Understanding corporate responsibility has become vital for organizations. Diversity, equality and inclusion, environmental sustainability, social impact and values are all aspects of this phenomenon. Across industries, more brands have been embracing social issues. However, this can cost money and be socially polarizing, and some companies pay a price for being outspoken about their values.

In a recent case study, Professor Bertrand Guillotin uses the example of Hershey to explore this. He highlights the growing pressure companies face on ethical issues, how the governance and consumer landscape has changed, and the effects this can have on business.

Corporate responsibility is key to Hershey’s brand image and reputation. Their founder, Milton S Hershey, cared deeply about children, providing funds for a school for disadvantaged children that still runs today. As one of only 44 companies in the Fortune 500 with a female CEO, diversity, equality and inclusion is central to their image. However, in 2019, Hershey, like many chocolate brands, couldn’t guarantee their chocolates were produced without child labor. In fact, Hershey could trace less than 50% of its chocolate to source farms.

The issue of child labor in the chocolate industry emerged in 2001 when the US Department of State linked American chocolate to child slavery in West Africa. Children were found living in terrible conditions, were brought to the country by non-parents, were not attending school, and bore physical scars from the labor they performed.

Legislation passed requiring manufacturers to indicate whether child labor was used. However, the Chocolate Manufacturers Association argued that legislation wasn’t necessary, and claimed that companies were already addressing the issue.

This led to a negotiated agreement which stopped US regulators from policing the chocolate industry. It committed chocolate companies to eradicate child labor from their supply chains and develop certification standards that would specify that their products were made without child labor, by 2005.

The 2005 deadline was missed, as were extended deadlines in 2008 and 2010. The status quo remained unchallenged. A spokesperson seeking to end child labor in the industry said, “we haven’t eradicated child labor because no one has been forced to”, highlighting the lack of consequences for companies failing to improve standards.

As the chocolate industry grew, so did demand for cheap cocoa. The industry became increasingly secretive, making it difficult to investigate human rights violations. In 2004, a journalist reporting on Ivorian government corruption in the cocoa industry was allegedly kidnapped and killed. In 2010, two other journalists investigating similar stories were detained.

Professor Guillotin explains that the difficulty of eradicating child labor in West Africa stems from both regional and industry factors. Typical farms in Côte D’Ivoire are small, often resorting to child labor to remain competitive. However, the industry is highly concentrated at the top, with a few large manufacturers controlling most of the sector.

In 2021, a Living Income Differential initiative was introduced, requiring companies to pay a $400 premium per ton of cocoa beans to address poverty amongst cocoa farmers. Hershey was accused of trying to avoid payment but later agreed to make the payment in Côte d’Ivoire, while negotiations continued with Ghana.

For Professor Guillotin, Hershey presents a paradox. On one hand, the image of chocolate brands relies on conjuring images of the joys and pleasures of life, including happy children snacking on their favorite candy. By many metrics, it is a successful company. It has been recognized as the most female-friendly company in the world and has prioritized diversity. Moreover, the company’s revenues have increased and diversified, it holds many well-known products in its portfolio, and has made a number of acquisitions.

However, the reality of child labor issues in cocoa supply chains persists. The company has been working towards greater supply chain traceability, but this also poses its own risks. With enough transparency, they could easily be linked to endemic child labor, triggering fines of $500 million if a proposed bill was made law.

So, what are the effects of these ethical issues on business?

Firstly, the governance landscape is changing. Many countries, from Ghana and Côte d’Ivoire to the UK and the USA, have passed laws to strengthen the rights of children and eliminate slavery. The UN’s Sustainable Development Goals also include measures to eradicate child labor

Professor Guillotin also highlights that, from a consumer perspective, customers today expect brands to help solve social and political issues. Research shows consumers consider both product and brand principles in purchasing decisions. Customers will switch, avoid or boycott brands misaligned with their values, often willing to pay more for products from socially and environmentally responsible companies.

In response, more companies are taking a stand, despite risking reputational damage and stock price decreases. Adidas dropped a lucrative partnership with Ye (formerly known as Kanye West) after he made antisemitic comments on a podcast. After numerous mass shootings in the USA, Walmart bowed to public pressure and stopped selling military-style weapons and ammunition. They also stopped allowing open carrying of weapons in their stores.

In the chocolate industry, the status quo is seen as increasingly unacceptable. Whole Foods removed Hershey’s Scharffen Berge bars after customer complaints. If Walmart, Hershey’s largest customer, decided to drop more Hershey products, it could be a crisis for the brand.

An alternative approach comes from Tony’s Chocoloney, a small Dutch company. They found they could pay a 40% premium on cocoa beans to provide farmers a living wage without drastically raising chocolate prices. The company has since grown successfully. Although their bars are about twice as expensive as Hershey’s, socially conscious buyers aren’t deterred. This could be the type of disruptive innovation that changes an industry historically protective of its status quo and profits.

Hershey and other chocolate companies claim to have taken steps to reduce child labor, building schools, establishing agricultural coops, and advising on better farming methods. But is this enough?

Professor Guillotin says that the pressure for corporations to act ethically is only increasing, and the stakes are only getting higher. Hershey and other companies must understand how to respond to ensure survival in this changing market.