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ANALYSIS AND THE IMPACT OF THE ETHICAL ENVIRONMENT IN WHICH

MCDONALDS OPERATE

Preprint · June 2018

DOI: 10.13140/RG.2.2.33073.84323

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Final Exam: Olayemi David (Bosede)

Submitted by:
Olayemi David (Bosede)

June 10 2018

Student Number: R1408D289845

Lecturer: Jet Mboga

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ANALYSIS AND THE IMPACT OF THE ETHICAL ENVIRONMENT IN WHICH MCDONALDS OPERATES

Table of Content

INTRODUCTION ……….……………………………………………………………………………………………………………………………..3

ABOUT MCDONALDS CORPORATION….……………………………………………………………………………………………………3

ANALYSIS OF THE ETHICAL ENVIRONMENT OF MCDONALDS CORPORATION……………………………………….…4

INVESTORS ANALYSIS…………………………………………………..…………………………………………………………………………4

ENVIRONMENTALIST ANALYSIS………………………………………………………………………………………………………………5

EMPLOYEES ANALYSIS………………………………………………………………………………………………………………..…………7

CUSTOMERS ANALYSIS.………………………………………………………………………………………………………………………….8

SUPPLIERS ANALYSIS……………………….……………………………………………………………………………………………………,8

COMMUNITIES AND GOVERNMENT ANALYSIS ……………………………………………….…………………………………….9

NINE QUESTIONS ABOUT THOROUGH CSR REPORTING………………………………………………………………………..9

CONCLUSION…………………………………….………………………………………………………………………………………….………11

RECOMMENDATION……………………………………………………………………………………………………………….……………11

REFERENCES…………………………………………………………………………………………………………………………………………12

INDICES………..………………………………………………………………………………………………………………………………………13

INTRODUCTION

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This paper gives a brief description of the business of McDonalds Corporation (MCD), followed by a
critical analysis of the business environment and the interrelationship between the Corporation and the
environment with a focus on Corporate Social Responsibility (CSR), Corporate Social Responsibility (CSR)
is the social obligations of a corporation to its stakeholders that enables it reduce its negative effect and
boost its positive effect so as to maintain a reputation that attracts investors, customers and employee
turnover and to generally encourage sustainability and continuity(Lantos 2001).

ABOUT MCDONALDS CORPORATION

(Picture source: Using Our Scale for Good)

MCD is in the operation and franchising of restaurants of over 36,000 in over 100 countries, it was
incorporated in 1964, the creator of the company Ray Kroc envisioned restaurants scattered in different
strategic locations with a uniform taste of high quality products with standard operation, His principles
were “Quality, Service, Cleanliness and Value” which he ensured was imbibed in all employees and
franchisees. For quality, uniformity and consistency Ray Kroc established a training institute later called
Hamburger University at Illinois to train employees and franchisees and he is so concerned about quality
that a research and development centre was created to discover how best to cook, freeze, store and
serve their products, the major products concentrated on are Burgers, Fries, and beverages with various
signature meals provided by franchisees with same high quality standard (Kroc, Love and Reuters News).

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MCD is more of a franchisor, the company has over the years leveraged on “the System”, that is an
alignment between the Company, the franchisee and the suppliers and its multiplicity in various
countries to provide global competitive services (McDonalds 2017 Annual Report).

ANALYSIS OF THE ETHICAL ENVIRONMENT OF MCDONALDS CORPORATION

The environment MCD that operates as either a restaurant or a franchisees restaurant are diverse and
located in over 100 countries thus, when considering the ethical environment this as to be addressed
with a global view with specific consideration for local ethical requirements depending on the location
of the restaurant (Reuters News).

It is important to note that MCD has redefined the CSR annual report as Environmental, Social and
Governance (ESG) performance report which is presented in the website and updated regularly
(Managing Our ESG Reporting).

However, for the purpose of this paper, we would be addressing the analysis from the angle of the
major stakeholders, the people that the business operation of MCD has effect on either directly or
indirectly. These stakeholders are identified below with their various economic, social and
environmental interests.

INVESTORS ANALYSIS

The following are the aspect of CSR report that would be of interest to investors:

Business Strategy: MCD was able to incorporate CSR in its business strategy this could be seen on page
16 in its 2017 annual report in the customer-centric growth strategy the company through its Velocity
Growth Plan was able to include some Social and economic issues, these is called the Scale for Good.

MCD Scale for Good takes cognizance of global priorities, being one of the world largest restaurants,
they are taking advantage of the size and global presence to influence communities and the
environment through leadership and to ensure they create tremendous opportunities for all their
stakeholders (Steve Easterbrook).

However, for an investor to decide that an organization is keen on CSR the investor must first
understand the company’s business and line of product offerings which is well enumerated above, the
investor would need to know how the company makes its profit; for MCD income is generated from
sales of products to individuals through its restaurants, and rental income that comes from real
estate(Revenues and Profits Research 2017) leased out to franchisees, after all expenses and tax is
deducted profit is arrived at.

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Also, the investors should be able to assess financial implications of CSR, this is not made possible as
cost on CSR are not separately identified in the financial report, also the CSR data’s are not integrated
into the financial reports of MCD.

Corporate Governance: according to investopedia, this are regulations on procedures for doing things in
an organization, it creates a balance between the interests of the various stakeholders in an
organization. Investors assess the Corporate Governance in an organization to ensure that a CSR
committee is set aside amongst the board of directors this is true for MCD (Board Committee Charters)
and it shows a high level of organizational commitment in CSR (Lydenberg and Wood 2010) , also the
role of the Board of directors should be independent from management this is also practiced at MCD
(Board Committee Charters) this indicates that the interest of stakeholders are adequately protected
(Lydenberg and Wood 2010).

Ethics: Business ethics can be defined as a way of assessing the moral behaviour, actions or inactions of
businesses to its stakeholders, by determining if it’s right or wrong (David de Cremer). Investors want to
know that in McDonald’s Corporation businesses are conducted in an ethical manner with integrity and
a reputable brand name, and in compliance to local and global laws, however, after studying the ESG
report presented by MCD it was discovered that the organization is committed to doing business
ethically this is imbibed in their mission, values and they also go further in training their Franchisee,
Suppliers and Staffers. This is also evident in their various involvements in programs such as forest
conservation, improving beef sustainability and reduced environmental pollution by using recyclable
packages.

ENVIRONMENTALIST ANALYSIS

Environmentalist and other stakeholders with concern for the impact of MCD on the environment are
primarily interested in the following:

Energy efficiency and Climate change: The environmental challenges faced globally is global warming
and climate change thus a company that lowers energy consumptions and finds substitute for fossil fuels
shows that climate risk is taking seriously (Lydenberg and Wood 2010), below are the tabular
representation of MCD energy consumption.

Table 1: Overall Energy consumption for Company-Owned Restaurants and Franchise Restaurants

YEAR 2014 2015 2016

McDonald's
Company-
Owned Overall energy
Restaurants consumption: GWh 2,983 2,829 2,295

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(Top 9
Markets)
Franchise
Restaurants
(Top 9 Overall energy
Markets) consumption: GWh 16,472 16,646 12,315

Source extracted from Energy Consumption table, Progress and Performance, McDonald Website.

Table 2: Column Chart representation of Overall Energy consumption for Company-Owned Restaurants
and Franchise Restaurants.

Table 3: Line Chart representation of Overall Energy consumption for Company-Owned Restaurants and
Franchise Restaurants.

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(Graph source: Author)

For energy consumption both in company-owned restaurants and Franchise Restaurants the chart
according to table 3 indicates a decline in energy consumption meaning the company is gradually
reducing the climatic risk coming from the operation of their business (Lydenberg and Wood 2010).

However, from the data’s above we can also see that the data was provided in an absolute form and not
normalize meaning we cannot get the accurate progress report given that all other things remain equal
(Lydenberg and Wood 2010) (refer to index 1.0 for energy goals and progress report), also this figures
were randomly selected from top 9 markets energy report that was obtainable and lacks yearly
consistency in data selection (MCD Website).

Waste and toxic emissions: the less the waste produce by a company the more efficient the company is
to itself and also the more beneficial it is to the environment (Lydenberg and Wood 2010), lets assess
the waste reduction goals and progress report of McDonalds below:

Based on the clear goals and progress report on waste reduction giving in index 2.0 we can say that MCD
ESG report is valuable (Lydenberg and Wood 2010).

However, a more detailed data presentation on how they arrived at the percentage would be
appreciated.

Industry Specific Concerns: other environmental issues raised in McDonalds ESG report is forest
conservation find the goals and progress below:

Based on the goals and progress report in index 3.0 we can say that McDonald’s Corporation are
progressing in ensuring that their operation is not increasing deforestation, however, progress reports
provided are from two years again, a more recent report would give the stakeholders a clearer picture
of what the company is doing to ensure a safe and healthy environment.

EMPLOYEES ANALYSIS

Below are issues that would be of concern to both existing and prospective employees along with other
stakeholders when analyzing McDonald’s ESG report

Health and safety: issues bordering on employees health and safety were not addressed in the
McDonalds ESG report. Fatalities and injuries rate and how the company is working to ensure zero
fatality and injuries amongst employees would be of great interest to these set of stakeholders when
assessing the ESG report.

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Wages, Profit sharing and Benefits: benefits for employees in the United States are stated on their
website, under the careers section, benefits such as medical, dental, life insurance, sabbatical program,
summer hours, and dress for your day, 401k, and vacation (Careers).

Diversity: There are no reports on the diversity among the employees in McDonald’s recorded in the
ESG report; a well detailed data on the statistics of the diversity amongst the current employees of
McDonald globally would make the ESG report more valuable for employees, prospective employees
and other stakeholders.

Training and mentoring: in the ESG report it is included that McDonald’s Corporation ensures their
employees are trained on the job, through the Hamburger University where they also learn
management and leadership skills in addition to learning how to cook, the Franchisees also benefit from
this trainings, finally, the Archway Educational Program is another way McDonald’s Corporation help
their employees grow and progress by financing high school completion courses and college tuition, also
by providing academic counselling just to ensure that their employees progress within the organization
and even beyond (Progress and Performance).

CUSTOMERS ANALYSIS

The following would be of interest to customers when analysing the CSR report of MCD

Product safety and quality: MCD concern for quality cannot be overemphasized several research centres
were created to improve quality, the major materials used for food products in MCD are beef, fish,
chicken, Palm Oil and coffee and several programs are in place to ensure the safety and quality of such
products a program like Global Roundtable for Sustainable Beef that was pioneer by MCD, Roundtable
on Sustainable Palm Oil, Roundtable on Responsible Soy sourcing for chicken feed, Marine Stewards
Certificate MSC achieved by MCD in some countries, however, to ensure global priorities are covered all
product safety and quality programs are in line with the UN Sustainability Development Goal Standards
(Progress and Performance).

The shortfall with MCD product safety and quality programs is that MCD in some countries are either
not involved or not yet fully involved (Progress and Performance).

For further analysis by customers, issues bordering on Customer Service, Privacy and Communication
with customers were not included in the ESG report (Lydenberg and Wood 2010).

SUPPLIERS ANALYSIS

The following would be of interest to Suppliers when analysing the CSR report of MCD

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Issues on labour standards for suppliers was not included in the ESG however, MCD operates the system
which involves partnering with the Franchisees and Suppliers, in the ESG report we can see that the
suppliers are carried along on issues bordering on environmental safety, product safety and quality
(Progress and Performance).

COMMUNITIES AND GOVERNMENT

In analysing the CSR effect of MCD on the Communities and the Government as provided in the ESG
report the following information was given:

MCD in line with the partnership model of “the System” were able to generate jobs to empower people
in the communities they operate and also invest in capital projects to the tune of $4.2 billion for the
year 2016 tax inclusive, also in form of voluntary giving MCD employees donate up to $1 million per
annum, MCD also encourages a giving scheme that enables employees donate to the needy in tax-
efficient ways (Progress and Performance).

Refer to Index 4.0 for year on year comparison on capital expenditure and income tax paid from 2013 till
2016, this comparison however does not show an upward trend in the amount spent as this is necessary
considering the upward trend in the size and spread of the company (Progress and Performance).

Though adequate information was not given on community advisory roles, human rights activities and
volunteerism, we can say that the information given on amount spent on capital investments and
donations is adequate and valuable in the analysis (Lydenberg and Wood 2010).

Nine questions about thorough CSR reporting

CHECK FOR QUALITY AND THOROUGH CSR REPORTING

QUESTION YES/NO COMMENT

Is this a CSR report or a community affairs report? YES It’s a CSR report

Does the report provide details on CSR practices YES

as well as policies?

Does the CSR report provide systematic data or YES Data’s were provided on
just anecdotes? selected environmental issues,
a well detailed data would
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make the report more

valuable.

Does the company report data in a comparable YES This is done in some issues
format? year to year only, an
additional comparable format
with other companies with
similar production line would
be more valuable

Does the report compare future goals as well as YES

past practices?

Does the report include bad news as well as good NO

news?

Does the report address the company’s greatest YES

challenge?

Does the company integrate CSR reporting with its NO

traditional business strategy and its financial
reporting?

How can readers look beyond a CSR report YES Third party assurance
statements were included.
People such as Jason Clay,
Warren E Buffett, Dennis
Laycraft, Tom Murray, Jim
Cannon, Peter Seligmann,
William Warshauer, Linda
Walker and Fernando Martins
all gave contributory
statements to the ESG of

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MCD.

CONCLUSION

After this analysis it was discovered that MCD does not have a detailed and updated CSR report that
would give an accurate detail on its Corporate Social Responsibility and its impact on its environment,
however, with the information provided in the ESG report we can say that MCD are conscious of their
ethical requirements and they are progressing in the goals they set to ensure that their business
operation yields social benefits other than economic benefits.

RECOMMENDATION

MCD should include information on diversity in the organization to enable employee stakeholders
analyse their CSR properly.

MCD should presents data in normalize form in their ESG report for accurate comparison.

MCD should include actual percentage improvement in their progress report and how such percentages
were arrived at.

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REFERENCES

Armando Calabrese and Flavia Lancioni 2008, Analysis of Corporate Social Responsibility in the Service
Sector: Does Exist a Strategic Path?, Available from:
https://onlinelibrary.wiley.com/doi/pdf/10.1002/kpm.303, [June 2, 2018]

Board Committee Charters, Available from:

https://corporate.mcdonalds.com/content/corpmcd/investors-relations/board-committees-and-
charters.html, [June 8, 2018]

Brendan O Dwyer and Grainne Madden 2006, Ethical Codes of Conduct in Irish Companies: A Survey of
Code Content and Enforcement Procedures, Available from: The University of Nicosia Virtual Learning
Environment, Course Material Online. [June 1, 2018]

Careers, Available from: https://careers.mcdonalds.com/corporate/index.jsp, [June 8, 2018]

David de Cremer, Rolf Van Dick, Anne Tenbrunsel, Madan Pillutla, Behavioral Business Ethics, Available
from:
https://www.erim.eur.nl/fileadmin/default/content/erim/content_area/news/2010/intro%20special%2
0issue%20bjm%20understanding%20ethical%20behavior%20a.pdf, [May 10, 2018]

Geoffrey Lantos 2001, The Boundaries of Strategic Corporate Social Responsibility, Available from: The
University of Nicosia Virtual Learning Environment, Course Material Online. [April 25, 2018]

Managing Our ESG Reporting, Available from: https://corporate.mcdonalds.com/corpmcd/scale-for-

good/esg-reporting.html, [June 2, 2018]

McDonald’s Corporation Corporate Governance Fact Sheet

https://corporate.mcdonalds.com/content/corpmcd/investors-relations/corporate-governance-fact-
sheet.html, [June 7, 2018]

Miriam Jankalova 2015, Approaches to the Evaluation of Corporate Social Responsibility, Available from:
https://www.sciencedirect.com/science/article/pii/S2212567116303021/pdf?md5=3cba086a7e0b259e
2caaebdbd53af55c&pid=1-s2.0-S2212567116303021-main.pdf, [June 2, 2018]

Progress and Performance, Available from: https://corporate.mcdonalds.com/content/corpmcd/scale-

for-good/esg-reporting/progress-and-performance.html,

Ray A Kroc 1977 and John F Love 1995, Our History, Available from: https://www.mcdonalds.com/us/en-
us/about-us/our-history.html, [June 3, 2018]

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Reuters News Agency 2018, Profile: McDonalds Corp (MCD), Available from:
https://www.reuters.com/finance/stocks/company-profile/MCD, [June 3, 2018]

Revenues and Profits Research 2017, How McDonalds Make Money? Decoding McDonald’s Turnaround
Plan and its Impact on McDonald’s Business Model, Available from:
https://revenuesandprofits.com/how-mcdonalds-makes-money/, [June 5, 2018]

Steve Lydenberg and David Wood 2010, How to Read a Corporate Social Responsibility a user’s guide,
Available from:
https://iri.hks.harvard.edu/files/iri/files/how_to_read_a_corporate_social_responsibility_report.pdf

Using Our Scale for Good, Available from: https://corporate.mcdonalds.com/corpmcd/scale-for-

good/using-our-scale-for-good.html, [27 November 2018]

INDEX

INDEX 1.O

“Energy Goals:

To reduce greenhouse gas emission from McDonalds restaurants and offices by 36% in 2030 starting
from 2015

To reduce 31% emissions intensity (per metric ton of food and packaging) across their supply chain by
2030 starting from 2015
To prevent 150 million metric tons of C02 equivalents (C02e) from being released into the atmosphere
by 2030

Energy progress Report: No figure reported

Alternative source of energy: Non recorded

Global Standard: UN Sustainable Development Goals

Goal 7- Affordable and clean energy (specifically targets 7.2 and 7.3).
Goal 13 – Climate action (specifically target 13.2).
Goal 17 – Partnerships for the goals (specifically targets 17.16 and 17.17)” (Progress and
Performance).

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INDEX 2.0

“Waste reduction goals:

By 2025, 100% of McDonald’s guest packaging will come from renewable, recycled or certified sources.

Interim target: 100% of fibre-based packaging will come from recycled or certified sources where no
deforestation occurs by 2020

By 2025, McDonald’s goal is to recycle, guest packaging in 100% of McDonald’s restaurants.

Waste reduction progress:

50% achieved, in guest packaging that comes from renewable, recycled or certified sources

64% of McDonald’s fibre-based guest packaging comes from recycled or certified fibre sources

Currently, McDonald’s recycle guest packaging in an estimated 10% of their restaurants around the
world, with some markets experiencing nearly 100% recycling, while others are just getting started”
(Progress and Performance).

INDEX 3.0

“Goals:

Eradicate deforestation in beef, chicken, palm oil, coffee and fibre used in consumer packaging by
2020.

Eradicate deforestation from their global supply chain by 2030.

Progress in Beef Sourcing:

Working with consultants, to identify risk mapping and implementation plans, for countries and
suppliers identified, to have high deforestation risk.

Engagement with these multi-stakeholder groups- Collaboration on Forests and Agriculture, Global
Roundtable for Sustainable Beef and Other Local Beef Sustainability Roundtables, and Joint Working
Group on Forests Leadership Committee, part of the Global Roundtable.

Progress in Chicken Sourcing:

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In 2016, 50% of soy used for chicken feed in European markets was covered by Roundtable on
Responsible Soy (RTRS) or Proterra certification, they are developing a strategy for the other identified
regions.

Progress in Palm Oil Sourcing:

In 2016, 99.82% of the total volume of palm oil used in our restaurants was certified as supporting
sustainable production.

87.3% verified using book and claim certificates.

11.7% was verified using Roundtable on Sustainable Palm Oil (RSPO) Mass Balance.

Less than 1% was verified using an RSPO segregated method.

Progress in Fibre Sourcing:

As of 2016, 64% of McDonald’s fibre-based packaging comes from third-party verified recycled or
certified fibre (FSC, PEFC or PEFC endorsed) sources, FSC standard prohibit deforestation, including
conversion of natural forests to plantations.

Progress in Coffee Sourcing:

In 2016, 44% of coffee grown in high-deforestation risk countries was Rainforest Alliance certified, and
they are on target to achieve this goal by 2018. Coffee from high-deforestation risk countries made up
6% of their global supply in 2016” (Progress and Performance).

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