research has questioned to what extent stakeholder involvement is a necessity for CSR (e.g. Nijhof, de Bruijn, and Honders 2008); our present study points towards an incremental development of the relationship with key NGOs, from a hunter-prey-like relationship into more open and transparent relationships built on a balance between contrasting and mutual interests, focusing on long-term change.

We have identified several secondary stakeholder groups that appeared as especially central during the process of implementing CSR in supplier relationships. Their salience was based on different types of power and legitimacy that remained rather stable during the process. In the case of Clas Ohlson, the impact of particular stakeholder groups, and thus the need for Clas Ohlson to consider them, varied in the course of the process of CSR development in supplier relationships. The power base of NGOs, and to some extent also media, mainly consists of the fact that they may act as opinion leaders and are considered to have neutral and unbiased roles in the society. This also means that they have a moral legitimacy based upon the fact that they represent good causes and/or public interest. The government’s legitimacy is institutionalized in most societies, and their role and rights to influence are more or less taken for granted. Their power is primarily of a regulative kind, which also means that they may impose sanctions upon actors considered to behave in an undesirable way, and also to provide rewards and support for ‘good citizens’. The power of shareholders should not be underestimated, and in particular the symbolic value of a shareholder that decides to divest, as was the case for Clas Ohlson in 2005. Another secondary stakeholder group that should not be underestimated is the suppliers beyond the first tier. These suppliers, sometimes both big and powerful, and often more or less anonymous to the retail buyer, have an important stake in the development of realizing CSR in the supply chain. In order to really make a difference in terms of development of CSR in supplier relationships, audits must move beyond first-tier suppliers (e.g. Elg and Hultman 2011).

Thirdly, an additional key empirical observation in this study is that although the scholarly treatment of CSR development is assuming that the supplier is relatively passive, receiving directions from a more powerful buyer and reacting/responding to the demands, this does not correspond with what we have seen in the case of Clas Ohlson. In their study on the retailer Waitrose, Spence and Bourlakis (2009) point out that suppliers typically are in a weaker position vis-à-vis their customer (i.e. the retailer) in the process of developing CSR. Although this might be true in some sectors and for some large retail firms, our study shows that there is not necessarily one powerful and active and one dependent and passive party in the process, but the suppliers of Clas Ohlson are sometimes of significant size, and are also acting and taking initiative and organizing themselves to better meet the demands on CSR. This finding is in good accordance with what Morsing and Schultz (2006) defined as stakeholder involvement, yet not explicitly addressing suppliers, and with the cooperation-based approach to CSR development proposed by Lund-Thomsen and Lindgreen (2014), which advocates, in contrast to a more compliance-based approach, working with CSR development through mutual cooperation and interaction. When observing buyer–supplier interaction at supplier sites in Asia, we found that several suppliers had also set up their own CSR teams to meet the attention from customers to develop CSR in their respective supply chains. These firms were typically suppliers to several Western customers, some significantly bigger than Clas Ohlson. For a firm like Clas Ohlson, partnering with such suppliers has proved to be a fruitful and efficient way of progressing in the development of CSR in supplier relationships at large. Corroborating the findings of Perry, Wood, and Fernie (2015), a collaborative approach, where suppliers are seen and treated as co-creators of CSR in supplier relationships, is part of the incremental development from an internally oriented approach of how to manage CSR to an integrated one.

Depending on the retailer’s CSR strategy, different types of supplier behaviour may also be discerned. In Table 3, we have made a distinction between monitoring and collaborative activities on the part of the retailer. It should be noted, and as illustrated by the Clas Ohlson case, that these two approaches are complements rather than alternatives, but that the main emphasis is likely to be on one of them. For the suppliers, we have made a distinction between a proactive and a reactive approach. Both of these approaches are also illustrated in the case. For a monitoring retailer approach, a proactive supplier may respond in a supportive way, for example by suggesting new areas that can be monitored or new or more efficient ways of monitoring. On the other hand, the supplier may try to resist and actively question the monitoring by blocking access to data and information. A reactive supplier may try to adapt as much as possible to the auditing system applied by the retailer, but another strategy may be to conceal data and avoid responding to issues raised by the retailer. In the same way, collaborative activities from the retailer may generate a positive or negative response from a proactive supplier. Here, however, the examples found in our data were mainly on the positive side. For example, the supplier may actively suggest new areas of collaboration or new ways of solving CSR-related problems, or assign task forces or groups of employees to participating in the CSR work. It is, of course, also possible that a supplier may fail to see the value of the collaboration and thus choose to confront or block collaborative initiatives from the retailer. A more reactive supplier may focus on absorbing the knowledge provided by the retailer and on benefiting from other resources that the retailer may provide for the CSR development process. A more negative supplier approach may be to remain passive and simply not dedicate any resources or interest to a retailer’s invitation to collaborate.

Table 3. Type of supplier activities in response to a retailer’s CSR strategy.

	Monitoring retail strategy	Collaborative retail strategy
Proactive supplier	Supportive/resistant	Constructive/confronting
Reactive supplier	Adaptive/avoiding	Absorb knowledge/obstructing

Conclusions and suggestions for future research

The purpose of this research has been to explore how a stakeholder interaction perspective can add to the understanding of the dynamics of the process of CSR development in retail buyer–supplier relationships. Our case study shows that the stakeholder interaction perspective is a relevant approach that can contribute with empirical insights on the dynamics and complexity of CSR development over time, as we uncover insight in the case of Clas Ohlson. Firstly, interaction with suppliers and other stakeholders seems to have a pivotal role in the development towards sustainable retail supply chains. Retail firms are not independent islands, and this is also true in the development of CSR. Secondly, and by addressing the phases of initiation, implementation and maturation of CSR development, we find that the role and intensity of interaction in stakeholder interaction change over time and that the salience of particular stakeholders can be pivotal in the phases of the process of CSR development. This is, for example, manifested by the changing role and importance of suppliers in the three phases of CSR development outlined in Table 2. Thirdly, our study contributes to the literature that approaches CSR development in a more balanced and multi-sided manner, for example by investigating CSR development from another viewpoint than the buyer (e.g. Lee, Park, and Lee 2012; Perry, Wood, and Fernie 2015). Addressing this issue, our study shows that there is not necessarily one active and one passive party in the development of CSR, but rather that the process is characterized by interaction. In our case, the suppliers in developing countries that were asked to follow codes of conduct were also acting and taking initiatives on their own, and organizing themselves to develop their capacity to meet new and changing demands with regards to CSR.

Developing the capacity to manage CSR in supplier relationships is a critical managerial task for retailers. In relation to its stakeholders, CSR is considered necessary to develop and maintain competitiveness, and social ‘license to operate’ in relation to its primary stakeholders. Analysing the development of CSR in retail–supplier relationships by means of the three phases: initiation, implementation and maturation (Bolton, Kim, and O’Gorman 2011) and addressing aspects of stakeholder interaction in each step might assist the understanding of managerial practices that aim to manoeuvre the process towards sustainable retail supply chains. Longitudinal research on CSR development is fairly scarce, and this study provides an approach to CSR development that also demonstrates the need for additional longitudinal research on the embedded nature of retail–supplier relationships. Corporate social responsibility development cannot, and should not, be realized in isolation, but through interaction with stakeholders. For retail firms to reach momentum and guidance, mutual understanding and progress, it is necessary to carefully plan for interaction with NGOs, suppliers and other relevant stakeholders. Moreover, and corresponding to previous research on sustainable sourcing, our study points at the need for future research to take the global nature of sourcing practices into consideration and to balance the focus on the buying party as well as on supplier reactions and actions in the face of the increasing demands on transparency and CSR-developing practices. Although this study has provided some additional insight on the development of CSR as a dynamic process that emphasizes the interaction between the firm and its stakeholders, additional comprehensive empirical research on interaction with both primary and secondary stakeholders is needed.

Disclosure statement

No potential conflict of interest was reported by the authors.

Funding

This work was supported by Handelsbanken Research Foundation, Sweden.

Notes on contributors

Jens Hultman is an associate professor in Business Administration at Lund School of Economics and Management and co-director of the Centre for Retail Research at Lund university.

Ulf Elg is a professor in Business Administration at Lund School of Economics and Management and affiliated with the Centre for Retail Research at Lund university.

Acknowledgements

The authors would like to acknowledge the financial support provided by Handelsbanken Research Foundation, Sweden.