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Sustainability for Competitive Advantage

Paper Type: Free Essay Subject: Business Strategy
Wordcount: 4676 words Published: 8th Feb 2020

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Tyson Foods

Tyson Foods, Inc. (NYSE: TSN), the largest producer of processed chicken and beef in the United States, is headquartered in Springdale, Arkansas. Tyson employs over 120,000 workers – 96% of whom are in the US – and takes in over $40b in annual revenue from its famous brands, like Jimmy Dean, Hillshire Farm, Ball Park, Sara Lee, Aidells, and State Fair1. The company was formed in 1935 by John W. Tyson, who saw business soar when poultry was the one major meat that avoided rations during World War II in America. The company remains family-run from a Board perspective, as John H. Tyson, great-grandson of John W., currently serves as Chairman of the Board.

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The Company hired Tom Hayes as CEO in 2016, who was tasked in part with meeting Tyson’s disastrous ESG reputation head-on while maintaining Tyson’s growth and leadership in the industry; to that end, he hired Justin Whitmore in 2018 as Chief Sustainability Officer, a former McKinsey Consultant who has since been the public face of Tyson’s verbal efforts to present itself as a leader in sustainability for future food production. Hayes unexpectedly resigned in September 2018 and was replaced by Noel White, another company insider who was president of beef, pork, and international products at Tyson Foods.

In the 21st Century alone, Tyson Foods has been at the forefront of numerous ESG scandals, ranging from practices regarding the Environment, Product Quality and Safety, Human Capital, Animal Care and Welfare, and Price Manipulation. The recent hire of Whitmore, creation of annual sustainability reports, and announcements of certain partnerships addressing environmental concerns suggests the Company is at least beginning to take ESG issues more seriously, but it will be explored whether those steps represent tangible change on the horizon for Tyson, or simply lip service to divert attention away from issues in what can certainly be a difficult industry to regulate.  

SASB Materiality Map for Meat, Poultry, and Dairy

 According to Nielson, sales of sustainable products grew 20% between 2017 and 2018, as US consumers spent $128.5b on free-form, clean, simple, sustainable and organic labels. Half of US shoppers, meanwhile, say they fall into the camp of ‘definitely’ or ‘probably’ when posed with the idea of changing consumption habits to reduce personal impact on the environment.2 While food producers have not been held to the same standard as other industries, to date, the consumer trending is clear, which makes it imperative for Tyson to get ahead of its historically negligent ESG reputation if it truly wants to be a leader in sustainable food production.

In order to determine the areas in which Tyson should focus in order to truly become an ESG leader in the food production industry, we look to the Sustainability Accounting Standards Board (SASB) Materiality Map for Tyson’s industry. The following represent “sustainability issues that are likely to affect the financial condition or operation performance of companies within an industry.”3 More detail about each subsection can be found on the SASB website; items italicized represent those directly addressed by Tyson in the 2018 sustainability report or through other public commitments. Those highlighted represent significant trouble spots in the past for Tyson.

Environment

  • Greenhouse Gas Emissions Reduction
  • Energy Management
  • Water and Wastewater Management
  • Ecological Impact

Social Capital

  • Product Quality and Safety

Human Capital

  • Workforce Health and Safety
  • Health Conditions

Business Model and Innovation

  • Animal Care and Welfare
  • Supply Chain Management
  • Materials Sourcing

A Brief History of Tyson Scandals and Shameful Business Practices

Environment

In 2003, Tyson plead guilty to 20 felony violations of the Clean Water Act, for illegally dumping untreated wastewater from its poultry processing plant in Missouri4 5. An investigation was opened by the EPA in 1997 and search warrants were served to the Sedalia, MO, plant in 1999. EPA and DOJ officials were publicly taken aback by the fact that Tyson continued dumping the wastewater for an additional four years after the warrant was served. Tyson paid $5.5m to the US Government, $1m to the Pettis County School Fund and $1m to the Missouri Natural Resources Protection Fund. Further, the Company hired an outside consultant to perform an environmental audit and later instituted enhanced environmental management at the plant. Research did not show any tangible output from the outside consultant.

In 2005, Tyson settled a lawsuit in Missouri that alleged discharge of dangerous quantities of ammonia from its factories for $530k6.

Hiring Practices (Human Capital)

In 2003, Tyson was acquitted of charges of conspiracy to smuggle undocumented workers onto its production line dating back to 19947. Two plant managers set up the delivery of workers with undercover immigration officials to mitigate issues with acquiring cheap labor, and six plant managers in all were indicted. However, the Company was acquitted, it being ruled that upper management was unaware of the practices of the rogue actors. 

In 2006, a class-action lawsuit was brought by Tyson employees alleging the Company’s practice of hiring illegal immigrants depressed wages by 10-to-30%8.

Price Manipulation (Business Model)

Although the $1.27b settlement was eventually voided by a US Court of Appeals, in 2004 a Federal jury found Tyson had used “captive supply agreements” to artificially lower fed cattle prices, which violated the Packers and Stockyard Act9.

From 2016 through 2018, Tyson was one of 17 food production companies alleged to be colluding to restrict the supply of chickens and manipulate prices, dating back to 200810. NBC News provided the most damning – and publicly accessible – statistic for this one. “Americans spend a total of $90 billion each year on chicken, everything from Sunday dinners to chicken tacos to McNuggets. That’s about $1,100 for a family of four, and — if recent allegations of industry-wide price fixing are true — about $330 of that should still be in your wallet each year.”11 Tyson CEO Tom Hayes denied the allegations and touted the Company’s fifth straight year of record results in response, which in its own way, is exactly the point. Tyson and its competitors profited greatly from their ability to control supply of chickens in the market, as stability in a previously volatile commodity market was a boon for the largest producers (not so much so for the suppliers).

Apparently, Tyson was not content to stick to poultry when it came to price manipulation. In 2019, it was alleged companies like JBS and Tyson were artificially depressing cattle prices and financially strangling farmers trying to sell during what should have been peak years12 13. Feedlot operators blew the whistle on what they considered “coordinated anti-competitive actions” in 2015, a time of peak beef prices. Tyson et. al. coordinated by shutting down strategic slaughter factories and enforcing unsustainably restrictive buying agreements, all with the end goal of laying siege to ranchers and forcing them to sell their cattle for reduced prices. An analysis by CNN Business estimated this practice depressed cattle prices by an average of 7.9% between 2015 and 2018.

Undisclosed Use of Antibiotics (Business Model)

 In 2007, Tyson began marketing its products as “Raised without Antibiotics.” The USDA almost immediately stepped in regarding protozoa-killing ionospheres and the Company changed its slogan to, “Raised without Antibiotics that impact antibiotic resistance in humans.”14 Doesn’t quite have the same ring to it, but alas, it didn’t make much difference as only one year later, in 2008, USDA inspectors discovered Tyson’s use of another antibiotic, gentamicin, in eggs. Perhaps this wouldn’t have been an alarming issue if not for the fact that the USDA determined Tyson hid the use of the antibiotic from inspectors, and when confronted, fell back on the position that it was “standard practice.” Tyson removed any “Raised without Antibiotics” language from its packaging, however, a practice that continued until recently. Tyson’s website now describes the Company as, “the world’s largest producer of no-antibiotics-ever (NAE) chicken.”

Employee Abuse (Human Capital)
 In 2016, an anonymously-sourced story came into public view stating that Tyson employees had begun wearing adult diapers during shifts in response to consistent denials of bathroom breaks by supervisors. “[Workers] urinate and defecate while standing on the line; they wear diapers to work; they restrict intake of liquids and fluids to dangerous degrees; they endure pain and discomfort while they worry about their health and job security.”15

Animal Abuse

Given what’s been disclosed so far in this space, it likely comes as no surprise that Tyson’s practices when it comes to the humane treatment of its poultry have left a bit to be desired. In 2004-2005, a former employee used a hidden camera to expose the treatment of chickens in a Tyson factory16. Among others, a few bits of unsurprisingly shameful practices include, ripping the heads off chickens that weren’t successfully decapitated using standard equipment; chickens being scalded alive in a feather removal tank; playing with dead chickens for sport.

A similar instance took place in 2016. The animal rights group Compassion Over Killing showed workers at four different Tyson plants acting outrageously and inhumanely toward chickens. “The video depicts Tyson employees throwing, punching and kicking chickens as well as sticking plastic rods through their beaks in a process known as ‘boning.’ Workers also wrung birds’ necks, ran over them with forklifts and left injured birds in ‘dead piles,’ as the video’s narrator put it, to die. One worker, discussing standing on a chicken’s head and letting it suffocate, mentioned that the behavior would look bad if caught on tape.”17

After each incident, the Company expressed outrage and remarked upon firings of rogue agents involved in the incidents. However, we continue to see over the course of two decades a missing top-down edict to make any real change at the Company.

#CleanItUpTyson

In 2016, the EPA’s Toxic Release Inventory reported that Tyson Foods was the second biggest polluter of American waterways from 2010-201418, dumping over 104m pounds of pollutants into waterways. This dumping lead to something called a toxic dead zone in the Gulf of Mexico. “It is currently over 8,000 square miles, where no marine life can survive due to toxic fertilizer pollution”19. Mighty Earth, a global campaign organization, began putting pressure directly on Tyson at this time, “calling on the company to address water contamination driven by its supply chain. Over 300 national and local environmental, business, farmer, and labor groups have joined the campaign, and a shareholder proposal urging Tyson to address the risks of water contamination from its supply chain received support from 63% of non-Tyson family shareholders in February. Last September, communities members in Tonganoxie, Kansas rejected a $320 million proposed Tyson plant, citing concerns about water contamination, as well as other local impacts.”19

Though Tyson responded to the public pressure with a change in CEO and hiring of the CSO position, these scandals and segmented shareholder uprising speak to a point about stakeholders; the Board of Tyson Foods is controlled by legacy Tyson family members. Regardless of the public-facing attempts of former CEO Tom Hayes or CSO Justin Whitmore, it certainly seems clear from the Company response to these scandals that the top-down edict is for Tyson to grow, not just maintain, its operating margins while finding a way to speak positively about sustainability efforts. One can’t help but wonder, if and when these efforts ever lead to a reduction in the bottom line, will the Tyson family allow the project to continue on.

Tyson Sustainability Today

Today, Tyson’s website looks like one straight out of a consulting agency’s dream. The Company’s Sustainability Report takes prominence, and Tyson presents itself as a leader in the sustainable food production trend beginning in the world. Regardless of the fact that Tyson is presenting itself as a savior to issues it spent decades perpetrating, let’s take a look at Tyson’s current and future sustainability goals, analyze the tangibility of the action steps, and determine glaring gaps that the Company should begin to focus on. After all, as Casey Clark of Rockefeller Capital Management noted in a recent presentation at NYU Stern, often the greatest (investing) opportunities in the ESG space come from companies at the bottom of the barrel that have only recently begun to change.

Goal

Tangibility

Transparency

Tied to SASB

Reduce Greenhouse Gases by 30% by 2030

High

High

Yes

Reduce Water Intensity by 12% by 2020

High

High

Yes

Increase sustainable land and stewardship practices on 2 million acres by 2020

High

High

Yes

Build a highly engaged team with a 10 percent increase in retention

Low

High

No

Create a safer workplace by reducing OSHA recordables by 10 percent year-over-year

High

High

Yes

Aspire to offer English as a second language and financial literacy training to all employees

Low

Low

No

One can see a real change in level of commitment by Tyson to its sustainability goals on its website and through its sustainability report. Tyson provides real annual updates on each of its goals and cogent explanations for both above-and-below par performance. It can be argued that these steps are mostly reactive, as each goal ties either to a previous scandal described earlier, or a push from an environmental group. However, progress can’t be denied so it’s good to see the Company make some real steps. Further, CSO Justin Whitmore laid out his expectations for further development of sustainability initiatives in 2019. “First, we will focus on delivering against the commitments we’ve made thus far. We’ve been bold and progress won’t happen overnight. Creating the environment for our teams and partners to succeed will be key. Second, we will build out the next phase of initiatives which will focus on topics like renewable energy, sustainable packaging, and waste reduction. Finally, with our expanding global footprint in Asia and Europe, we will work to ensure that our international locations are tightly linked to our domestic sustainability efforts.”21

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 Based on Whitmore’s quote, one gets the impression Tyson’s current goals are the primary focus and future sustainability goals will be viewed as secondary, at best. Notions of goals in renewable energy and packaging seem vague, and waste reduction is already tied to an existing goal. However, even if Whitmore and Tyson are happy to rest on the laurels of current sustainability goals, it’s clear there are gaps and opportunities for further sustainability expansion.

Recommendation 1: Develop an Animal Welfare Rating Program; Add Transparency to Factories

Of Tyson’s historical issues, the factory conditions and treatment of animals seem to be the most blatantly self-inflicted. As noted by Nielson, sustainable products are becoming more and more popular among US consumers, and it’s only a matter of time before the food industry and its bottom line are held to the same standards. Whole Foods Market works with the Global Animal Partnership to put on every meat packaging label the result of a “tiered rating system developed to rank animal welfare practices and conditions within farm-animal production systems. The ratings are determined by independent third-party certifiers using auditors trained by Global Animal Partnership.”22 It would behoove Tyson to do something proactive in this regard, as the reputation of its factories suffers to this day due to the continuing undercover videos and leaks. It’s nice that Tyson, after a decade-plus of falling over itself, can honestly claim itself to be the largest producer of no-antibiotics-ever (NAE) chicken. However, that again feels like a reactive moniker rather than something creative, tangible for the future, and something that customers will react to. In fact, it can be argued that in a short time NAE will become the standard expectation for the American consumer. A 2016 American Customer Satisfaction Index showed that 10 of 18 major fast food chains surveyed had made recent commitments toward “antibiotic stewardship” in their meat, up from 5 in 2015.23 The tide on NAE meat has already shifted, and Tyson has the opportunity to separate itself from its competitors with a further commitment and scoring system.  The rating system would also speak to the opportunity for Tyson management to take control over the culture of its factories. With continued scandalous instances shown to the world through undercover YouTube videos, a culture of caring for the humane treatment of its livestock is absent at Tyson. The Company needs to begin telling a different story, and showing tangible commitment to quality of care can start to change the tide.

Recommendation 2: Purchase Farmland in New Opportunity Climate Regions, Commit to Sustainable Farming and No Price Gouging Suppliers

 The price manipulation issues across the meat market show a culture of dominance over suppliers that’s a bad look for companies like Tyson. In early 2019, Tyson announced it is working with the Environmental Defense Fund (EDF) to “measure the benefits of sustainable farming practices…and inspire transparency across the supply chain.”24 Justin Whitmore was also quoted in the release, saying “Joining forces with EDF enables us to bring together the best of our joint expertise in supply chains and sustainable agriculture, and deliver value to growers, businesses and the environment.”24 Tyson, as the world’s largest producer of meat, surely has worked with climate models to predict areas in which opportunity for further investment in farmland will present itself as climate shifts. Tyson should accelerate its partnership with the EDF, and further begin healing the wounds that surely have developed with its suppliers. Tyson should be a leader in its industry and make a pledge to better the relationships it has with its suppliers over the price of cattle and chickens. Tyson, in its sustainability goals, is asking much of its supply chain to do the heavy lifting on change. In order to stand out from its competition and be viewed as a true steward toward change, this commitment will do some work to mitigate the damage done over previous years.

In Summation

 “As one of the world’s largest food companies, Tyson Foods has an opportunity and responsibility to make the world a better place.”25 Since the hires of Tom Hayes as CEO in 2016 and Justin Whitmore as CSO in 2018, Tyson Foods has made a concerted effort to market itself as a voice for change in the food industry and in the world. Tyson in the last few years has developed a tangible sustainability report tied to SASB standards, implemented tangible goals, and reported publicly on results. These are all nice steps for the Company, but the one glaring piece that’s missing from any literature on Tyson is a recognition of responsibility for some of the major issues in the food production industry today. As the world’s leader, Tyson had the opportunity for decades to be best-in-class in any of the areas noted throughout this discussion. However, evidence showed Tyson went the other way consistently, and only recently took a reactive approach to sustainability as its reputation cratered in the modern information world. In order to be a true leader in sustainability moving forward, Tyson should take responsibility for the issues it caused over time, and ensure its goals can expand as the Company’s investment in sustainability brings about new issues and questions to be addressed. Without question, Tyson’s transparency and tangible action plans have improved since 2016. It will be interesting to watch if that growth continues over time.

References

  1. All company financial and brand data from Morningstar, Inc. or Tyson Foods Website
  2. Tyson Foods Steps Up Sustainability Efforts with EDF Partnership, 1/17/19
  3. All Materiality Map data from SASB https://materiality.sasb.org/
  4. Tyson Pleads Guilty to 20 Felonies, Department of Justice, 6/25/03
  5. Tyson Pleads Guilty in Pollution Case, Corporate Ethics in Governance, 6/25/03
  6. Tyson Settles Air Pollution Suit, NY Times, 1/28/05
  7. Tyson Acquitted of Illegal Hiring, CBS News, 3/23/03
  8. Tyson Faces Suit over Illegal Workers, NPR, 1/26/07
  9. Pickett v. Tyson Fresh Meats Inc., Caselaw.findlaw.com, 8/16/05
  10. Tyson, Pilgrim’s Pride Jacked Up Chicken Prices, CNN Business, 1/31/18
  11. You’re Getting Skinned on Chicken Prices, Suit Says, NBC News, 2/17/17
  12. New Lawsuit Accuses the Big Four Beef Packers of Conspiring to Fix Cattle Prices, New Food Economy, 4/23/19
  13. Lawsuit Claims Tyson, Cargill and JBS Fixed Beef Prices, Food Dive, 4/25/19
  14. USDA: Tyson Used Two Different Antibiotics on Chicken, Claims Journal, 6/5/08
  15. No Relief: Denial of Bathroom Breaks in the Poultry Industry, Oxfam Report, 5/12/16
  16. Former Tyson Foods Employee Speaks Out Against Abuses, YouTube, 1/10/07
  17. Tyson Workers Caught on Video Mistreating Chickens, Washington Post, 8/11/16
  18. Tyson Foods Dumps More Pollution into Waterways Each Year Than ExxonMobil, Sustainable Brands, 2016
  19. Tyson Responds to Environmental Campaign and Public Pressure, Mighty Earth, 4/4/18
  20. 2018 Tyson Sustainability Report, Energy and Emissions
  21. 2018 Tyson Sustainability CSO Q&A
  22. 5-Step Animal Welfare Rating, Global Animal Partnership
  23. Another Sign Consumers Care About Antibiotics Use in Meat, NRDC, 6/23/16
  24. Tyson Foods Sizes Up Sustainability, Food Business News, 1/17/19
  25. We’re Up to the Challenge, Tyson Blog

 

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