New Balance CSR Case Study

New Balance is the second largest athletic footwear manufacturer in the U. S. and the fourth largest in the world. The company has had a strong focus on corporate social responsibility (CSR) since its inception 100 years ago, although until recently it has not necessarily been adept at making the public aware of its “doing what’s right” culture (Veleva, 2010). Dr. Veleva’s 2010 case study, “New Balance: Developing an integrated CSR strategy”, examines the company’s history and corporate culture, and describes how in 2006 it started to approach CSR more formally, creating a CSR steering committee.

In 2008, the company engaged the Boston College Center for Corporate Citizenship (BCCCC) to help develop a framework, conduct relevant research, and issue recommendations for the steering committee to use in developing and implementing a comprehensive CSR strategy. Through these efforts, it was found that the company’s various CSR initiatives, although laudable, were not particularly well organized or comprehensively reported to the executive level. Without a consistent message and vision, the sum of the initiatives was perhaps somewhat less than its parts (Veleva, 2010).

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2. Strengths and Weaknesses

The case study describes the results of a CSR assessment the company performed using the Corporate Citizenship Management framework (CCMF). The CCMF examines CSR from the viewpoints of overall governance, community support, operations, and products and services (BCCCC, 2013). The assessment identified both strengths and weaknesses in each of these areas.

2. 1 Overall Governance Interviews with employees and executives revealed common themes of corporate pride, strong values, and commitment to their customers and the community, indicating that the company’s vision was well-represented in the corporate culture and broadly understood.

However, there was no consistent view of exactly how that commitment should be, or was being, accomplished, indicating the lack of a mandate (Veleva, 2010). Many of those interviewed focused on the charitable side of CSR, believing it to be solely a cost rather than beneficial aspect of the company’s strategy while others believed it to be related to ensuring compliance in overseas suppliers to avoid the severe reputational hit that Nike experienced in the 1990s and beyond (Ballinger, 2001).

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The company’s CSR strategy is guided by the Responsible Leadership Steering Committee (RLSC), which initially focused on four areas: charitable giving, environmental sustainability, compliance, and product life cycle. The assessment found that these four areas did not provide complete coverage. Areas that should be included were transparency and accountability, and employee support. Also, domestic manufacturing was an area where the company clearly showed social responsibility in the economic downturn between 2007-2009 by working to avoid layoffs and furloughs (Veleva, 2010).

CSR initiatives were generally executed well, although the assessment did note a significant difference in how CSR was managed between the footwear and apparel operational divisions. For footwear, controls were in place to ensure the suppliers and manufacturers were in compliance regarding labor and material policies, but apparel suppliers, who changed often, were not as closely monitored (Veleva, 2010). As noted, there was a lack of accountability, which is attributed to the lack of clear leadership specific to CSR.

Executives interviewed indicated that this lack “was a major obstacle to developing an integrated CSR strategy, and that unless there was a senior-level champion for CSR on the leadership team, there was little possibility for CSR to advance significantly” (Veleva, 2010).

2. 2 Products and Services The study found that the area of products and services was significantly underutilized from a CSR perspective. All of New Balance’s footwear was manufactured including environmentally sustainable materials (25% by weight by 2009), as opposed to most of their competitor’s approaches of having specific product lines that were “green” (Veleva, 2010).

Their stores were also designed with the environment in mind, even though there had been no directive to do so from the executive level. These initiatives, as well as their more environmentally friendly manufacturing practices, such as using rail for shipments instead of trucks were, very much in line with the company’s corporate philosophy and culture.

Unfortunately, the same issues that existed with the overall governance existed here. The company may have been acting as an exemplary corporate citizen, but with no overall strategy and minimal communication, there was no consistency or coordination, and the ompany was not getting the public relations benefits that they might have otherwise gained (Veleva, 2010).

2. 3 Operations In its footwear division, New Balance had many operational initiatives that demonstrated strong responsible leadership values, many of which helped the bottom line, employee morale, the environment, and productivity. A partnership with Henkel, New Balance’s German supplier, helped the company transition from using solvent cements to a “moisture cured reactive hot melt” process which saved costs, resulted in less waste, doubled productivity, and was better for the environment (Veleva, 2010).

The process also resulted in a 97. 4% reduction in the emission of volatile organic compounds (VOCs) in its U. S. plants. VOCs have been found to have many adverse health effects, including liver, kidney, and central nervous system damage (EPA, 2013). Other CSR-related initiatives that the company undertook include:

* Enforcing a maximum 60 hour work week for Chinese suppliers, instead of 70 hours * Implementing a job-coaching program in the U. S. to reduce on-the-job injuries

* Switching to “green” janitorial companies in all U. S. lants

* Recycling 99 percent of its waste

* Reducing energy use through lighting and manufacturing process changes

* Specifically working to avoid layoffs during the 2008-2009 economic recession

These initiatives not only had beneficial effects on the environment, worker morale, and productivity, but they also saved the company money. The apparel and accessories divisions were not quite as successful as the footwear division, due in large part to the number of suppliers and smaller volumes (and corresponding smaller amount of leverage with those suppliers).

The smaller volumes also meant a larger proportionate cost of compliance, which was a challenge (Veleva, 2010).

2. 4 Community Support The culture of philanthropy stemmed from the company’s owners, Jim and Anne Davis. In 2007, the New Balance Foundation donated $6. 49 million to charity and New Balance employees contributed 3,847 hours of volunteer work. The company’s internal marketing job satisfaction survey the next year indicated that 96 percent of employees felt “good about the way they contributed[d] to the community”, demonstrating that the culture within the company was pervasive and broadly understood and appreciated (Veleva, 2010).

However, the community support initiatives were not well coordinated from the executive level, and not always communicated consistently to the company’s stakeholders. The issues that the company was involved with did not always resonate with the employees. Additionally, the issues were primarily U. S. based, and held less relevance for the company’s global customer based (Veleva, 2010).

3. Analysis

The company’s strengths are clear. CSR is an integral part of New Balance’s corporate culture and that culture stems from the company owners’ personal vision of responsible leadership.

From the executive team to the line employees, there appears to be a broad adoption and understanding of the importance of CSR. Various initiatives demonstrate the benefits of CSR, to the company, the communities in which it operates, and to the company’s stakeholders. The weaknesses are equally clear. There is no comprehensive oversight of CSR from the executive level, so there is no consistency in goal, little opportunity to gain synergy from the disparate initiatives, a lack of communication both internally and externally, and little or no associated reporting.

Any approach to remedy this will need to address the lack of direction, control and transparency.

4. Implementing CSR

There are three discrete steps that the company should take to address the weaknesses described above:

* Create and fill an executive level Corporate Social Responsibility Director position whose sole responsibility is to head the committee described above and develop an overall CSR strategy and ensure that strategy is represented in the company’s short term and long term plans. Update the RLSC with a new charter, and have it be led by the CSR Director, with the committee having oversight and responsibility for approving and directing the CSR activities within the company. * Develop a comprehensive CSR communication plan and publish an annual report detailing the company’s CSR activities for internal and external consumption. By designating a person to lead the CSR initiatives, governing the process will be the first priority of at least one executive, which should ensure that the oversight doesn’t fall by the wayside.

In my opinion, creating a committee (likely one of several each executive sits on) does not provide enough of an impetus to guarantee dedicated participation. Also, having one person to lead and govern the CSR strategy can help avoid “design by committee” issues, where solutions can be compromised to the point of being ineffectual. One of the best examples of this is the Pontiac Aztek, which was an abysmal failure for GM, and was expressly designed by a committee with extensive focus groups (Atwood, 2005).

A strong leader heading up the committee can avoid that trap, and make sure the CSR initiatives are successful and consistent with the overall strategy. The CSR strategy should cover charitable giving and community services, product manufacturing and materials, environmental compliance, and associate relations. The existing RLSC committee, led by the CSR Director, with members from each division within the company will provide the necessary oversight to corral and provide structure to the many unrelated CSR initiatives currently underway at the company, and ensure that new initiatives are closely considered as part of a governing strategy.

The committee would serve two main purposes. First, as part of the strategy developed by the CSR Director, determine the scope of and direction of CSR as it relates to the company’s plans. This would include determining a budget for new proposals, identifying goals, and setting timelines for implementation. Second, the committee would consider and approve or reject CSR proposals brought forward by the members of the various divisions for consideration.

New initiatives can be proposed by anyone in any division, and filtered up to the division heads that sit on the committee, who would be considered the initiatives’ sponsor, and be responsible for providing status updates and reporting. Given that a lack of communication was a flagged as an issue multiple times in the case study, the most direct solution is to generate a report, providing details of the company’s CSR initiatives, as well as an overview of the history of the company and their long time commitment to the environment, their employees, and the community.

As a private company, they do not need to generate an annual report or the various SEC filings required of public companies, but that doesn’t mean they should not publish any information. This annual report should outline the company vision and provide details of New Balance’s CSR organization and strategy, and specific details about all of the CSR initiatives of the previous year and how they relate to the overall strategy. The report should be provided to the company’s suppliers, be available to employees, and to the general public via the corporate web site.

Additionally, as new initiatives are launched throughout the year, press releases should be issued as part of an overall communication plan, providing details and garnering positive publicity. Hiring or promoting a CSR Director would likely take a few months. Once they are in place, the committee could work over the following months to review existing and potential new initiatives, determine the contents of the annual report, develop a communication plan, and design and implement a reporting structure which track the various initiatives. If aggressively pursued, I suspect the entire process could be completed within a year.

Success of the CSR program would be measured by opinion surveys that assess the company’s reputation in the public arena, as well as the realization of the benefits of each of the CSR initiatives (each initiative would have different success measures, depending on the specific goals anticipated).

5. Conclusion

New Balance has a problem, but as problems go it is not one that is terribly difficult to fix. They are a company that seems to have always tried to be a good corporate citizen in a multitude of ways, but had executives who were too humble to broadcast them.

That is a much easier problem than a company with executives who have consistently acted against the interests of the broader community but wants to publicize any half-hearted CSRs efforts the company has made. The short answer is that the owners need to accept that it is best for the company and their stakeholders to take pride in the CSR initiatives and let people know about them. This will not only enhance their reputation, but also allow for valuable feedback from the community and their stakeholders.