International Journal of Global Business, 12(2), 1-12, December 2019 1

Uganda Breweries Limited: A Case Study in Sustainability and Corporate Social Responsibility Curt M Weber, Joseph A Gerard College of Business and Economics University of Wisconsin - Whitewater, USA [email protected], [email protected]

Abstract We wrote this case study on Breweries Limited (UBL) for use in our courses that contain the concept of Corporate Social Responsibility (CSR). UBL offers a different look at CSR and the idea of sustainability. UBL has taken a proactive approach to sustainability and blends it with CSR in unique ways. It also employs an innovative system to conduct brewing operations as well as how it chooses to govern itself and apply concepts of social responsibility. We believe there are key lessons to be taken from this study especially in the areas of supporting a local supply chain and labor force. It provides a model for parent organizations seeking to provide local sustainability while managing at a global level.

Keywords: Uganda breweries limited motto, corporate social responsibility, celebrating life everyday everywhere

Introduction In early 2015 we received a grant from the University of Wisconsin-Whitewater to research water consumption in the manufacturing sector, and the effect of regional regulation, or the lack thereof, on water pollution abatement in an international environment, to-wit: Lake Victoria in Eastern Africa. One of the companies we identified to look at regarding water usage was UBL. In December 2015 we traveled to Uganda and observed operations at the brewery in January 2016. Additionally we corresponded with their Director of Supply, Shane Healy, with follow up questions. This manuscript is a summary of our observations and intended to give a unique perspective on sustainability for students. The practices employed by UBL as well as its approach to CSR contrast with many American corporations and serve as different type of model upon which to discuss these topics.

Case Background Uganda Breweries Limited (UBL), a subsidiary of Limited (EABL), had its inception in 1946, EABL having been formed in 1922 in . Feasibility studies indicated the viability of a Uganda-based brewery in the vicinity of Kampala, near a source of an abundant and steady supply of water: Lake Victoria. Based on water sample tests at Makarere College (now Makarere University), it was determined that , near Poet Bell, met the requirements of the brewing process. Thus, Uganda Breweries Limited was established in 1946, with the first finished product coming off the production line in 1950.

The plant has a total brewing capacity of 1,000,000 hectoliters per year (equivalent of 852,168 US barrels). The company is prepared to grow its brewing capacity as market demand increases and currently employs about 300 people. However, the brewery also influences employment for thousands of additional people in its widely disbursed supply

International Journal of Global Business, 12(2), 1-12, December 2019 2 chain as well as its distribution chain. UBL‘s impact on the economy is far-reaching: over 17,000 farmers contract with UBL to supply it with grain, including sorghum and barley. Approximately 22,000 people are involved in the combined supply and distribution value chains ("Our Ambition", n.d.).

UBL also enumerates the following values ("Values", n.d.):  We are passionate about consumers.  We value each other.  We give ourselves and each other the freedom to succeed.  We strive to be the best. It is worth noting the expansion on the fourth point: “We behave responsibly with the highest standards of integrity and social responsibility.”

In that regard, UBL has engaged in sanitation projects, construction of boreholes, a water supply system, and construction of public latrines and a bathroom at sites not only externa to UBL, but outside of the Kampala-Entebbe area. On its campus, UBL has constructed a water treatment facility to provide clean water before it is returned to Lake Victoria ("Water of life", n.d.).

UBL’s waste management goals ("Waste management", n.d.) include:  50% improvement in water efficiency;  Discharging effluent within discharge parameter consents;  Zero waste to landfill;  All packaging will be recyclable;  Carbon reduction by 50%;  To sustainably resource all paper and board packaging with net zero deforestation;  Introduction of life-cycle analysis on priority brands.

Currently, UBL generates about 24,000 tons of waste annually, consisting of 60% solid waste, 39% carbon dioxide from energy usage, 0.3% waste to land fill, and 0.05% liquid waste.

By 1959, EABL had acquired a 60% ownership of UBL, an interest that has grown to its current level of 98.2%. EABL is itself a subsidiary of Plc. In 1970, the Ugandan government nationalized industries. Initially a “soft” nationalization in which the government simply took 60% of corporate profits and allowed the private management structure to be retained, on May 5, 1976 the government took full control of UBL. The government returned UBL to EABL ownership in 1984 ("Our History", n.d.). East African Breweries Limited has a strong commitment to water sustainability and prides itself in water and energy efficiency. Its website states that it has “the lowest cost conversion cost per litre of beer produced” and that it has developed an innovative water recovery system.

East African Breweries Limited is itself a subsidiary of Diageo PLC, an adult beverage company which is listed on the London and New York Stock Exchanges. Diageo PLC owns

International Journal of Global Business, 12(2), 1-12, December 2019 3 slightly over fifty percent of East African Breweries Limited. The Diageo Corporation is a dominant global producer of alcoholic beverages including spirits, beer, and wine. They produce numerous brands at a variety of price points. Diageo operates in 21 geographical markets with a presence in 180 countries. Each market is responsible for its own performance and growth. They employ more than 32,000 people worldwide. In 2015, African operations produced 13.4% of sales.

Diageo’s stated strategy for Africa is to lead the industry by providing a wide range of brands to a diverse consumer population. Their intention is to grow their beer production at rates faster than market and to grow spirits by increasing their infrastructure and brands with a focus on mainstream brands. One of the critical elements of their African strategy is local sourcing. While this practice supports their current operations, it also meets their values of "bringing wider benefits to society as a whole”.

Corporate Social Responsibility Corporate Social Responsibility (CSR) is a proposition that has been around for decades. Yet, as this concept developed, researchers have focused on different aspects of what can be considered a responsible organization. The initial interest was to move beyond an organization’s interest in maximizing earnings, to consider its impact on the environment. Later this expanded to considering the impact on people. The three P’s became Profits, Planet, and People. The stakeholder perspective is a reflection of the focus on People. The key question is ‘what is the impact of our organization on each of the groups of people that will be impacted by our decisions and actions.

Husted (2005) took a strategic view of CSR and applied options theory toward using CSR as a risk management tool. This keeps the focus on the economic dimension but adds a corporate governance perspective. By strategically engaging CSR, business risk can be deterred. Similarly, Godfrey, Merrill, & Hansen (2009) considered shareholder value (economic dimension) and views CSR as a means to mitigate risk.

Dahlsrud (2008) identified five dimensions common across thirty-seven definitions of CSR (see figure 1). First is an economic dimension associated with generating profits and contributing to economic development. Second is a stakeholder dimension that considers how the organization affects employees, customers, suppliers, and the communities in which it operates. Third is a social dimension that considers the relationship between business and society and looks to contribute to a better society, integrate social concerns, and consider the full impact of business operations on communities. Fourth is the environmental dimension which focuses on a stewardship function toward the natural environment. And lastly, a voluntariness dimension which means

International Journal of Global Business, 12(2), 1-12, December 2019 4 that the actions a firm takes are not prescribed by law. These five dimensions are the most used factors to indicate an organization’s engagement as a socially responsible organization. Many researchers focus on one or two of these factors in their examinations of CSR. Others have chosen to compare and contrast these dimensions. For example, Bansal, Gao, & Qureshi (2014) contrasted the social and environmental dimensions. These authors began with definitions of Corporate Social Commitment, the social dimension, with Corporate Environmental Commitment, the environmental dimension, as subsets of CSR. They find that most organizations demonstrate moderate levels of commitment to social practices. However, in regards to environmental practices, organizations will either commit to high or low levels. The key is the split between social and environmental factors. Organizations tend to treat the social dimension more generically and therefore tend to expend average effort toward meeting this objective. Because the corporate environmental commitment is more technical, and therefore more clearly defined, organizations demonstrate a clear split in their commitment to the environment, either showing very high or very low levels of effort expended.

Later Bansal and Song (2017) split the concept of corporate responsibility from corporate sustainability claiming that they are distinct ideas. The authors indicate that responsibility is more a normative concept while sustainability takes on a systems perspective. Sharpening the distinctions between these ideas expands our ability to articulate the subtleties of these concepts.

Mason and Simmons (2014) contrast the stakeholder and economic dimensions. Corporate Social Responsibility goes beyond a firm’s obligation to return value to stockholders/owners reflected by the economic dimension. By expanding the concept of CSR to stakeholders, the researchers incorporate multiple groups as the organization’s focus, stockholders, customers, employees, the community, and society. This places the emphasis on meeting the varied needs of this diverse group of interests.

In their work on corporate ethics, Reidenbach and Robin (1991) identified five levels of corporate moral development . These included the amoral, legalistic, responsive, emerging ethical, and finally the ethical organization (see figure 2). Each level beyond the Responsive level represents an organization’s increasing commitment to CSR.

At the amoral level, a corporation doesn’t acknowledge any obligation other than to itself. The organization takes a ‘win at all costs’ approach to business. At the legalistic level, the law and regulations define morality: If an action is legal, then it is also moral. Once a firm has become a responsive organization there is a balance between pressures from owners for profits and other forces, both internal and external, to recognize societal duties and obligations that reach beyond its stockholder

International Journal of Global Business, 12(2), 1-12, December 2019 5 obligations. When a firm achieves this level of moral development, it will actively seek a balance between social values and profits (Reidenbach & Robin, 1991).

Reaching higher levels of moral reasoning allows an organization to actively pursue CSR within its environment. Being environmentally responsible brings the organization’s focus to issues of sustainability. Given the right organizational environment and commitment, sustainability can flow from CSR (Trebeck, 2009)

Sustainability Sustainability can be defined in a number of ways. Some define it as stewardship (Anoliefo, Isikhuemhen, & Ochije, 2003; Moody & Achenbaum, 2014), some as care for renewable resources (Halkos & Papageorgiou, 2016), and some on the Triple Bottom Line (Svensson et al., 2016; Udeh & Akporien, 2016). Other research focuses on business-driven failures in natural systems (Bansal & Song, 2017). Bansal and DesJardine (2014) argue that sustainability must possess a long-term focus in order to be useful as part of organizational strategy. The most common theme running through all these perspectives is captured in a definition from the United Nations Brundtland Commission Report:

“Sustainable development is development that meets the needs of the present without compromising the ability of future generations to meet their own needs” (Keeble, 1988).

Development, or growth, without damaging the environment and without depleting the natural resources on which we depend for our existence is a balance between outputs as a flow of goods and inputs required to produce them. How organizations increase outputs without significantly reducing natural productive capacity is primary focus of sustainability.

UBL Approach to CSR and Sustainability When we look at UBL, we see an organization that very much expresses its values in how it conducts its operations. We begin with an examination of the supply chain. UBL is a company that takes its commitment to producers of raw material very seriously and considers it a moral responsibility (Ha-Brookshire, 2017). The brewery boasts over 17,000 local farmers as suppliers of grain to its brewing business. While UBL employs around 300 people directly, management speaks of the additional thousands of people benefiting from the company as members of its supply chain. This is a remarkable number considering that most American corporations seek to limit the number of vendors with which an organization does business. In the United States we typically limit suppliers in order to control quality, improve efficiencies and reduce costs (Sarkar & Mohapatra, 2006). We do not typically find references to ‘social good’ as part of the criteria for adding members to the supply chain.

At this brewery, however, they pride themselves in providing a way for local farmers to earn a living as suppliers of barley, millet, and sorghum, all grains used by UBL in its brewing process. The choice to use local grain and not limit production to the more standard choices of barley, wheat, and rice reflects a conscious social decision to benefit the region.

Additionally, UBL has chosen not to automate the processes of loading and unloading trucks. This seems to beg the question what about efficiency. UBL management states that the

International Journal of Global Business, 12(2), 1-12, December 2019 6 ability for the local population to secure a living exceeds the need for expenditures in automation. Think of this as an alternative to organizations who state their commitment to CSR and social good while then eliminating jobs as their primary means to efficiency and profit (Lazonick & O'Sullivan, 2000).

Beer is distributed solely in bottles. This decision also reflects sustainability efforts at the brewery. Aluminum cans cause disposal problems or must be recycled to be effective. Since a comprehensive recycling infrastructure is not currently available, bottles provide a reusable source of containers that does not contribute to landfill or strain the environment. Glass bottles are readily reused but must be steam cleaned prior to doing so. Since the brewery already steam cleans all its equipment between batches, the technology is easily adapted to the reclamation of bottles. This, however, requires additional water usage in the steaming process which we will consider when we later discuss water usage.

The interesting fact is that even though UBL under the purview of Diageo, the parent has chosen to allow UBL autonomy in how it chooses to implement its social responsibility with the local population. This is a model for western organizations who hold offshore businesses under their corporate umbrellas. Perhaps it is because Diageo itself recognizes that in the industry, there is a great need for social responsibility. Being an organization that provides alcoholic/adult beverages, there is scrutiny from media, investors, and the general public about their actions and decisions. Diageo has chosen to implement many social projects, including clean water efforts in Africa. Diageo makes clear its position on its website. Perhaps that is part of the reason that UBL is granted autonomy in how it manages its supply chain as well as other sustainability efforts. And perhaps it is because the interests of both parent organizations, Diageo and EABL, align perfectly with UBL. For example, the commitment to clean water from all three organizations is clearly communicated on their respective websites.

Water Usage and Lake Victoria UBL resides in Kampala, on the northern end of Lake Victoria (Gerken, n.d.). . Since water is a critical material in the production of beer, there is a focus on sustaining the quality of this raw material. Water is not only used as a main ingredient in the brewing of the beer, it is also used to wash grains and, as mentioned earlier, as the means to steam clean both equipment and bottles for reuse. A beneficial starting point is a discussion of Lake Victoria.

It would indeed be difficult to overestimate the impact of Lake Victoria on Uganda and . One of the East , it is the second-largest lake in the world, shared by three riparian nations, Uganda, Kenya and . Of its total surface area of 26,564 square miles (miles2)/68,800 square kilometers (km2); Uganda’s lake portion is 11,861 miles2/30,720 km2. The lake has 2,138 miles/3,440 kilometers of shoreline (Bootsma & Hecky, 2003; Nyeko & Acere, 1990). The only larger freshwater lake is Lake Superior in North America.

Despite its massive size it is relatively shallow with an average depth of 40 meters and a maximum depth of approximately 82 meters (270 feet). Its greatest length from north to south is 210 miles (337 km), its greatest breadth 150 miles (240 km). Its coastline exceeds

International Journal of Global Business, 12(2), 1-12, December 2019 7

2,000 miles (3,220 km). The Ugandan cities of Entebbe and Kampala lie along the Northern Coast of the Lake. The lake is home to more than 200 different species of fish. Fishing is a dominant export industry and the demand for fish has driven some fish populations down to very low levels. The Tilapia is the most important species for the fishing industry.

Beyond these geographic statistics is the socioeconomic impact of Lake Victoria. Ogutu- Ohwayo, Hecky, Cohen, and Kaufman (Aarts & Dijksterhuis, 2000; Ogutu-Ohwayo, 1990; 1997), note that the East African Great Lakes, to-wit: Lakes Victoria, and Malawi, support hydroelectric power, inland water transport, industries, tourism, wildlife, and fishing sectors. Further, population increases have led to accelerated erosion, sedimentation and nutrient loading, causing deterioration of water quality and significant pressure on domestic water supply, and with increased discharge of waste and pollutants into the respective lakes. Over 30 million people reside in the Lake Victoria watershed, with an estimated increase of 3% per annum (UNEP, 2006). Fishing employs approximately two million people around Lake Victoria (Gudmundsson, Asche, & Nielsen, 2006), with an annual average fish catch of approximately one million tones (Kolding, Van Zwieten, & Mkumbo, 2008). The fish harvested supply more that 22 million people locally with a substantial portion of their protein source (Bwathondi, Ogutu, & Ogari, 2009). Serumaga (2017) notes the popularity of the African fish in Europe and North America; over 40% of the revenue from the annual catch comes from the export of Nile perch (Bwathondi, et al., 2009). Overfishing is a growing issue facing the communities surrounding Lake Victoria.

Many towns that surround Lake Victoria dump raw sewage into the lake. Additionally, many farms that are in close proximity to the lake have chemical and fertilizer runoff which adds to the pollution. One other factor that threatens the health of the lake is the Water Hyacinth which was introduced by Europeans. It reproduces quickly and covers large areas of the surface. This blocks sunlight needed by the fish and flora beneath the surface.

Because the lake is bordered by three independent nations, any attempt to protect Victoria from human impacts meets with a complexity for shared governance. Tanzania is the largest geographical jurisdiction, followed by Uganda and Kenya. There is no specific overarching legal authority and therefore corporate efforts become essential (Tecco, 2008; Wu, Jeuland, & Whittington, 2016). And while the three jurisdictions share a common interest in protecting this resource, Hardin’s “tragedy of the commons” is applicable and might suggest that each will utilize the resource as if it is inexhaustible while shifting the burden to the other sharing parties (Hardin, 1968, 2009).

“Now the once unlimited resources of marine fishes have become scarce and nations are coming to limit the freedom of their fishers in the commons. From here onward, complete freedom leads to tragedy.” (Hardin, 1998)

Lake Victoria is a significant source of food, a means of transportation, and a source of potable water for both humans as well as wildlife in the area. Thus any corporate use of water places a strain on the lake and elevates the need to protect and improve this resource wherever possible. It is this environment in which Uganda Breweries Limited produces its beverage products.

International Journal of Global Business, 12(2), 1-12, December 2019 8

As a response to the need to preserve the lake, UBL has reduced its consumption of water in the brewing process from production to distribution by employing the following:

 UBL set up a world class Effluent Treatment Plant in 2005 that filters and purifies waste water before returning it to the lake.

 UBL invested an additional USD 4million in 2015 to expand effluent treatment.

 UBL has also adopted a stretch goal to achieve a 50% improvement in water efficiency by the year 2020.

According to Simate et al. (2011), the standard amount of water consumed in the brewing process worldwide is approximately ten liters of water to produce one liter of beer. Breweries generally have a specific consumption of water ranging from four to eleven hectoliters water per hectoliter of beer and water consumption is divided into 2/3 used in the process and 1/3 in the cleaning operations (Fillaudeau, et al., 2006).

In its summary report of the outcomes from the African Brewery Sector entitled “Water Utilisation in African Beverage Industries: Current Practices and Prospects,” the United Nations Environment Programme reports that Ugandan brewers utilize between 7.2 – 9.0 hectoliters of water for each hectoliter of beer produced.

In addition to its concerted efforts to reduce its own water consumption, UBL is actively involved in the combined efforts of the “Water of Life” Program promoted by Diageo ("Water, sanitation and hygiene", n.d.) and implemented by Diageo, EABL, and UBL. This initiative is intended to provide safe drinking water and sanitation for millions of African people. Lake Victoria serves as the primary source of potable water for the local populations. Since there is no controlling body for Lake Victoria with its shared borders of Uganda, Kenya, and Tanzania, finding programs that stress mutual interests is extremely important to support the health and well being of the local populations around the lake (Egan, 2015; Forrest, 2001; Gawel & Bretschneider, 2016). Because all three organizations, Diageo, EABL, and UBL choose to promote their CSR activities proactively using an engagement strategy (Lim & Greenwood, 2017), they are positively viewed as supporters of sustainability and are well positioned to achieve their CSR goals.

Other aspects of CSR One other aspect of CSR caught our attention as we worked with UBL. The company has made a concerted effort to develop their people so that the company will be run entirely by African management. For an organization that has a European parent, this is remarkable (Huby, 2001). Consider what this commitment to engage in self manage means for CSR.

An organization chooses to be socially responsible based on its mission and vision. Who better to reflect this than local executives who share the values, interests, along with the very environment with a population upon whom they wish to have a positive impact? Whether people are direct employees, part of the supply chain, consumers of the products, or part of the outlying community, these executives share their environment. They share a need to do

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something positive for all involved. Local management with intricate knowledge of local concerns leads to a more socially responsive organization well aligned with region.

Conclusions We are impressed with the level of CSR demonstrated by UBL and the sustainability initiatives undertaken by them. We feel that using them as an example of CSR done in a more encompassing, well integrated way is a positive model for students. The efforts to increase rather than limit its supply chain, thereby allowing greater numbers of people to benefit from their involvement, sets UBL apart from many of its western counterparts.

UBL shows that CSR carries more significance when it is well aligned with true, not espoused, company values. This case also serves as a model for parent/holding companies, similar to Diageo, who have offshore operations that may benefit from corporate autonomy and local leadership. The freedom granted by Diageo to promote local interests over corporate interests is commendable. This study suggests a different look at CSR and sustainability taken from an organization in a developing economy. It offers a unique example to inform decision making and taking socially responsible action.

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