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Ethical Strategy Analysis Jennifer Isikwe Analysis of the Ethical Strategy of the Estee Lauder Companies I. Background Information A. Brief History B. Other Relevant Information (Industry, environment, etc) II. Analysis of the Ethical Strategy A. Stated Ethical Strategy 1. Philosophy section of the mission statement 2. Explicit statements about ethics and social responsibility 3. Codes of ethics 4. Other information B. Corporation and its Major Stakeholders 1.
Employees 2. Customers 3. Shareholders 4. Community C. Institutionalization of Ethics 1. Explicit Components 2. Implicit Components D. Corporate Environmental Management 1. Environmental Policy 2. Environmental Management Systems E. Crisis Management Policy III. Overall Evaluations and Conclusions IV. Recommendations V. Appendix Background Information Brief History Estee Lauder, who believed that every woman could be beautiful, founded the Estee Lauder Company in 1946 with her husband Joseph Lauder. The Company opened its first department store account with Saks Fifth Avenue in New York City.
The company initially launched with four products: Super Rich All Purpose Creme, Creme Pack, Cleansing Oil, and Skin Lotion. Eventually five other brands would be internally developed. Aramis, a line of prestige fragrance and grooming products for men, was launched in 1964. Clinique, the first dermatological, allergy-tested, fragrance-free cosmetics brand, emerged in 1968. Prescriptives, a personalized artistry of custom blended makeup, complimentary colorprinting, and personalized skincare regimen, was founded in 1979. Lab Series, Skincare for Men, the authority in men’s skincare, debuted in 1987.
Origins, the first department store wellness brand, was introduced in 1990. From 1960 to 1993, Estee Lauder entered new markets in England, Canada, Central America, Australia, France, Germany, Soviet Union, and China deeming it an international brand. By 1985 the Company surpassed $1 billion dollars in sales. The Estee Lauder Companies (ELC) now sell products in over 140 countries and territories under its well-known brands. Apart from its operations, the Estee Lauder Companies conducts research and development to identify shifts in consumer preferences, develop new products, and improve, redesign or reformulate existing products.
Being a globally recognized manufacturer of luxury makeup, skincare, fragrances, and hair care products coincides with Estee Lauder’s initial dream; to bring the best to everyone we touch. The values and standards that govern the Estee Lauder Companies today are the same ones that founded the company over 60 years ago. Mrs. Lauder created a culture of quality, style, and unsurpassed customer service that has made The Estee Lauder Companies the global cosmetics leader it is today. Relevant Information To fully critique any corporation, one should analyze the external factors surrounding that corporation.
The three factors that will be analyzed are: the current global economic crisis, decreased demand for luxury items, and the competitive nature of the cosmetics industry. Economic Crisis and the Beauty Industry The level of consumer spending is greatly affected by economic conditions. Economic conditions are created from a host of economic factors. These factors include inflation, interest rates, energy costs, global economies, and consumer confidence. One economic factor that has affected many industries is the current global economic crisis. No sector of business, domestically and abroad, has been spared from this turmoil.
The Estee Lauder Companies along with its major competitors operate in a globalized economy. The ELC presently generates cashflows from its ongoing operations and accesses global credit markets through various financing activities. The current volatility of the financial markets has created uncertainty for cosmetic companies to access future global credit markets. Credit markets have recently experienced significant disruptions and certain lending institutions have either declared bankruptcy or have shown significant deterioration in their financial stability. If financial institutions that are parties to several cosmetic companies’ undrawn revolving credit lines, commercial paper programs, interest rate or foreign exchange rate hedging instruments were to declare bankruptcy or become insolvent, several cosmetic companies will be left with reduced borrowing capacities. Decreased Demand for Luxury Items The Estee Lauder Companies sells prestige products principally through limited distribution channels to compliment the image associated with its brands.
These channels consist primarily of upscale department stores, specialty retailers, upscale perfumeries, prestige salons and spas, and pharmacies. 2 The Estee Lauder Companies is characteristically considered to be a company who produces luxury items by choosing to operate through such channels. Recessions often lead to declines in consumer confidence and disposable income. During recessionary periods, when disposable income is lower, customer purchases of luxury items tend to decline. The cosmetics industry is experiencing a decline in consumer confidence that has resulted in decreased consumer traffic and the average value per transaction.
Cosmetic companies have customers that range from select retailers to consumers. Cosmetic companies extend lines of credit to retailers without collateral. A decline in the consumption of luxury items directly impacts retailers who have purchased luxury goods from cosmetic companies. Declining consumer traffic may lead to the inability to collect account receivables for several cosmetic companies. This inability will cause cosmetic companies to assume more credit risk relating to these respective account receivables. 2
Although historically considered “recession-proof”, the luxury goods industry is struggling in the face of the current global financial crisis. Loyal consumers, during tough economic times, seek to optimize their spending. With this said, is it ethically sound for any of the luxury cosmetic companies to still charge their consumers and retail customers high prices for their goods? Despite cries of the ‘lipstick effect’, the cosmetics and personal care industry has not been protected from the economic downturn. Analysts argue recent alterations to the market and changes in consumer behavior might be here to stay.
It will behoove luxury cosmetic companies to review current prices in order to maintain their consumer and retail customer bases during and after this economic crisis, for it will be imperative to justify the current value of their products. Competitive Nature of the Cosmetics Industry Competition in the cosmetic industry is based on pricing of products, innovation, perceived value, customer service, promotional activities, advertising, special events, new product introduction, electronic commerce initiative, and a host of other activities. There has been apparent growth of the cosmetic industry during the past four decades. Currently, more than 700 growing cosmetic companies are competing in the market. Despite current economic conditions, the global cosmetic industry market growth rate is expected to be 3. 6% during the next five years. 4 As a result, new trends will begin to emerge and evolve. These trends have the potential to adversely affect the Estee Lauder Companies as key consumers, retail customers, and profits are loss to competitors. Additionally, there are also market leaders that dominate the cosmetic industry.
Consequently, such conditions have created the intensifying competition that permeates through the cosmetic industry. A cosmetic company, due to its industry’s nature, faces competition domestically and abroad. It is challenging to predict the timing and scale of one’s competitors’ actions in a global marketplace. It is inevitable that some competitors will have a greater competitive advantage. They will have access to greater resources, the ability to quickly adapt to changing consumer demands, and changing business and economic conditions.
The key to success in this aggressive global marketplace is to stay ahead of the curve for product and consumer trends with a diversified product portfolio and distribution strategy. Stated Ethical Strategy Philosophy Section of the Mission Statement The Estee Lauder Companies’ mission is: “Bringing the best to everyone we touch. ” Their mission statement is more than words on a piece of paper. It is a philosophy practiced by every ELC individual since its foundation in 1946. The Estee Lauder Companies are committed to 1. Providing customers with innovative cosmetic products of the highest quality. . Deliverance of outstanding service, by treating each individual as the company itself would like to be treated. 3. Promoting a safe and healthy workplace for all employees with responsible environmental and safety practices. 4. Protecting the environment and communities in which it operates through continued responsible actions. 5. Making a human connection and uplifting the lives of their consumers. 6. Creating an environment the fosters personal growth and well-being. 7. Increasing shareholder value by maintaining corporate citizenship through transparent and accountable measures. 5
The Estee Lauder Companies is truly committed to bringing the best products, the best people, and the best ideas. This commitment along with the aforementioned commitments has deemed it as one of the world’s leading manufacturer and marketers of makeup, quality skin care, fragrance, and hair care. Ethics and Social Responsibility According to the Ethisphere Council “a corporation that goes above and beyond legal minimums, brings about innovative new ideas that expand the public well-being, works on reducing their carbon footprint rather than contributing to green washing” is considered a socially responsible company. Companies such as the one described above are recognized for their Corporate Social Responsibility (CSR) practices and are awarded the “World’s Most Ethical Company” award. The Estee Lauder Companies views itself as an active student, caretaker, participant, and innovator in regards to corporate social responsibility. 7 The ‘High Touch’ philosophy used to govern business affairs is also applied to the Company’s efforts to preserve natural resources of the communities in which it operates and its responsibilities to employees, consumers, and customers.
The Estee Lauder Companies have put in place an Environmental Affairs & Safety Committee to ensure economic, social, and environmental sustainability. This committee acts as a unifying force and focal point for programs, initiatives, and communications relating to environmental performance, workplace safety, corporate social responsibility, and associated issues. 8 The company has identified goals in four different areas to meet its commitments to economic, social, and environmental sustainability. These areas include: Employees, Global Philanthropy, Sustainable Packaging, and Research and Development.
Employees depend on their employers for their source of income, healthcare, job security, a safe and healthy workplace, and equal opportunities. These responsibilities are both legal and ethical in nature. The relationship between employers and employees must be managed cautiously as employees are critical stakeholders of any type of business. The Estee Lauder Companies for the past fours years has received a perfect score on the Corporate Equality Index. The Human Rights Campaign Foundation sponsors this index.
The index rates companies according to their responses to policies regarding sexual orientation, gender identity, partner health benefits, employee network group, diversity training, external engagement, and responsible citizenship. 9 The Company received a perfect score for all seven criteria requirements. The Estee Lauder Companies have provided a work environment in which individuals of different races, genders and gender identities, sexual orientation, ethnicities, religions, and backgrounds can meet their highest potentials by meeting these requirements.
The Estee Lauder Companies supports a large number of global institutions and programs that continue to evolve their ‘High Touch’ philosophy among communities. The Company boasts of building relationships with global organizations that are dedicated to health and human services, education, the environment, and the arts. The largest corporate philanthropic campaigns are The Estee Lauder Companies’ Breast Cancer Awareness (BCA) Campaign and support for the MAC AIDS Fund. Thousands of customers each year contact the Estee Lauders Companies about its environmental practices.
These inquiries led the Company to establish its Sustainable Packaging Coalition (SPC). This coalition is based on Cradle to Cradle principles and dedicated to transforming product packaging into a system which encourages economic prosperity and a sustainable flow of materials. 10 The Company, by 2012, hopes to design packaging that enhances and reflects its brands images while minimizing environmental impact. These three initiatives will be taken to reach this goal: defined brand-specific packaging guidelines, renewable energy used by 25% of its packaging suppliers, and increased use of renewable energy and recycled content in packaging.
The Estee Lauder Companies has eight research and development facilities worldwide. The Company has embarked on a company-wide program in green chemistry. The company hopes to design chemical products and processes that reduce or eliminate the use or generation of hazardous substances. It is also applying these same standards to the suppliers of its raw materials. Forty scientists and engineers from every aspect of product development are focusing on sustainable product designs and full lifecycle analyses. On September 28th and 29th 2010, the Company’s executive director of strategic development, Dr.
Liliana George, Ph. D. , will be addressing the attendees of the HBA Global 2010 Expo about the sustainability and the greening of the cosmetics industry. The company acknowledges achieving both corporate responsibility and sustainability will offer challenges as well as opportunities to preserve not only natural resources, but also the communities of its consumers and employees. In 2007, The Estee Lauder Companies released the Company’s first Corporate Social Responsibility Report. The company failed to release a report for the 2008 fiscal year, but released CSR reports for both the 2009 and 2010 fiscal years.
Code of Ethics The Estee Lauder Companies’ Code of Conduct is the company’s Code of Ethics. This document articulates the highest standards of professional and personal conduct the Company expects from its employees and Board of Directors. The Estee Lauder Companies places the responsibility of bringing the best to everyone it touches in the hands of its employees. Each employee is expected to conduct themselves, at all times, within the letter and the spirit of the code. 8 This applies to all, domestically and abroad.
The Company ensures continued success in delivering the best products and services to its customers by requiring all of its employees to follow legal and ethical business practices. The Estee Lauder Companies, thus has entrusted its reputation for quality and integrity with its employees, and has provided the Code as guidance to guard its reputation. The Code consists of the following legal and ethical standards: 1. Deliver innovative cosmetic products of high quality and outstanding service. 2. Create a safe and equitable environment fosters personal growth and well-being. . Conduct business practices and transactions in accordance with the highest ethical standards. 4. Avoid actual or apparent conflicts of interests. 5. Commit to full compliance with the laws and regulations of the countries in which it operates. 6. Build partnerships with suppliers, retailers, colleagues based on fairness and trust. 7. Protect the environment through responsible action. 8. Be responsible citizens in every community in which it operates. 9. Pursue profit, but never at the expense of quality, service, or reputation. These guidelines empower all employees and the Board of Directors to conduct all business with the principles and ideals that founded and established the Estee Lauder Companies. The Estee Lauder Companies has not only provided its employees with guidance, but has taken it a step further by implementing policies that encourage the cooperation and widespread participation of its employees. These policies allow employees to be actively involved in the ethical decision-making process and diffuse anxiety when encountering an ethical dilemma.
Every employee has the right to raise concerns involving the violation or suspected violation of the Company’s Code of Conduct, Company policy or applicable law or regulation, in order to protect the Company, its stockholder, its employees, and its customers by contacting a confidential, toll-free hotline. 8 Executive officers, senior financial officers, members of the Board of Directors, and employees have the right to petition for a waiver to materially depart from any provision from the Company’s Code of Conduct. Such a petition must be brought before the Audit Committee.
This committee, may, in its sole discretion, grant such a waiver, and may do so only after thorough review of the specific facts and circumstances and potential impact on the Company and consideration of what controls may need to be implemented to protect the interests of the Company and its stakeholders. 8 To date, no waivers have ever been granted. Through out every level of management, the ethical and legal behaviors mandated by the Code are to be enforced by the Company’s CEO, senior financial officers, and management employees.
These individuals, on an annual basis, are required to certify their compliance and continued commitment to the Code. Newly hired employees must sign and acknowledge that they have received, read, understand, and will comply with the contents and terms of the Code. It is important to note that all of the Estee Lauder Companies’ stakeholders are addressed in the Code of Conduct. Corporation and its Major Stakeholders Employees Nationally, the Estee Lauder Companies has been recognized for being highly ranked on Fortune’s World’s Most Admired Companies for the years 2006, 2007, 2008, 2009, and 2010.
Innovation, people management, use of corporate assets, social responsibility, quality of management, financial soundness, long-term investment, quality of products/services, and global competitiveness are the nine attributes investigated by Fortune. The Company was placed in the Soaps and Cosmetics industry and has never fallen below the sixth spot. The Company’s industry rank for people management has ranged from 3 to 6 out of a maximum score of 10. The Estee Lauder Companies recognizes its livelihood depends on its employees.
The company gains handsomely from the contributions of employees who share curiosity, ingenuity, passion, and desire for success. Leonard Lauder, Chairman Emeritus, often reiterates, ” The wealth of a company is its people. By that standard we are a very wealthy company. “11With this stated, the Company has taken great strides is creating programs committed to nurturing talent and creating a collaborative working environment regardless of geography. One such program is the Think Smart employee program.
Think Smart was developed to encourage ELC’s employees to submit ideas on how to work smarter and more cost effectively. The program has received thousands of ideas resulting in many cost-saving and efficiency initiatives. Most recently, an employee in the Company’s Canadian manufacturing plant, created a prototype for an automatic label machine using parts he had purchased from a hardware store. The machine was successfully implemented and generated considerable cost savings for the Company. The company also values the development and professional growth of its employees.
Tuition reimbursement programs, global executive development programs, workshops, and web seminars provide many avenues for professional development and growth. The Estee Lauder Companies Inc. acknowledges that the promoting their employees’ good health and well-being leads to more productive lives for their employees. 7 Established health and wellness programs around the world provide onsite health check-ups, skin cancer screenings, mammograms, fitness programs, and other activities. The Company has contracted with Sandler Occupational Medicine Associates, Inc. o review the Company’s Employee Medical Program and work with EAS to develop occupational health programs across the organization. 12 The creation of the Environmental Affairs and Safety committee protects the safety and health of all employees. Employees are provided with safety-related information via training, team meetings, and postings on the Intranet. Among the items communicated to employees are reviews of facility processes, pollution prevention plans, material handling risks and audit findings. 2 All employees receive training applicable to their job function and/or as required under local regulations. Training topics include: personal protective equipment, laboratory safety, and powered material handling equipment. In addition, employees receive awareness training about the Estee Lauder Companies Environmental & Safety Management System. 12 Principal measures of the effectiveness of the Estee Lauder Companies safety programs are its accident statistics (frequency, severity, and compensation rates).
The information is updated monthly and discussed at management performance meetings. From 1996 to 2006, The Estee Lauder Companies has seen a decrease in the frequency and the severity of injury and illnesses in its workplace. There has been a 73% reduction in the Lost-Time Injury Frequency rate over this eleven-year period. 12 A number of factors account for this decline, including increased communication, capital investment, and mandatory safe work practices.
In 2004 and 2006 there was a slight increase in most of the accident statistics measured in comparison to the 2003. This led to intensive reviews of the operations and practices where these accidents occurred. The company was recognized in 2006 with the British Safety Council Award for the 19th consecutive year for its UK manufacturing facility. The Company was also awarded the Minnesota Safety Council Governor’s Award for Safety for its commitment to employee safety and well-being in two of its Minnesota facilities.
The Company strongly believes its continued success relies on its ability to provide a safe and equitable workplace where employees can reach their potentials. The Company’s equality policies ensures fair treatment concerning all Company activities, including compensation, training, assignment, promotion, discipline, and disgharge. 8The ELC was named by the Human Rights Campaign’s Corporate Equality Index for GLBT Employees as one of the Best Places to Work for gay, lesbian, bisexual and transgender employees for two consecutive years.
The Company’s relations with its employees, as stated in its 2010 10-K, are in good standing and none of its employees are covered by a collective bargaining agreement. ELC maintains that it has never encountered a material strike or work stoppage in the United States or in any other country where it has a significant number of employees. 13 Customers The Estee Lauder Companies places high value on consumer communication and awareness. Many systems are in place to provide outstanding customer service and open dialogue on behalf of the Company and its brands.
State-of-the-art service and individualized attention to customers are provided via brand web sites, toll-free hotlines, and six global Consumer Care Centers. 14 The Estee Lauder Companies “High Touch’ philosophy implies customers are given the best products and services. The Company website provides both product safety and consumer awareness printable literature. Product safety literature provides product safety FAQs as well as information concerning animal testing, ingredients, alpha hydroxy acids, REACH certification, sun protection, and EU 3-1sunscreen labeling.
Consumer awareness literature provides The Understanding Your Label Guide to help consumers decipher many of the statements and symbols that appear on the company’s products as well as leaflets, cards, or tags that may accompany products. The Company takes it a step further and provides a list of credible organizations and websites to address rumors or health scares centered on the cosmetics industry. In 2007, Estee Lauder Advanced Night Repair Concentrate won one of the industry’s most coveted awards for product excellence and achievement- the Marie Claire U. K.
Prixe D’Excellence jury prize. Shareholders The Estee Lauder Companies highly value their shareholders and their commitment to a competitive return. The Company is meticulous in the practices it uses to provide shareholder information. The Company has an entire section on its corporate website dedicated entirely to investors. Investors are privy to a wealth of financial information about the Company. Investors can also turn to the Company’s annual 10-K report to find ELC’s forward-looking statements. These statements adhere to the Private Securities Litigation Reform Act of 1995.
The statements include the Company’s expectations regarding sales, earnings or other future financial performance and liquidity, its long-term strategy, restructuring and initiatives, product introductions, entry into new geographic regions, information systems initiatives, new methods of sale and future operations or operations results. ELC’s Management’s Discussion and Analysis of Financial Condition and Results of Operations are also found in the Company’s 10-K report. The Company also makes has this disclaimer ccompanying documents, “Although we believe that our expectations are based on reasonable assumptions within the bounds of our knowledge of our business and operations, we cannot assure that actual results will not differ materially from our expectations. “15 Under ‘Investors’, on the corporate website, one can find important links for investors, news releases, financial reports, corporate governance policies, a calendar of events, GAPP reconciliations, the corporate profile, stock information, investor contacts, and FAQs. Two Annexes accompany the Corporate Governance Guidelines.
Annex I is the Policy Statement Regarding Director Nominations. It consists of the criteria used by the Nominating and Board Affairs Committee (NBA) in evaluating candidates for the board; the process used by the NBA Committee in identifying, reviewing, and recommending such candidates; the NBA Committee’s general policy on considering candidates recommended by shareholders; and the process to be used by the Company’s shareholders in submitting candidates to the NBA Committee for its consideration. 15 Annex II consists of the ELC Board of Directors Independence Standards.
These standards were put into place to determine whether a material relationship exists between a Director and the Company. Is the ELC applying the ‘High Touch’ philosophy to its investor relations? The Company drew up a Corporate Governance Policy when it became a publicly traded company. The practices outlined in this policy help the Company fulfill its responsibilities to shareholders by providing direction and oversight regarding the management of ELC business affairs and aligning the Board of Directors’ interests with ELC shareholders. 15 All Directors are required to attend all scheduled shareholders’ meetings.
Directors are also required to devote sufficient time to effectively carry out all of their duties and responsibilities and are expected to serve on the Board for an extended period of time. The Board has adopted “categorical standards” of independence based on NYSE’s laws and regulations found in Annex II. Any Director whose principal occupation or business association materially changes during their tenure as a director must tender their resignation for consideration by the NBA. The Board is divided into three divisions, each division serves for a total of three years.
The shareholders elect one division of directors annually and the Board nominates for election, by shareholders, a slate of directors for the division whose term is set to expire at the Company’s annual meeting. 15 It is company policy, to have a number of directors that is deemed effectively efficient. The Board believes that 12-14 directors is an optimal size and that 11 is an appropriate minimum, if present circumstances support this minimum. The Board has three committees. The Audit Committee oversees the Company’s internal and external accounting and auditing processes.
It is also responsible for the appointment, compensation, retention, and oversight of the Company’s independent auditors. It is only made up of independent directors. The ELC is a controlled company, therefore the Audit Committee is exempt from the NYSE listing standards that govern the Compensation and Nominating and Board Affairs Committees. The Compensation Committee monitors developments and market conditions relating to executive pay, recommends compensation levels and systems, and decides Executive Chairman and CEO compensation.
The Nominating and Board Committee (NBA) is responsible for recommending to the Board individuals to be nominated and for developing and reporting the standards and principles employed by the Board to evaluate the Executive Chairman and CEO’s overall performance. The Company’s Code of Conduct is applicable to every director and enables anyone who has concerns to anonymously raise them. The Company is performing a cautious balancing act. The Company boasts of representing shareholders interests through sound judgment and practices that align the interests of the directors with shareholders.
Ironically, these practices indiscreetly benefit the Company. Even though shareholders are given voting rights and actively participate in business affairs as shareholders of a controlled company, the NBA, after receiving shareholders’ NBA governed suggestions, still selects the set of individuals that are presented to the Board of Directors. With roughly 31% of the Company’s executive officers being Lauders and each of these individuals possessing significant stakes in the Company, aren’t conflicts of interests present?
By definition, a controlled company essentially places the holder of the majority shares in a position to control the outcome of voting on any shareholder issue. However in the case of the ELC, the exact degree of control is determined by the terms of participation contained within the purchase agreements for these shares and the by-laws of the Company. Community The ELC is a prominent citizen in the communities in which it operates. It strives to strengthen the health and human services, the environment, education, the arts, and individual enterprise of local and global communities.
Several of its brand lines have formed alliances with local and global organizations to identify and support projects that will benefit individuals as well as entire populations. The Company also encourages its partners to make charitable contributions and voluntary services to causes dear to them. ELC employees participate in the Employee Volunteer Program. Employees contribute their time, passion, and talents to a number of causes. In addition to corporate philanthropic funding, the Company provides product contributions.
To date, the Company and its subsidiaries have contributed more than $35 million in funding and more than $6 million in product donations. The largest corporate philanthropic campaigns are The Estee Lauder Companies’ Breast Cancer Awareness (BCA) Campaign and the MAC AIDS Fund. In 1992, Evelyn H. Lauder co-created the Pink Ribbon with SELF magazine and began the BCA Campaign. In 1993, Mrs. Lauder founded The Breast Cancer Research Foundation (BCRF), a not-for-profit organization dedicated to funding clinical and translational breast cancer research.
To date, BCRF and the Estee Lauder Companies’ retail partners have raised $40 million. 16 BRCF received the Charity Navigator’s highest rating for the past eight years. This rating is given to the company that outperforms over 99 percent of the evaluated companies. 17 The BCA Campaign was selected as one of the five finalists for the U. S. Chamber of Commerce Business Civic Leadership Center 2009 Corporate Citizenship Awards in the “Partnership Award” category. The MAC AIDS Fund, established in 1994, supports men, women, and children affected by HIV/AIDS globally.
The Estee Lauder Companies’ employees donate their time, energy, and talents to those affected by HIV/AIDS worldwide. To date, MAC and its retailers have provided over $148 billion for the MAC AIDS Fund. 7 In 2007, The Foundation for AIDS Research honored John Demsey, Chairman and Group President of the MAC AIDS Fund with the amfAR Award of Courage. In 2007, the Company also received with The Corporate Partnership Award for its commitment to volunteer service. Institutionalization of Ethics A business that wishes to improve or upkeep the quality of its ethical performance must build ethical safeguards into its daily routines. 8 This is often referred to as institutionalizing ethics. The Company has taken both a compliance-based and an integrity-based approach to its ethic program. Compliance-based policies seek to avoid legal sanctions and integrity-based policies combine a concern for the law with an emphasis on employee responsibility for ethical conduct. 18 The Estee Lauder Companies claim to continually follow the explicit ethical components of its Code of Conduct. These components are governed by both U. S. governmental agencies and international agencies.
To enhance ethical compliance, ELC maintains an ongoing system of regular inspections, internal audits, and independent third-party auditing of its business affairs. Employees must apply the highest standards of ethics and uncompromising integrity to all aspects of the company. The Company explicitly acknowledges the significant legal and ethical consequences of violating the Code of Conduct. ELC strongly enforces any disciplinary action that will be taken with respect to not only those who violate the Code of Conduct, but also those who- through lack of diligence or supervision – fail to prevent or report violations. With this said, has the Estee Lauder Companies truly set up safeguards to ensure employees act in a ethical manner at all times? The Company has continually promoted ethics within its organization. At every level, with each pragmatic business decision, there is literature to help individuals with their decision-making process. Employees can reference the Code; board members the Corporate Governance Guidelines and Code and suppliers and manufacturers reference the Supplier Code of Conduct and Code.
By providing every individual, regardless of position, with a reference guide the Company has taken action to create a work environment with uncompromising ethics and integrity. The company has another ethics safeguard in place; it has created an audit committee and an Internal Control Office as well as an anonymous hotline and mailing address to allow individuals to raise concerns about violations or suspected violations. The Company’s Corporate Environmental Affairs ; Safety Committee, another ethical safeguard, acts as the joining force and focal point for ethical programs.
It ensures individuals receive communications, literature, and knowledge of initiatives related to ethical, environmental performance, and workplace safety. In regards to training programs, the Company has implemented an array of programs that go beyond the legal requirements in order to create a healthy, safe, and ethical environment for its employees. Corporate Environmental Management ELC has taken pride in being an environmentally sensitive corporation and has publicly stated this in the Company’s Environmental & Safety Policy.
It has proactively managed environmental and safety concerns since 1991. The Company is dedicated remaining environmentally sensitive with continuous improvement of its environmental and safety policies. These include: 1. To meet or exceed all requirements of applicable environmental, health, and safety laws and regulations, corporate standards, and other standards or criteria to which the Company subscribes where products are developed, manufactured, distributed, and disposed. 2. To provide support to all organizational units via the Company’s EAS department 3.
Promote employee safety and minimize environmental impact throughout our products’ development, production, and distribution. 4. Encourage and apply pollution prevention, resource conservation, waste minimization, reuse, and recycling practices. 5. Minimize waste disposal costs and promote application of safe and innovative technologies for waste disposal. 6. Enhance awareness and communication among employees and the communities in which it operates. 7. Strive to continuously improve environmental and safety management systems and practices with an annual review of objectives and targets. 2 In the United States, the federal government regulates in three major areas of environmental protection: air pollution, water pollution, and land pollution (solid and hazardous waste). 18 The ELC regulates six major areas of environmental protection: waste minimization, resource conservation, air/climate change pollution prevention, materials management, supply chain, and packaging. Waste Minimization Data collected on waste generation and disposal costs help to identify ELC’s annual waste minimization objectives. The Company’s primary objective is to educe both the cost and quantity of generated waste. Each facility has both a paper and corrugate recycling program. Glass, plastic, and metals recycling programs are applicably available as well. Wastes generated from operations are recycled, reused, or sent for energy recovery. The discharge of industrial wastewater generated from the cleaning and sanitization of manufacturing processes follow local governmental guidelines. Sanitary sewage wastes generated from lavatories and cafeteria operations are also discharged with the abovementioned guidelines. 2 ELC hopes to diminish its water global footprint. The company currently engages in a water usage comprehensive plan. The company reviews processes at its respective facilities that generate wastewater to determine ways to decrease product loss from these activities. It has also implemented several conservation measures to reduce water used for process, cleaning, sanitation, and irrigation purposes. 12 Resource Conservation The objective of the ELC resource conservation program is to merge the three E’s: energy, environment, and economics.
The program will help the Company develop, manufacture, distribute, and sell its products more efficiently. It directly seeks ways to calculate material/energy usage, reduce and conserve material/energy usage, and offset material/energy usage. 12 In 1998, ELC signed a Memorandum of Understanding with the U. S. Environmental Protection Agency to join the Energy Star Program. The Energy Star Program requires the ELC to make Operations’ buildings energy efficient by reducing the lighting load and increasing the efficiency of motors and engines. 2 Under the program, monthly electricity, heating, and water use are monitored for all facilities to ensure the Company maintains efficiencies as operational expansion occurs. Global Operations’ energy use has steadily increased from 2005 to 2008; information for the 2009 and 2010 fiscal years are not yet available. The Company attributes this increased energy use to further automation of product lines and rises in facility heating needs. Since 1998, the ELC’s completed energy conservation projects have led to an annual savings of $1. 85 million per year with a 15. million kWh reduction in electricity consumption and a135 thousand Therms reduction in natural gas consumption. 7 Both of these reductions, combined, equate to the removal of approximately 20 million pounds of carbon dioxide from the atmosphere each year. 7 Along with conservation projects, the Company has initiated an aggressive on site renewable electricity program in which it installs on-site renewable sources of electricity. It is not feasible to install these sources of energy on every site; the purchases of green electricity offsets are used in these instances.
In 2007, ELC was the first cosmetics company to offset 100% of its Operations’ electricity usage. In 2008, ELC purchased green electricity offsets for all of its Global Operations facilities, North American retail stores, third party manufacturing, and its New York offices. The combination of theses purchases has led to an annual renewable electricity purchase of 77,744,651 kWhs of electricity. 7 These purchases will reduce 34,959 metric tons in CO2 emissions each year. ELC, in 2008, was honored as the United States EPA Green Power Partner Purchaser of the year for these purchases. Air/Climate Change Pollution
As mentioned before, the ELC utilizes low amounts of EPA regulated hazardous materials in its manufacturing facilities. Several ELC manufacturing facilities have government approval and are exempt from permit requirements. The Company’s Perfume filling operations, which release volatile organic compounds (VOCs), are equipped with pollution control units that capture and recover VOCs emissions. Overall, ELC’s VOC emissions have steadily decreased from 2005 to the present. 7 Climate changes have the potential to inhibit ELC’s profitability. Climate changes often lead to natural disasters.
Such disasters can damage stores and facilities and diminish access to botanical ingredients and clean water. The ELC has integrated its Climate Change strategy within its ISO 14001 certified Environmental Management System and Global Business Continuity Programs to alleviate the effects of climate change. 12 The Company has partnered with the U. S. Environmental Protection Agency’s Climate Leaders Program to minimize its own contributions to climates change. This partnership allows the Company to calculate ELC’s full carbon footprint and helps in the setting of long-term goals to reduce the Company’s overall global impact.
Seven business strategy programs have been established to further reduce the Company’s climate change contributions. They are: regional manufacturing, freight minimization, sustainable sourcing, sustainable packaging, energy conservation, greed building and purchasing specifications, and employee commute and travel. 12 Materials Management ELC’s Environmental Affairs and Safety and Regulatory Affairs departments assess the potential effects of new and processed raw materials on the environment, employees, and consumers.
Company efforts are made to reformulate products that may adversely affect the three previously mentioned groups. Each facility complies with local regulations regarding the use of particular substances in both manufacturing and ancillary processes. In 1997, ELC, in cooperation with Forest Ethics, announced its commitment to phase out the use of products that come from the destruction of the word’s ancient forests. It also redesigned its shipper layout and drastically decreased the weight of shipping material per product.
To date, these initiatives have saved the equivalent of approximately 700,000 trees. 7 ELC also agreed to discontinue purchasing components from companies who use products made from old growth. The Company’s Community Right to Know Program tracks material use at its facilities. Inventory management systems provide present-day information about raw materials and product amounts stored at any location. Currently the Company is in compliance with the European chemicals program REACH (Regulation Evaluation, Authorization and Restriction of Chemicals).
This organization promotes efforts to streamline and improve the former legislative framework on chemicals of the European Union. 19 The Company is also ISO 14001 certified at all of its manufacturing sites. The Company hopes to achieve additional certifications regarding biodiversity and the environmental and climate impacts of raw materials. Although the Company has made green chemistry part of its corporate strategy and attempts to apply these principles throughout the life cycle of its products, suppliers of its raw materials have yet to create new ingredients applicable to green chemistry standards.
Supply Chain The Estee Lauder Companies outsources 99 percent of the production and sourcing of its raw materials. 12 The ELC continuously works with its supply chain and third-party manufacturers in order to enhance the EHS performance of the Company. The Company requires suppliers comply with all applicable government regulations for the country in which they reside. All new suppliers must sign off that they can and will meet ELC corporate EHS specifications, including legal compliance to waste disposal and transportation of dangerous goods. 2 It also demands suppliers to adhere to the provisions speci? ed in the Supplier Code of Conduct. The Code outlines expectations for supplier environmental and social performance, including components addressing wages and compensation, human rights, child and forced labor, safe working conditions, anti-discrimination, freedom of association and environmental responsibility. 8 In order to ensure compliance, ELC has established a process of auditing top-line suppliers and then developing protocols which appropriately respond to audit results.
Packaging After an ELC product is used, its packaging still remains. Thousands of customer inquiries each year led to the ELC’s establishment of the Sustainable Packaging coalition (SPC). This coalition is based on Cradle to Cradle principles and dedicated to transforming product packaging, economic prosperity, and a sustainable flow of materials. 12 The Company’s Environmental Packaging goal is to find ways to minimize the environmental impact of its packaging and make it available to be re-used as a resource after the product has been consumed. The environmental packaging program has two main components, compliance and product stewardship. The compliance component demands ELC to conform to applicable regulations on a global basis. The Company created an Environmental Packaging Design Protocol during 2001. This protocol requires developers to ensure that all new packaging fulfills applicable environmental criteria in each country where it will be sold. The protocol focuses on meeting the European Union’s Essential Requirements for Packaging (source reduction, heavy metals and noxious substances, and recoverability requirements). 2 The Company maintains a Global Environmental Packaging Reference Guide that provides updated global environmental requirements. Product Stewardship is the creation of packaging that is beneficial, safe, and healthy for individuals and communities throughout its life. This packaging must also encourage the use of renewable energy, post consumer recycled content, and design packaging that can be captured as a resource at the end of its useful life. 12 ELC maintains a packaging database that allows for assessments of various environmental indicators on a periodic basis as a means of monitoring compliance and evaluating packaging systems.
In May of 2009 the Estee Lauder Companies gained Gold Level Cradle to Cradle certification for seven products from its Aveda line. The Aveda line was recognized for its green steps made towards eliminating waste. The line reduced the size, weight, and production processes of packaging. It also met all the requirements for Basic and Silver Cradle to Cradle certification, used renewable energy for 50% of its final assembly manufacturing, completed an audit to characterize and quantify water use, and completed an audit of corporate responsibility practices.
The ELC, working with its suppliers, has developed programs that reuse and reduce the quantity of packaging materials to decrease waste and conserve natural resources. Environmental Management Systems As a company that relies heavily on raw materials and chemical manufacturing, it is in ELC’s best interest to care for the environment. The Company has developed an Environmental and Safety Management System (ESMS) to ensure that its Operations’ facilities not only meet the applicable legal requirements of the jurisdictions in which they reside, but are encouraged to upkeep programs to achieve environmental and safety excellence.
The Company’s ESMS program is based on the standards of the International Organization for Standardization ISO 14001 Environmental Management System Standard. 20 The ISO 14001 initiative is a management system geared towards developing good practices in environmental protection, employee health ; safety, and transportation compliance. 20 Companies that have obtained ISO 14001 certifications are recognized globally as being leaders in environmental performance. Each management system at the Estee Lauder Companies manufacturing operations is certified to conform to the ISO 14001 standards by an independent third party.
ELC’s Environmental Affairs & Safety committee, utilizing quantitative and qualitative data, provides the guiding principles, policies, and procedures that allow its people to properly use these environmental management systems and ensure the Company’s commitment to protect the environment. The Estee Lauder Companies’ manufacturing facilities have also been independently assessed and registered by Underwriters Laboratories to have site Environmental and Safety Management Systems that conform to both the ISO 14001 standards and The Estee Lauder Companies Inc.
Occupational Health and Safety Guidelines. Although the Company has communicated specific environmental stewardship goals, and substantiated citizenship efforts with safety statistics, waste reduction successes, recycling improvements, energy conservation, and awards; the ELC has still encountered compliance issues. The Company, to date, has received four compliance violations. In 2001, The Company received a $3,000. 00 fine due to a shipment of hairspray that was not properly packaged in transit. In 2004, the Company received a $1,050. 0 fine resulting from an OSHA inspection of one of the Creative Department offices in New York City that found serious citations regarding hazard communication and emergency egress. SOURCE The Company received a total of $27,000 in fines and 8 violations for products that did not meet Korean Environmental packaging requirements in 2004 as well. Four products did not meet the empty space requirements and four products did not meet the packaging layer requirements. In 2005, the Company received a $1,000 fine for a fire code violation at an Estee Lauder Spa. 0 Crisis Management The purpose of a crisis management policy is to ensure the organization can effectively respond to, manage, and recover from a crisis situation. This resulting capability will provide for the safety of impacted resident employees and on-site visitors, the safeguarding of the company’s brand image, and the ability to prevent or otherwise minimize the loss of other assets and disruption to business operations. 21 The ELC has yet to explicitly develop a crisis management policy for every aspect of its business.
Verbiage found on the corporate website communicates an explicit crisis management policy regarding facility emergency responses. All ELC facilities have detailed emergency response action plans. Each facility has trained emergency response personnel who are involved in the containment and clean-up of small spills, while trained contractors are kept on retainer to handle situations beyond the scope of in-house staff. 20 The Estee Lauder Companies has not had any publicly reportable environmental spills since the globalization of its EHS program.
Although ELC currently does not have a crisis management policy, it has responded to every crisis in a positive manner and is transparent and consistent with its communication to stakeholders during crises. In June 2004, New York State added the Company and other potentially responsible parties (PRPs) as defendants in its pending case against the Hickey Parties for potential landfill liabilities at the Blydenburgh Landfill in Islip, NY. 20 In April 2006, the Company and other defendants added numerous other parties to the case as third-party defendants.
The Company and certain other PRPs have engaged in many unsuccessful settlement discussions. Settlement negotiations with the new third-party defendants, the State, the Company, and other defendants began in July 2006. The Company has accrued an amount, which it believes would be necessary to resolve its share of this matter. The Company has implemented corrective actions to prevent future violations. Overall Evaluation and Conclusions The Estee Lauder Companies is a notable example of a corporation whose actions have attempted to mirror its guiding principles, philosophy, and mission statement.
Its ‘High Touch’ philosophy permeates though each level. It continues to demonstrate a relentless effort to be a champion citizen to the community and environment through its ethical and pragmatic business decisions. The Company has touched the lives of many locally and internationally by creating programs and institutions that echo the interests and concerns of its global stakeholders. Although the company has carried out questionable actions, it has always upheld its proud tradition of both personal and professional accountability. Consumer and employee safety are of the highest priorities during product development and marketing.
Exceedingly high production standards and applicable regulations accompany each finished product. The Company has taken continued conservative actions to protect the environment and communities with its exhaustive Environmental and Safety policies. The ELC’s Environmental Policy is one to be marveled. It is exhaustive and meticulously carried out with several safeguards and management systems. The Company’s Environmental and Safety Management Systems are based on the standards of the International Organization for Standardization ISO 14001 Environmental Management System.
The ELC sources its products in a socially and environmental manner. The Company works with a host of regulatory agencies to demonstrate its commitment to sustainability and takes into account each country and its policies regarding environmental citizenship. The Company has not taken a defensive approach to environmentally sensitive issues, but rather an interactive one. The Estee Lauder Companies’ products and services touch half a billion global consumers each year. The ELC offers products and services that rely heavily on consumer awareness.
The Company has gone above and beyond in meeting consumers’ needs by placing a high value on consumer communication and awareness. This priority has also been ingrained into the Company’s training programs. Several systems are in place to provide outstanding customer service and open dialogue about the Company and its brands. State-of-the-art service and individualized attention are given to customers through various brand web sites, toll-free hotlines, and global Consumer Care Centers. The Company is also visible in every community and empathizes with community concerns and issues.
The ECL has mad a promise to continue its philanthropic efforts and provide generous support to health initiatives, research, education, environmental causes, and the arts. The ELC also shows a strong commitment to its employees. The Company CEO believes that for the Company to remain a leader, it must provide its employees with the skills and tools of leadership. Every ELC employee, from top executives to the people who develop products, run production lines, plan marketing strategies, or sell at ELC counters, is a valued resource.
Healthy working environments and conditions that foster job satisfaction are serious pledges that have been taken by the Company. Beyond these pledges, the Company offers many opportunities for its employees to improve themselves, their positions, and their world. Employees at all levels can receive professional training through free developmental programs. The ELC Diversity Talent Management program offers senior managers guidelines for hiring, developing, and promoting promising candidates from all backgrounds. The Estee Lauder
Companies and its persistent efforts to bring the best to everyone it touches is a model example of true corporate citizenship. Recommendations As one of the world’s leading manufacturers and marketers of skin care, make up, fragrance, and hair products the ELC’s socially responsible efforts have encouraged other cosmetic companies to also become sensitive to their social, economic, and environmental obligations. I recommend that the Estee Lauder Companies remain true to its ‘High Touch’ philosophy and continue to bring the best to everyone it touches.
They should continue with their current policies and business practices, but remain open to changing or creating new policies and business practices where applicable. The Company should also continue to meet its stakeholders’ needs and jointly build and maintain economic, social, and environmental sustainability. We are currently in a recessionary economy. The Company’s UK and US retail markets experienced low consumer confidence. The ELC’s luxury products and services are dependent upon consumer discretionary spending.
It is no surprise that the Company’s recent financial performance has been sensitive to the current economic conditions. The company should address this issue while still upholding its promise to pursue profit, but never at the expense of quality, service, or reputation. Brand image and exclusivity has been factored into pricing to further differentiate the ELC’s products and services from others. A reduction in product prices and services would dilute the ELC’s brand image. The Company should employee methods to justify it s prices in a recessionary economy.
Advertising and marketing of cosmetically centered events should be increased to hold consumers’ interests and loyalties. For example, free cosmetic consultations should be offered more frequently and a variety of samples, based on consumer product purchases, should routinely accompany each purchase. The Company should also look into creating travel size options for each of its popular lines. Consumers may not part with must have products, if they can find more economically sensitive products that compliment their shrinking discretionary incomes.
Lastly, given the nature of the cosmetic industry, industry leaders must meet a myriad of ever changing consumer preferences and tastes. Consumers have become environmentally sensitive in their purchasing behaviors. The ELC must strategize to market and promote products and services to address this new consumer preference. It must become more transparent in its manufacturing processes, continue in its green chemistry efforts, and hold suppliers of its raw materials accountable. I would recommend more transparency concerning product ingredients.
Cosmetics are usually used concurrently and may develop carcinogenic properties when combined with other products or after sitting in certain containers in certain environments. 22 Consumers are inundated with information on carcinogenic materials and products everyday. Currently, the FDA does not regulate the cosmetics industry. With this absence of regulation and growing cancer rates, many individuals are calling for increased transparency. The personal care industry has responded to this growing concern by knocking back every bill that proposes to regulate the ingredients of their products.
They claim that such regulation would create undue economic strain. The Environmental Working Group has been working tireless to educate consumers about the chemicals present in personal care items. The ELC should take a proactive and ethical approach to address this growing concern among the public. Appendix 1http://www. globalissues. org/article/768/global-financial-crisis 2 http://www. cosmeticsdesign. com/On-your-radar/Financial-focus/Economic-crisis-redefines- the-cosmetics-industry 3http://www. sec. gov/Archives/edgar/data http://www. skininc. com/spabusiness/trends/64208817. html? page=4 5 http://www. elcompanies. com/citizenship/commitments_principles. asp 6http://ethisphere. com 7http://phx. corporateir. net/External. File? item=UGFyZW50SUQ9MzUzMDIyfENoaWxkSUQ9MzQzMjA3fFR5cGU9MQ==;t=1 8http://www. elcompanies. com/pdfs/code-of-conduct. pdf 9http://www. hrc. org/issues/workplace/cei_criteria_new. html 10http://www. gsb. stanford. edu/news/headlines/rftt_lauder. shtml 11http://www. elcompanies. com/the_company/ceos_message. asp