Corporate Social Responsibility (CSR) of KFC

Corporate Social Responsibility (CSR) of KFC 1. Introduction KFC Corporation, based in Louisville, Kentucky, is one of the worlds largest chains of fast food restaurants, serving more than 12 million customers daily in 109 countries and territories around the world. KFC is part of multi-brand operator Yum, which is the worlds largest restaurant company, owns more than 36,000 locations around the world. During a year around placement, my time at KFC was in a position of casher and then I got a promotion to a restaurant team leader, overseeing the daily shop operations as well as selling product. This placement offers me a great opportunity to observe the corporation and think about the CSR of KFC. A year placement has made me have a great view of KFC and also gives me an opportunity to analysis the corporate social responsibilities of KFC. This paper starts by briefly reviewing the literature on corporate social responsibility and then continues by providing some background on the fast food context. It is followed by the four kinds of social responsibilities constitute total CSR: economic, legal, ethical, and philanthropic. Furthermore, this paper will introduce how KFC apply these four categories into practise. In the end of this report, it will state that the benefit of CSR and give the suggestion of how to improve the CSR to improve the whole brand of KFC. 2. The concept of CSR Corporate social responsibility (CSR) is a welcomed business strategy, which is a commitment of a company to behave in an ethical and responsible manner, to minimise the negative impacts and maximise the positive impacts (Maignan, et. al, 2005) on both the business interests and stakeholders of company. In recent years, Zadek (2001) has noted that CSR is based on the concept of stakeholder democracy, which is stated that the business organisations are made up of a number of different stakeholders with a multiplicity of interests; all of the stakeholders have an influence over the companys interests. There are many definitions of CSR from different standpoints. In the last 30 years, CSR has been widely discussed. While Keith Davis in 1960 argued that CSR refers to businesses decisions and actions taken for reasons at least partially beyond the firms direct economic or technical interest, the other researches (Eells and Walton, 1961) thought that the CSR refers to the problem that arise when corporate enterprise casts its shadow on the social scene, and the ethical principles that ought to govern the relationship between the corporation and society. It is a trend that organizations pay more attention on every aspect of their performance than before; they are not only considering about the economic interest but also caring the social commentary and environmental protection. Also, in 2008, the economists report state that CSR is made up of three board layers, one on top of other, devoted respectively to CSR as traditional corporate philanthropyà ¢Ã¢â€š ¬Ã‚ ¦.. In the 21st centuryà ¢Ã¢â€š ¬Ã‚ ¦ Openness and transparency become the key slogan for organizations. More and more organizations recognize the important of social responsibility and they are trying to practice these concepts. The authors prefer the use of the term corporate social responsibility and present the following definition. Corporate social responsibility is a committal that made by the company to contribute to the society through the business practices and combining the corporate resources, that may includes improving the quality of life of humans and focusing on the environmental issues (Philip, K and Nancy, L, 2005). The CSR also includes the two kinds, one is instrumental CSR, which is pursued for business profitability, the other is intrinsic CSR, which is ignored the business profitability. These two clues are very important to the stakeholders. 3. Corporate social responsibility of KFC Carroll (1991) indicates that corporation should develop on both side: the economic side and social side. The he definite the CSR into four parts, therefore, the corporation should not only have the economic and legal obligations, but also they have the responsibility on the ethical and philanthropic sides. The main point for this concept is the company has to take all the four parts responsibilities to the society, not only economic responsibility which is the most fundamental responsibility. As mentioned, the four major responsibilities include economic, legal, ethical and philanthropic components (Carroll, 1991). As it can be seen, table 1 summarizes some important statements of these four major responsibilities. And a detailed description of each social responsibility follows. Table 1 Economic, legal, ethics and philanthropic components of CSR Economic components(responsibilities) Legal components (responsibilities) 1. It is important to perform in a manner consistent with maximizing earnings per share. 1. It is important to perform in a manner consistent with expectations of government and law. 2. It is important to be committed to being as profitable as possible. 2. It is important to comply with various federal, state, and local regulations. 3. It is important to maintain a strong competitive position. 3. It is important to be law-abiding corporate citizen. 4. It is important to maintain a high level of operating efficiency. 4. It is important that a successful firm be defined as one that fulfills its legal obligations. 5. It is important that a successful firm be defined as one that is consistently profitable. 5. It is important to provide goods and services that at least meet minimal legal requirements. Ethical components( responsibilities) Philanthropic components ( responsibilities) 1. It is important to perform in a manner consistent with expectations of societal mores and ethical norms. 1. It is important to perform in a manner consistent with the philanthropic and charitable expectations of society. 2. It is important to recognize and respect new or evolving ethical moral norms adopted by society. 2. It is important to assist the fine and performing arts. 3. It is important to prevent ethical norms being compromised in order to achieve corporate goals. 3. It is important that managers and employees participate in voluntary and charitable activities within their local communities. 4. It is important that good corporate citizenship be defined as dong what is expected morally or ethically. 4. It is important to provide assistance to private and public educational institutions. 5. It is important to recognize that corporate integrity and ethical behavior go beyond mere compliance with laws and regulations. 5. It is important to assist voluntarily those projects that enhance a communitys quality of life. (Source: Carroll, A.,2007. The Pyramid of corporate social responsibility) These responsibilities must be performed in order to benefit not only the company operators but also their stakeholders, including the local communities and the general public (Maignan et al.2005; MoIR,2001). As noted by Carroll (1979), the corporate social responsibilities push the companies should run the business in a way that enhances the well-being of their customers as well as the society. 3.1. Economic responsibility 3.1.1 The definition of economic responsibility Historically, the company was created as economic entities designed to provide goods and services that customers needed. The primary incentive for the corporation is to maximum profit for the shareholder. Therefore, the principle role for the corporation was to produce goods and services that customers needed and wanted and to make a proper profit during the business. It is the basic goal for the business organization. Without this economic responsibility, all other social responsibilities are become moot considerations (Carroll, 1991). Therefore, KFCs economic responsibility will be fully present in their annual report and finance report of 2009. 3.1.2 International market of KFC According to the 2009 annual report of Yum!, the parent company of KFC, which is stated that in last five years, their investments in high potential markets which included France, Russian, India, Brazil, South Africa and Vietnam are paying off(Yum! Annual report, 2009). Definitely, they are expanded the international market to satisfy more multinational customers needs while earning more profit as possible as they could. From a financial standpoint, Yum! had run a multi-year program to reduce their company ownership to around 5% at KFC, down from 18% at when they started at the end of 2007. This will have more significant and more predictable stream of franchise revenue. And also the company reducing the general and administrative expenses from company operations, they expect to generate at least as much profit with no capital expenditures by putting these restaurants in the hands of good franchise operators. 3.1.3 The financial performance of KFC Also, in their 2009 financial report, KFCs international sales revenue increased from $7394 in 2007 to $8230 in 2009, three years growth is 3 %( Yum financial data, 2010). Overall, KFC are satisfied with the economic responsibilities by increasing the profit in three years. However, there also have some problems of that. Due to my observation, KFC have increased its sales price, for example, in UK, the selling price of each meal are increased by 30p to 40p. There is no doubt that this price policy will increase the total profit as well. Even though KFC claimed that they will offer customers better service, it cannot depend on the increase the selling price to increase the profit. 3.2 Legal responsibilities 3.2.1 The definition of legal responsibilities Companies run the business according to the profit motive, at the same time, business also have to followed the laws and regulations promulgated by local governments. Corporations are expected to pursue their economic missions within the framework of the law (Carroll, 1991). Legal responsibilities reflect a view of codified ethics, which are enacted by local courts, such as working hours, wage and salary, equal opportunity, food safety etc. KFC have to follow the standards and legal requirements. 3.2.2 Employment practice According to the employment standards that KFC published on the website, employment practice include working hours conditions, non-discrimination, child labour, forced and indentured labour and notification to employees. The details can be seen in Appendix 1. During my placement, I found that our branch are basically applied the employment practice, however, it also need to focus on details. For example, since the KFCs employees are nearly all decided by the manager of each branch and each manager are from different country, they like to hire the employee from their own country. This may cause the indirect discrimination. Moreover, workers in the KFC are paid low wages. In UK, the employees wage rate just meets the lowest requirement of UK. KFC do not pay overtime rates even when employees work very long hours. Pressure to keep profits high and wage costs low results in understaffing, so staff have to work harder and faster. Not surprisingly staff turnover at KFC is high, making it virtually impossible to unionize and fight for a better deal (Royle, 2005). 3.2.3 Hygiene requirement As a fast food restaurant, KFC, need to pay more attention on the hygiene condition. It is not only to meet the legal hygiene requirement, but also to improve the corporate image. However, in 2009, one of the KFC outlet, which is in Leicester Square, London, was charged with 13 food hygiene charges by officials from Westminster Council, which is claiming a mouse was seen running across the floor and flies buzzed around their hands at the premises (caterersearch.com, 2009). Therefore, the manager of KFC should learn the lesson from the cases and KFC need more transparency on the food quality. According to my observation, actually, KFC management do care the hygiene requirement, but they cannot manage it in detail. Some employees ignore the hygiene requirement, this is the problem. 3.2.4 Animal welfare program KFC responded that by saying the chickens used in its products are brought from the suppliers like Perdue Farms, Tyson Foods, and Pilgrims Pride, and that these suppliers are routinely monitored for animal welfare violations. Headquarters of KFC also claimed that they are working at the animal conservation in order to build good brand image. In fact, KFC as the buyer of food products has responsibility to make sure animals have well treatment before they buy them. KFC pay more attention on the animal welfare than before, for instance, they use efficient system to ensure our suppliers are treating the animals humanely which supply to us. It is a necessary deal between KFC and suppliers that they have to agree with the commitment of animal welfare (kfc.com, 2010). However, since 2003, animal rights and welfare organizations, led by People for the Ethical Treatment of Animals (PETA), have been protesting KFCs treatment of the animals used for its product. This organisation claims that the recommendations of the KFC Animal Welfare Advisory Council have been ignored. And several PETA do the investigations and videos of these and other KFC suppliers purporting to show chicken being beaten, ripped apart and thrown against walls contradict KFCs claims. PETA has criticized some of the practices of chicken breeders, such as beak trimming and overcrowding, but the headquarters of KFC says its suppliers meets UK legal requirement. Due to the situation, the KFC animal Welfare Advisory Council is composed of  industrial experts, which offers the organization information and suggestion according to scientific data and study. Meanwhile, this council plays an important role in motivating the animal welfare plan (kfc.com, 2010). Under the councils proposal, KFC develops guidelines and audit plans for suppliers. In the meantime, according to the advice of National Council of Chain Restaurants and the Food Marketing Institute, KFC pays attention to the guiding principles for animals (kfc.com, 2010). 3.3. Ethics responsibilities 3.3.1 The definition of ethics responsibilities The economic and legal responsibilities have the ethical norms about fairness and justice, ethical responsibilities embrace those activities and practices that are expected or prohibited by the societal members even though they are not codified into law. Ethical responsibilities reflect those standards, norms, or expectations that reflect a concern for what customers, employees, shareholders, and the community regard as fair, keeping with the respect or protection of stakeholders moral rights. (Carroll, 2007) In one way, the current ethics and value may becoming the driving force to precede the establishment of law or regulations. For instance, the environmental, human rights and customer movements reflected basic alterations in societal values and therefore may be seen in the later legislations (Carroll, 2007). 3.3.2Food quality and customer service The product attributes of fast food could be broken up into several categories, such as nutritional, sensory and hygienic quality. Although these aspects could not be verified by foods actual consumption, it is very necessary for organizations to pay more attention on food production and processing (Baltas, 2001; Bredahl et al., 1998). In terms of environmental protection, the ethical production of human and animal welfare are key problems (Harper and Makatouni, 2002; Wier and Calverley, 2002; Grankvist et al., 2004). Holbrooks (1999) typology could be used as a tool which can measure generic costumer value. For instance, it could measure functional costumers value and ethics. A major driver of ethical trading practices within the retail marketplace is the growing phenomenon of ethical consumerism (Brinkman and Brinkman, 2002; Hosmer, 2002), equating to a UK market value of  £6.8 billion in 2001 (Co-operative Bank, 2003; cited Morven, G. and Monika.J.A. 2005). Organizations ethical behaviors could influence production distribution and customer satisfaction (Mohr et al., 2001; Morven, G. and Monika.J.A. 2005). Organizations always use branding as an effective tool to increase their reputation, add supplying meaning of consumer goods (De Chernatony, 2001, McCracken, 1993). Positive and negative perspectives have influences on brand value. As a social responsible organization, branding could affect the investment on production quality management and reduce customer disappointment. According to Bacon (2004), organizations have to pay more attention on product value and market behavior, because the customer trust not only the information provided by organizations but also the good performances of them. In the Yum! Annual report of 2009, it stated that KFC is going to improve the operations particularly around product availability and speed of service. KFC have actively raised their game by more aggressively pushing for higher standards by investing in more franchise field support, increasing operational audits and racking and stacking operating performance of both company and franchise stores. During the placement year, I found the KFC is better prepared to offer the consumer more choice, better value and better service, but KFC still have more to do. The goal of KFC is to stay focused on building the business back the right way and expect steady progress. 3.3.3Environment concerns KFC also should take environmental protection as important as food quality and customer service. In their annual report, the company claimed that we try our best to reduce environmental pollution and we will pay more attention on it in the future. It is very important for us to keep our customers protecting the environment. According to the facts which we are doing, people could understand and support environmental friendly. KFC commit that all paper packaging bags are 100% recycled content, all napkins and serviettes (does not include pre-packaged napkins) are 100% recycled content, and 30% of KFC bucket lid is made by recycled content. Also, more than 90% of KFC paperboard packaging would be certified by Sustainable Forestry Initiative (SFI) in May of 2010(kfc.com, 2010). And also, for all KFC restaurants use more efficient lighting system, which reduce the Carbon emission obviously, and use Energy Star appliances, for instance, the highest energy efficient oven be used generally in these restaurants. KFC also use high-performance air conditioners. Additionally, these restaurants all install programmable thermostats which could reduce the Carbon emission. Moreover, KFCs first LEED (Leadership in Energy and Environmental Design) restaurant was opened by KFC-Taco Bell in Northampton and achieved one of LEEDs highest certifications. More and more franchisees are trying their best to use energy efficient lighting and programmable thermostats (kfc.com, 2010). However, it is very difficult for companies like KFC to recycle waste at the moment. Hence, many recycling contractors refuse to take waste which did not remove food completely, Steve Easterbrook point out, chief executive of waste contractor Veolia Environmental Services (Paton, 2007). Therefore, there are many fast food company have to send the waste to landfill. It is an alternative method of disposal for the environment and local community. From a business point of view, not only benefit for company that saving money, but also benefit for company that being a good citizen. Clearly, it is a great help with morale. In KFC, it would take some staff doing the waste recycling activities, like waste sorting, which helped them feel more involved in the decision-making. 3.4 Philanthropic responsibilities 3.4.1 The definition of philanthropic responsibilities Philanthropic responsibilities reflect those corporate actions that are in response to societys expectation that businesses be corporate citizens. This includes actively engaging in acts or programs to promote human welfare and goodwill. For example, the corporation is giving the financial resources and executive time to the arts, education, or the community (Carroll,1991). 3.4.2 The community KFC takes the issues of litter very seriously. KFC is committed to tackling the litter challenge through a number of initiatives such as litter patrols, packaging reductions, and bins. During my placement, our restaurant sent out patrols every say to pick up litter and empty bins, these patrols go out four times a day in the summer months and three times a day in the winter months., and to make sure the area surrounding the restaurant are as clean as possible. Moreover, KFC are aimed to reduce litter by reducing packaging volumes. According to the KFC website (2010), they cut packaging by 1,400 tonnes, the equivalent of approximately 127 double -ducker buses. This included switching the Fillet and Zinger burgers from cardboard clamshells to paper wrappers. In 2010, KFC are aimed to reduce the packaging in the boxed meals. 3.4.3 World Hunger Relief To celebrate World Hunger Relief week 2010, KFC and its parent company YUM! will co-operate again. As a hunger is a big issue problem of all over the world, make an effort to raise awareness of this, the Yum!s partnership with the United Nations World Food Programme have set up aim will mobilise staff, franchisees and customers to help with it. Many employees from more than 720 KFC restaurants in the UK will be arranging a number of fundraising activities in store, from sponsored silences to KFC car washes. In UK, every branch of KFC have the donate box which out in front of the cashiers, customers can donate their extra change to that box. KFC UK raised more than  £365,000 which helped fund a school food project in Africa last year. Yum!s global efforts spurred unparalleled global awareness, including four million volunteer hours and $20 million in overall donations. This year, KFC hope with customers help they will beat the target (kfc.com, 2010). In summary, the total corporate social responsibility of business entails the simultaneous fulfilment of the firms economic, legal, ethical, and philanthropic responsibilities. Negative: Employee hire standards and overtime rates; animal welfare programme Table 2 the positive and negative point of each responsibilities of KFC As it can be seen in table 2, even though KFC has done lots of things on CSR, there are still have more to do. Overall, according to my observation, should do more things on these four responsibilities. On economic part, even though KFC has increased its profit, at same time, they also increase the selling price on each meal; it seems that giving this economic responsibility to the customer and not in themselves. On legal responsibility side, KFC are claimed they are strictly following the supplier code, however, they still have to improve their standard which not just basically satisfy the supplier code. KFC should improve the employee hire standards and overtime rates, moreover, invest more resources on the animal welfare programme. Eventually, they should care about the food quality, not only to product more healthy food; it also has to do more contribution in the future. 4. Benefits that corporate social responsibility can bring As Kotler and Lee (2005) have already clearly indicated that corporations which participation in corporate social initiatives could get many potential benefits. It can be see in the Appendix 2, the benefits of CSR can give a good impression to potential customers, investors, financial analysts, business colleagues; also, companies will have a great image in annual report, in the media, even in the courtroom. It is also state that the CSR is good for the employees, current customers, stockholders, and board members. Kotler and Lee (2005) also conclude that companies have experienced a range of bottom-line benefits, they have summarized six points, and each point will be explained as follows. Increased sales and market value Drumwright (1994) already mentioned that CSR will have a great effect on the customer purchase behaviour. A survey which made by Klein (1990), have stated that 75% of customers have said their purchasing decisions are influenced by a companys reputation with respect to the environment, and eight in ten have said they would pay more for products that are environmentally friendly.Therefore, it is obviously that more social responsibility that corporations taken, more sales of the product. Strengthened brand positioning Pringle and Marjorie (2001) make a statement that a company or brands contribution which links to a relevant charity or cause can make to the spirit of the brand. In their book Brand Spirit, they concluded that customers are going beyond the practical issues of functional product performance or rational product benefits and future than the emotional and psychological aspects of brand personality and image. As mentioned above in each responsibility of KFC, the spirit that participation in corporate social initiatives has given to the KFC, the brand itself. Enhanced corporate image and clout The company will gain a good image and clout from the CSR, for example, the positive press from reports, and also with a strong reputation in the community can be a real asset in times of crisis. Companies that demonstrate they are engaging in practices that satisfy and go beyond regulatory compliance requirements are being given less scrutiny and more free rein by both national and local government entities (Kotler and Lee, 2005). Increased ability to attract, motivate, and retain employees The studies that made by Cone and Roper (2000) indicate that a company that contribute to the society can have a positive influence on their current employees, as well as citizens and executives. According to their survey in 2001, there are 38% of employees who in the CSR programme are proud of their companys value which is much better than the employees who are not involved in the CSR program. Decreased operating costs Most of the companies want to decrease operating costs and increased the revenue from several corporate social initiatives. The obvious thing for the companies to do is to adopt environmental initiatives to reduce waste, reuse materials, recycle, and conserve water and electricity (Kotler and Lee, 2005). And as mentioned above, all KFC restaurants use more efficient lighting system which not only reducing the Carbon emission, but also reducing the operating costs. Increased appeal to investors and financial analysts. There also have some argue that involvement in corporate social initiatives can increase the stock value. The company who involved in corporate social initiatives could have the ability to attract new investors and reduce exposure to risk in the event of corporate or management crises (Kotler and Lee, 2005). 5. The Recommendation for KFC Kotler and Lee (2005) has mentioned six major initiatives of the corporate social responsibilities, which will be cause promotions, cause-related marketing, corporate social marketing, corporate philanthropy community volunteering and socially responsible business practices. For KFC, they have done many of them. As it can be seen in table 3, it is a list of each initiative of KFC. Table 3 KFCs Corporate Social Initiatives Description Example Cause Promotions Supporting social causes through promotional sponsorships Yum! Sponsored the USA National Pavilion at 2010 Shanghai World Expo. Cause-Related Marketing Making a contribution or donating a percentage of revenues to a specific cause based on product sales or usage Animal Welfare Program Corporate Social Marketing Supporting behaviour change campaigns Food Quality Corporate Philanthropy Making direct contributions to a charity or cause World Hunger Relief Community Volunteering Providing volunteer services in the community KFC is committed to tackling the little challenge Socially Responsible Business Practices Adopting and conducting discretionary business practices and investments that support social causes Recycled Materials and efficient lighting system. (Source: Kotler, P Lee N. (2005). Corporate social responsibility: doing the most good for your company and your course.1st ed. John Wiley Sons, Inc: Hoboken, New Jersey. ) Even though it is seems that KFC have done most of the activities of CSR, it is also has some shortage. The most oblivious one is in the cause promotions part. Cause promotion is a corporation provides funds, in-kind contributions, or other corporate resources to increase awareness and concern about a social cause or to support fundraising, participation, or volunteer recruitment for a cause (Kotler LEE,2005). However, most activities in society are sponsored by KFCs parent company YUM!, not KFC itself. The biggest shortage of that is if the customers do not know KFC is belong to the YUM!, then the awareness of KFC do not exist. KFC should do more promotions and sponsored the event itself, not just relay on the YUM!. And this problem is happened on the corporate philanthropy part. 6. Conclusion Even though different authors have indicated different kinds of definition and elements about corporate social responsibility, eventually, the main part of CSR does not change. The public will also keep eyes on the environmental, social issues and ethical issues, especially for a company with an outstanding reputation. During the course of this paper the reader will come across several findings of the corporate social responsibility pose to the Kentucky Fried Chicken. KFC has held a successful presence in UK retail industry for many years, with high levels of brand image. Kentucky Fried Chicken takes responsibility that protecting environment and involving social measures instead of waiting the government imposes particular laws. KFC should realize the important of corporate social responsibility and choose the appropriate way to carry out those measures. My placement at KFC has been a valuable experience, being able to observe how to run a restaurant in regard to its social responsibility. Clearly, it is useful for my future career and reward for my whole life. Not only broad my horizon but also enrich my life. 7. Appendix 7.1 Appendix 1 Employment Practices: Working Hours Conditions: according to the relevant laws, code and regulations, suppliers should make sure their employees safety and healthy working conditions in everyday and every week; meanwhile, they could not ask employees for overtime work. Non-Discrimination: suppliers should follow the local laws which illuminate the organizations should not take color, religion, sex, age, physical and national origin as the reasons why they employ workers. Child Labor: suppliers should not hire the employees under the legal age. For instance, YUM! dose not hire the employees who under 14 years of age. Forced and Indentured Labor: According to the existing law status, any Suppliers should not use workers in servitude for working or producing goods for Yum. Also, the labor should be physically and legally free from any physical, psychological, confinement, or sexual harassment under the Suppliers control. Notification to Employees: