As the world’s most extensive retail organisation, McDonald’s business is all about making customers happy – about 48 million of them every day. We know it takes a great deal to make that happen inside the restaurant, but we also know that this is only part of the story.
We work hard to make sure that when customers look beyond the front counter or the drive-through window, they see a company and a system that is dedicated to earning their trust. It does not really matter whether you call it corporate social responsibility or good corporate citizenship. What matters is that our customers understand that we conduct our business in an ethical and responsible way that respects the world around us and the issues that matter most to them.
We are fortunate that Ray Kroc, our founder, established these principles as part of McDonald’s core values from the day he opened his very first restaurant on 15 April 1955. McDonald’s corporate citizenship efforts have grown, evolved, and become increasingly more sophisticated over the ensuing 50 years, but have all remained true to the foundation that Kroc established from the outset.
There are intense debates today over the business benefits of social responsibility activities, but there was never a question in the minds of McDonald’s pioneers. As a franchising organisation, McDonald’s was a collection of small businesses – each a local entrepreneur running a single restaurant in a local community. Being involved in community affairs and supporting civic activities was essential to establishing and growing a franchisee’s business. It could be as simple as sponsoring youth teams and taking an ‘Orange Bowl’ full of free orangeade to community events, or as time-consuming as heading a volunteer committee for the City or Chamber of Commerce. That is how McDonald’s franchisees built their businesses. As Ray Kroc often said: “We have an obligation to give something back to the community that gives so much to us.”
McDonald’s values are enduring. One thing Kroc determined from the start was that McDonald’s restaurants would be run in a wholesome way that would attract families and set them apart from the competition. For example, no McDonald’s was allowed to have a jukebox or cigarette machine on the premises – even though they were proven moneymakers – because Kroc believed in creating a family atmosphere. As he later said: “When you’re rich, it’s pretty easy to get principles, but we had principles when we were poor and in debt and we have never lost them.”
Finally, Kroc’s principles are even reflected in the way that he decided to run his business. He created a business model that was very different from that of other franchising companies at the time. McDonald’s did not make money by selling food or equipment to its franchisees, putting the company in an inherent conflict of interest with its franchise owner-operators. Instead, the company made its money from a license fee on each individual restaurant and from restaurant rents, based on sales, so that McDonald’s would focus on building successful franchisees to ensure its own financial success.
Since Kroc determined that McDonald’s should not supply its system of restaurants, it was as important to establish mutually beneficial relationships with suppliers as it was with franchisees. Suppliers who fulfill their part of the bargain – delivering safe products, meeting McDonald’s specifications for quality, and providing an assured source of continuous supply to our restaurant system – grow along with the company.
This unique arrangement, consisting of the company and its employees, franchisees and suppliers, has long been described as the McDonald’s System. We make an analogy with a three-legged stool. Each leg must be as strong as the others to support the stool; hence, all must ultimately benefit if the system is to be healthy and grow. All three legs are independent, but also interdependent. And that’s the business model that McDonald’s continues to use successfully to this day.
The Trust Bank
McDonald’s initial activities in the area of social responsibility were inherently intuitive and carried out at the local level. In the 1970s these activities were internally characterised as ‘McDonald’s Trust Bank’. In a system as decentralised as McDonald’s, this informal concept was easy to understand and actionable at all levels. Every positive activity by McDonald’s, from participation in national charitable events to local community activities and fund-raisers, represented a deposit in McDonald’s Trust Bank with its customers and the communities in which they lived. As the Trust Bank balance grew, it served as a cushion against ‘withdrawals’ from negative news or outside criticism.
Our system’s commitment to the Trust Bank concept over the years has served the communities in which we operate and has also served our business. As we say in the prologue to McDonald’s Worldwide Corporate Social Responsibility Report for 2004: “Profit and trust have something in common – they must be earned.” But we believe that they have more than that in common: companies that lose the trust of their customers usually lose their customers’ business as well, sometimes forever.
Some of the investments made many years ago still reap dividends. For example, in 1974, local McDonald’s franchisees in Philadelphia worked with the Philadelphia Eagles professional football team to raise money to provide a place near the local hospital where families with seriously ill children could spend the night – the Ronald McDonald House. They donated the entire proceeds from a Shamrock Shake promotion enabling them to build and dedicate the Ronald McDonald House. As with many of the best ideas in our system, this local project was embraced by McDonald’s family as a whole and has spread throughout the world. Today, there are nearly 240 Ronald McDonald Houses in 25 countries. More than 10 million families have used one of the more than 6,000 bedrooms.
McDonald’s created Ronald McDonald House Charities (RMHC) to commemorate Ray Kroc’s death in 1984. This organisation is supported by corporate donations, as well as those from the public. Like many of McDonald’s activities, it is global in reach but its operating backbone is local. There are 180 local volunteer chapters around the world that bring together McDonald’s restaurant owners, suppliers, employees, and community people in charitable projects. RMHC has awarded more than $380 million in grants to children’s programmes worldwide since its inception.
In addition to ongoing programmes that support local communities, McDonald’s franchisees are also willing to stand up when a calamity hits their neighborhood – from hurricanes and floods to earthquakes and civil unrest. We believe that McDonald’s should be there to help because that’s what good neighbours do. For example, in the US, McDonald’s provided more than 750,000 free meals to the rescue workers at the 9/11 disaster sites and raised $2 million for disaster relief through our restaurants.
Finally, in recent years, McDonald’s has leveraged its global scope to organise events to benefit families and children around the world. A prime example is World Children’s Day, where McDonald’s restaurants in more than 100 countries have joined together to raise funds to benefit RMHC and other children’s charities. In 2002 and 2003, these efforts raised a total of $27 million through donations of a portion of product sales to RMHC and local charities whose primary mission is the improvement of children’s health and wellbeing as their primary mission.
When the question arises as to whether these Trust Bank activities have any tangible, measurable effect on our business, we answer with a clear ‘yes’. Aside from growing our business with customers who appreciate our community activities, in the US we saw a dramatic demonstration of how the Trust Bank can pay huge dividends during the Los Angeles riots in April 1992. Looting, arson, and vandalism caused an estimated $2 billion in damage to businesses in the area, yet within the midst of all this destruction, the rioters spared McDonald’s. Our restaurants were barely touched, we were back in business shortly after the curfew was lifted, we were able to provide a haven for customers in the stricken neighbourhoods, and we served more than 10,000 free meals to firefighters, police officers, members of the National Guard, and local school children. Time magazine wrote:
“When the smoke cleared after the mobs burned through south central Los Angeles, hundreds of businesses, many of them black-owned, had been destroyed. Yet not a single McDonald’s restaurant had been touched. The Los Angeles experience was vindication of enlightened social policies begun more than three decades ago. As a result, McDonald’s stands out not only as one of the more socially responsible companies in America, but also as one of the nation’s truly effective social engineers.”
What might have seemed like a miracle to the rest of the world was actually manufactured by years of commitment to our communities, service to our customers, and deposits in our Trust Bank.
A new era of social responsibility
During the 1990s the dismantling of geographic trade barriers and the increased liberalisation of local economies and free markets hastened the globalisation of business. In that decade, McDonald’s grew from 11,100 restaurants in 51 countries to 26,800 restaurants in 118 countries. The business model we used throughout this expansion was the same as that established by Ray Kroc in the 1950s – relying on the strength of the three-legged stool, decentralised management and local entrepreneurism.
As we moved into the new millennium, people’s ability to access information instantly made the promise of a global village a reality. And so, while the McDonald’s business in a particular market may be owned and operated locally, there are no more local stories. Our system’s actions are gauged on a global stage in internet time. For McDonald’s, this means that an incident affecting our restaurants, customers or supply chain in one country has the potential to affect our business around the world in a single day.
As times have changed, so have we. We continue to make deposits in the Trust Bank through day-to-day, local activities in the communities where we do business. But we also have come to realise that we are citizens of a bigger, global community and that our good intentions will also be measured on that larger scale.
While the visibility of global enterprises has heightened, the vulnerability of organisations that fail to respond to the issues important to their customers has also increased. Trust has become the passport that allows firms to operate around the world, and acting as a socially responsible corporate citizen is the only truly effective way to earn the public trust necessary to continue to do well.
Because we are organised as local companies in each of the countries where we do business, and our ownership and control vary from market to market, our specific citizenship targets are set and measured at local and regional levels within our system. The issues of importance to our customers, and the communities where we operate, are often localised in nature, and we believe that our decentralised operating framework gives us the flexibility to address local concerns while being part of the overall fabric of social responsibility at McDonald’s.
As McDonald’s prominence has grown, so has the public’s interest in our activities – both for our own practices and as a global symbol for issues that may not relate directly to us. We realised that we could be drawing down our Trust Bank reserves faster than we were replenishing them. This has led to pro-active programmes to address social responsibility issues, and to efforts to communicate our progress and challenges in this area.
Corporate responsibility report
While we believe that our operating structure is a source of strength for our business and our corporate citizenship efforts, it presents challenges in the area of formal social responsibility reporting. Despite this, we believe that it is important to report to our stakeholders, internal as well as external, in order to allow them to evaluate our progress and assess our aspirations. McDonald’s launched its Worldwide Corporate Responsibility Report in 2002 in an effort to increase the transparency of our corporate activities and to explain our particular approach to social responsibility. This was our first attempt, and our goals were rather modest – to state our aspirations in several of the most important areas to our customers, to review our progress, and to set our sights on the things we needed to do to meet our goals. This effort for the first time focused our system on the importance of measurement and public accountability for our social responsibility activities. As our then-CEO Jack Greenberg stated in the introduction to our initial report: “There is more work to be done. We know we are not perfect. Our hope is that this first Social Responsibility Report will begin to demonstrate that we are backing up our words with substantive actions.”
While our efforts in developing the 2002 Report were guided by the Global Reporting Initiative (GRI), our internal monitoring systems were not robust enough for us to provide the detailed measures called for in the GRI guidelines. Reporting in a way that is consistent with these guidelines continues to be a challenge for McDonald’s, even today, because of the broad scope of our system, the decentralised nature of our business, our local approach to issues and the methods we use to collect data. Moreover, the GRI guidelines are more attuned to companies operating manufacturing facilities. However, we remain committed to improving our internal data collection systems in order to structure our reports in closer conformity with the GRI guidelines. In an effort to improve reporting within our industry, we have volunteered to participate with the GRI in preparing a supplemental study for the food service retail sector.
Our second corporate social responsibility report was published in 2004. It attempted to improve on the previous report by including an extensive supplement that contained more qualitative and quantitative data than was provided in 2002. As Ken Barun, Vice President, Corporate Responsibility, noted in the Report: “This is just a starting point in an incremental and evolving process.” As part of that effort, we are evaluating the AA1000 Framework, a standard designed to enhance accountability and performance, in improving the assurance and verification aspects of our reporting. In addition to our two worldwide reports, some of our key business units have recently completed and published their own individual social responsibility reports, including McDonald’s Brazil, McDonald’s Japan and McDonald’s US. McDonald’s Europe has issued an environmental report as well.
Social responsibility and business planning
In this new era, we have taken the principles of social responsibility that are part of our heritage and integrated them into our business strategy. We believe that leadership in corporate responsibility will help us not only to build trust in McDonald’s and to strengthen the reputation of our global brand, but will also enable us to be a more profitable business.
Our business plan, the ‘Plan to Win’, identifies success factors in five areas critical to our business – products, people, place, price, and promotion. Our activities related to social responsibility are aligned with this business plan and we have articulated our social responsibilities in each of these areas. By defining our global responsibilities, we have created a framework within which the sectors of our global system can tailor local activities and determine how to contribute to our broader objectives. Fulfilling the vision of our Plan to Win, which is to be our customers’ favorite place and way to eat, results from our meeting our goals for each of the Five Ps and meeting them in a responsible way, as follows:
Products: Providing a variety of quality product choices that our customers trust and partnering with suppliers who operate ethically and meet our social responsibility standards.
People: Maintaining a work environment where everyone feels valued and accepted, and providing training and other opportunities for personal and professional growth, as well as promoting job satisfaction.
Place: Managing our business by integrating environmental considerations into daily operations and by constantly seeking ways to add value to the community.
Price: Maintaining our values and high standards as we provide food that is affordable to a wide range of customers.
Promotion: Maintaining and building trust with all our stakeholders by ensuring that our marketing and communications efforts are truthful and appropriate.
Governance through common values and understanding
Our approach to social responsibility is to work toward responsible actions by inspiring the people in our system to share and act on our core values, by understanding the perspectives and needs of our customers and other important stakeholders, and by collaborating with experts to understand issues and opportunities. Because of our strong belief in the strength of a decentralised approach to our business, our management creates a global framework for corporate responsibility activities, while allowing specific citizenship targets to be set at the local and regional level.
The cornerstone for ethical and responsible performance at any company is the tone set at the top of the organisation. McDonald’s roots its policies and practices in the heritage of its founder, Ray Kroc, and in the codes of conduct established by management under the oversight of the board of directors.
The core document for employee business ethics at McDonald’s is our Standards of Business Conduct. First published about 40 years ago and refreshed periodically since then, this document establishes a framework for employee conduct. It communicates McDonald’s core values, describes management’s basic expectations of its employees, provides guidance on major ethical and legal issues, and identifies internal resources that can assist in advising on ethical matters. The Standards cover many topics including human rights, equal opportunity, protection from harassment, employee health and safety, avoiding conflicts of interest and improper uses of inside information, fair competition, prohibitions against bribery, and requirements as to confidentiality of business information and maintenance of proper financial and other business records. The CEO and senior financial officers, as well as McDonald’s board of directors, have additional codes of conduct that apply specifically to their particular fiduciary roles.
McDonald’s board of directors regularly monitors compliance with these codes of conduct. In addition, the board’s corporate responsibility committee provides oversight to specific issues in the area of social responsibility, including those involving health and safety, employment practices, environmental matters and other subjects of importance to our consumers and the communities in which we do business.
Although the tone set at the top of the organisation is critical, we know that we must also engage with our customers and other key stakeholders in order to understand their views and priorities. Accordingly, we view stakeholder engagement as an important element in our social responsibility programmes. In addition, we acknowledge that our company cannot be expert in each and every area that is important to our stakeholders and so, for certain issues, we engage advisory councils of independent experts, with whom we meet periodically for specific scientific and technical guidance. Between meetings we consult, as needed, with individual council members regarding their particular areas of expertise.
Two specific areas of activity covered by our latest Corporate Responsibility Report that serve as case studies for our approach are our environmental and balanced lifestyle strategies. Both issues arose as consumer and stakeholder concerns. In both instances, we engaged stakeholders and technical experts to help us tailor programmes responsive to the issues. And, finally, we mobilised our global system to execute those programmes and to advance our shared commitment to our goals through localised initiatives.
McDonald’s and the environment
McDonald’s has a long history of responding to environmental concerns, beginning with Ray Kroc’s insistence that the restaurants’ parking lots and neighborhoods should be kept litter-free. As awareness of environmental issues began to increase during the 1970s, concerns over the effects of fast food packaging led McDonald’s to commission a Stanford Research Institute study on how different types of packaging affect the environment. This led to the adoption of polystyrene foam packaging as a sound environmental alternative. When scientists later determined that fully halogenated chlorofluorocarbons could harm the environment, McDonald’s directed its foam packaging suppliers to eliminate chlorofluorocarbons from the manufacturing process. In addition, the company initiated recycling efforts for polystyrene foam, corrugated paper and paper products.
Despite these moves, McDonald’s found itself under increased criticism from environmentalists and consumers, particularly for the amount of materials that went to increasingly crowded waste disposal sites. Polystyrene foam was particularly vulnerable to criticism for not being biodegradable. McDonald’s addressed these issues in its 1989 Annual Report, published in the Spring of 1990, which was dedicated completely to environmental matters. As the report stated: “We are not experts on the environment. But we have learned a great deal about the environmental issues that affect us – solid waste management, resource conservation and recycling. We are sharing that information to foster a broad understanding of these issues, and to promote responsible action by individuals, public officials and corporations which will preserve and enhance a safe and healthy environment.”
McDonald’s then established a corporate environmental department, and followed that, in August 1990, by announcing a ten-year partnership with the Environmental Defence Fund (EDF), which accepted McDonald’s invitation to apply its expertise to review all the company’s environmental policies and practices and recommend areas for improvement. Then, in November 1990, McDonald’s announced that it was banning all foam packaging from its US restaurants. Ed Rensi, president of McDonald’s USA at the time, said, “Although some scientific studies indicate that foam packaging is environmentally sound, our customers just don’t feel good about it, so we’re changing. McDonald’s is in the hamburger business, not the foam recycling business.” Armed with a series of recommendations from EDF, the company overhauled its environmental practices throughout its system with a focus on reducing the amount of its packaging, reusing materials whenever possible and recycling. For example, McDonald’s purchased some $4 billion worth of products made from recycled materials for use in the construction and operations of its restaurants worldwide throughout the 1990s.
Some of the significant changes in practices in the US have been transferred worldwide and ultimately adopted by the quick service industry as a whole, including using recycled carry-out bags, utilising recycled napkins and trayliners and creating shipping boxes with more than 40 per cent recycled content. As part of its multi-faceted effort, McDonald’s went beyond packaging and waste treatment issues to include energy efficiency, water conservation, air and water emissions, transportation efficiencies and alternate refrigerants at the restaurant level. Working with its suppliers, the company found that many of the environmental improvements it was making also enhanced its business by reducing costs and attracting customers who supported environmental issues.
McDonald’s also partnered with other environmental groups – including Conservation International, the World Wildlife Fund, the US Environmental Protection Agency, and Keep America Beautiful – both in creating and executing environmentally sound policies and procedures within the system, and also in helping educate children. The company sponsored the preparation and distribution of environmental information to serve as curriculum for ecology classes and Ronald McDonald took a special ‘You, Me, and Ecology’ programme into schools in markets around the world. Today, McDonald’s uses a Global Environmental Council to identify strategic global priorities, initiatives and projects and to advise and assist the system’s decentralised units to learn, plan and progress toward a vision of sustainability.
Balanced lifestyles
As a consumer driven organisation, McDonald’s is committed to providing industry leadership on the health and well-being issues that are of concern to so many of our customers. Issues related to nutrition and energy balance are particularly significant, since they go to the heart of our business. These are complex, multi-faceted subjects. As we have done in other situations, where we lack the necessary technical expertise internally, we created a Global Advisory Council of world-renowned experts to advise us. Our Council members include a diverse group of recognised global authorities with subject matter expertise in the areas that we wish to address. With the Council’s guidance, we have concluded that our opportunity in this area is to enable informed choice and to support balanced lifestyles. This has led us to focus our efforts on three major areas where we believe we can be most impactful: (1) menu choice, (2) education, and (3) physical activity.
Menu choice
Our goal is to provide our customers with more variety to address their taste preferences and nutritional needs. For example, in 2004 global management directed each of our markets around the world to expand Happy Meal menus in order to increase choice and variety for children. While this objective was mandated from the centre, consistent with our decentralised approach, execution was determined locally. Some examples of the new options we are making available include: sliced fruit and a low-fat, low-sugar fruit yogurt product in the UK; toasted cheese and tomato sandwiches in Australia; fruit drinks and yogurt in Brazil; fruit cups in Italy; Fish McDippers in Japan; apple dippers in the US and Canada; yogurt smoothies and flavoured water in France; and other local favourites in countries around the world.
With the introduction of new premium salads in our major markets, we have increased the variety of choices available to adults. We sell premium salads in the US featuring all-natural dressings; Australia has a Salads Plus programme, featuring ten products with under ten grams of fat; our Canadian company offers a Lighter Choice menu featuring a number of salad choices as well as Chicken Fajitas, a McVeggie Burger, and a Whole Wheat Chicken McGrill; and European markets have introduced their own Salads Plus programme. Looking ahead, our menu management team is continuing to develop products in the lighter eating category for markets around the world. We are listening to our customers and responding with additional choices to meet their needs.
Education
In our second area of focus, we are committed to leading the industry in providing the information our customers want to make informed decisions. McDonald’s is working to identify the educational solutions that will resonate best with consumers and, most importantly, provide them with the information they want, when they want it. In that spirit, our markets have been directed to provide nutritional information about our products. While execution is determined locally, many of our markets include this information on trayliners. This complements our existing methods for delivering nutritional information, which include in-store brochures, comprehensive websites on a country-bycountry basis, and a customer toll-free 800 number in the US.
We are also reaching out to children in our educational efforts. One of the programmes we make available to schools in the US, free of charge, is a curriculum featuring TV personality Willie Munchright, who teaches elementary school children the importance of physical activity and good nutrition. Originally developed and used by McDonald’s in 1992, this programme was recently refreshed and reintroduced. While most children know that they are supposed to eat a balanced diet, we are trying to make learning how to achieve that balance both fun and actionable. In some markets our activities extend to helping parents help their children to eat well. In the UK, our local management worked with a leading nutritionist to produce ‘Five a Day’ brochures with facts and tips to help parents make eating fruits and vegetables more fun for their children.
Yet another dimension of our educational effort is to educate our own employees on the importance of good nutrition and physical fitness. In Australia, company and franchisee employees were given free access to ‘Fitsmart’, an online personal training tool. In Europe, we produced an employee guidebook in co-operation with a team of external nutritionists. This guidebook contains tips for maintaining a healthy lifestyle, as well as nutritional information about McDonald’s products.
Physical activity
A balanced lifestyle includes much more than just choices about food. It is also about exercise and physical activity that, together with the right eating choices, creates energy balance. Sedentary lifestyles – including activities such as watching TV, playing video games, surfing the Internet, and riding in cars – affect all age groups. McDonald’s has long been an advocate and sponsor of sports and fitness programmes, from grassroots activities and community programmes right up to our sponsorship of world-class events such as World Cup Soccer and the Olympics. To build upon those relationships, we launched GoActive.com, a global website developed in partnership with the International Olympic Committee. This website, available in seven languages, features content and tools from leading third parties on how to live a more active lifestyle, including an interactive personal trainer.
On a global scale, McDonald’s is also actively engaged in promoting walking as an easy, fun way to incorporate exercise into daily life. As part of that effort, we sponsored Olympic Day walks and runs in partnership with the International Olympic Committee in more than 100 countries. And, in the spirit of making nutrition and balance fun for our youngest consumers, Ronald McDonald is playing a key role in encouraging kids’ participation in walking and fitness programmes under a new global ‘Get Moving with Ronald’ programme.
We recognise that all lifestyle changes take time, and that’s why our commitment to balanced lifestyles is a long-term effort to help people understand and embrace their health and wellness challenges. We believe the responsible course of action is to collaborate and work with others for as long as it takes to develop effective solutions. Indeed, these principles apply to the many areas where we are working hard to earn the public trust, including issues such as food safety, employee training and education, animal welfare, diversity and inclusion, socially responsible food supply, community involvement, and many other aspects of our business.
The future of social responsibility
For McDonald’s, our commitment to being a socially responsible corporate citizen has become a way of life and we believe this will increasingly become an essential quality for any successful business organisation in the future. We have been fortunate that it has been part of our heritage since we first began doing business in 1955. We realise that, regardless of past activities, stakeholders will demand that corporations act in a responsible way in the future, holding them to ever-higher standards. Our approaches to these demands will continue to evolve, as they have over the past 50 years. We will continue to address the issues that our customers and other stakeholders raise because, simply put, we believe being a responsible enterprise is crucial to McDonald’s continued success. People want more than a choice of high-quality products at a good value; they want to know that businesses operate in an ethical way and contribute to values that match their own.
While the formal reporting, measurement, and monitoring of socially responsible activities will continue to evolve and improve, the principles at the heart of acting responsibly will never change. In other words, no matter what the issue, there is no other choice but to do the right thing. That is the only way to earn the public trust. Trust is difficult to earn, but when you have it, you enjoy the benefits of a true competitive advantage.
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