HOW CHOCOLATE GOT ITS SWEETNESS BACK

Transcriptie

1 HOW CHOCOLATE GOT ITS SWEETNESS BACK The rise in sustainable chocolate explained with use of Institutional Theory. Hendrik ten Napel, Utrecht, 8 september 2012 Master Thesis Business Studies FEWEB Vrije Universiteit, Amsterdam Supervisor: dr. R.J.A. Klein Woolthuis

2 Preface After 12 months of coding, analyzing and interpreting data I am thankful that I can finish my master thesis. The road to finishing this thesis was not always an easy one; it took me a lot of intrinsic motivation, weekends and liters of coffee (this would be a good time to sell your shares in DE Master Blenders). But, I must say that is was a great opportunity to learn more about the interesting subject of institutional change and recognize such processes in the world around me. I would like to direct my first words of gratitude to Rosalinde Klein Woolthuis. Her knowledge on the topic of institutional theory and support while completing this thesis has helped me a lot. Second, I would like to thank my parents, Tineke, and all my friends for their patience and support while studying. Hendrik ten Napel Utrecht, September 8 th

3 Table of contents Preface...2 Table of contents Introduction Research problem Research question Relevance Research method Research outline Theory review Sustainability Early institutional theory Neo-institutional theory Institutional pressures Social Normative pressures Professional Normative pressures Regulative pressures Competitive pressure Mimetic pressure Overview of pressures Process of institutional change Precipating jolts Deinstitutionalization Pre-institutionalization Theorization Diffusion Reinstitutionalization Room for strategic agency Strategic responses Antecedents for strategic responses Conclusion Method

4 3.1. Research design Limitations of a case study The case Data collection Database composition Search procedure Limitations Data analysis Findings Presentation of the results Graphs of frequencies General results Results per period Discussion of the results Precipating Jolts De-Institutionalization Entrance of new players Price volatility Pre-institutionalization Theorization Diffusion Re-institutionalization Strategic reasons to adopt sustainable cocoa Cause Constituents Content Control Context Conclusion Contribution Discussion Limitations and further research References Appendix I

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6 1. Introduction The first Europeans to discover cocoa were the Spanish in the seventeenth century. They started to export the beans to Sevilla and consumption of a drink made with cocoa, water and sugar was popular among European socialites. The first person to discover the product we now know as chocolate was the Dutch chemist Casparus van Houten Sr. who owned a chocolate factory in Amsterdam. By finding an inexpensive way to split the fat, called cocoa butter, from a roasted cocoa bean he created cocoa powder, which is the basis of all chocolate products. Until today the Netherlands play an important role in the global cocoa and chocolate sector. The Netherlands is the biggest cocoa importer in the world; with an annual turnover of 0.72 million tons it imports 17% of the annual world cocoa supply in 2011 (ICCO, 2012). Most of the cocoa that is imported in the Netherlands is processed in the Zaan area by cocoa grinders. The top five cocoa processors worldwide are Cargill (14.5%), ADM (13.9%), Barry Callebaut (12.2%), Petra Foods (7%) and Blommer (5.3%) (TCC, 2010), of these processors ADM and Cargill are located in the Zaan area. The manufacturing of chocolate mainly takes place outside the Netherlands. The biggest chocolate production plant is located in Veghel (Mars). In total the Dutch cocoa sector has an annual turnover of 2.5 billion and employs over people (Snijders et al, 2007).The Dutch cocoa supply is mainly imported from Ivory Coast ( tons), Ghana ( tons) and Cameroon ( tons). As shown in figure 1 the mayor producers in the world are Ivory Coast ( tons) and Ghana ( tons), with a total volume of tons responsible for 60% of worlds production (ICCO, 2012). Production is however declining, in the period between 2005 and 2010 the production in Ivory Coast declined with 15.5% and the production in Ghana declined with 13% due to farmers planting other crops or bad plant management (TCC, 2010). The consumer markets for the product made with cocoa, chocolate, in are growing heavily. By 2012 it is expected that global chocolate consumption will have increased by 15 percent compared to 2006 (ICCO, 2007). igure 1: World s biggest cocoa producers and importers (Guardian, ) F 6

7 As 98% of the imported cocoa is used for the production of chocolate (Oxfam Novib, 2011) this is the sector we will study in this report. The sector of chocolate manufacturers is dominated by a few players that have grown to size of significance due to acquisitions and aggressive growth. This group of multinational chocolate producers is often referred to as Big Chocolate. The sector of chocolate manufacturers has five players that represent more than 50% of the confectionary market, Kraft (14.9%), Mars (14.5%), Nestle (7.9%), Hershey s (4.6%) and Ferrero (4.5%) (TCC, 2010). In the last few years the big chocolate producers and other stakeholders in the cocoa industry have been criticized by NGO s and media that accused them of profiting from slave labor, child labor, deplorable working conditions and keeping international market prices low. As a response to these acquisitions more and more producers of chocolate started buying cocoa with certifications like UTZ and Rainforest Alliance. Mars and Kraft even announced their target towards the usage of 100% certified cocoa in their products (TCC, 2010). In March 2010 these targets were formalized when all the stakeholders of the cocoa industry signed an agreement with the aim to use 100% sustainable cocoa in all products sold and produced in the Netherlands by A lot of theory has been developed about the pressures that organizations face, for example the theory that organizations change over time. According this theory organizations are no technical and mechanical instruments but rather organic structures that change over time according with the changing demands of its stakeholders (Selznick, 1957; Pröper, 1993). DiMaggio and Powell (1983) created a theory in which that claim that organizational behavior is a result of several isomorphic processes that pressure them to change or adapt in order to be legitimate. DiMaggio and Powell describe these isomorphic processes as coercive, mimetic and normative. Other scholars (Kondra and Hinings, 1998; Parkhe, 2003) suggest adding a fourth isomorphic process, mimeticy. Based on existing institutional theory Greenwood, Suddaby and Hinings (2002) developed a model to describe the process of institutional change. According to the writers institutional change happens in six different phases; precipitating jolts, de-institutionalization, pre-institutionalization, theorization, diffusion and re-institutionalization. The goal of this research is to explore which processes had a role in the changes in the cocoa industry. This will be done with help of existing literature and the model of institutional change as developed by Greenwood, Suddaby and Hinings. In this research we will test the theory on organizational change with the help of the cocoa industry Research problem In March 2010 the cocoa industry committed itself to the use of 100% sustainable cocoa by 2025 while the concept of sustainable cocoa was only introduced and gratified in the beginning of During this three year transition period a strong and diverse set of institutional pressures was enacted on the industry, causing organizations to rethink and redesign their organizational structure and production process in order not to lose their legitimacy. The cocoa industry is an example of the speed in which an industry can change, when organizations do not recognize the drivers behind change the may lose their position in the market, contrary, organizations that do recognize the drivers behind change can create a strategy to influence the change and improve their position in the organizational field. The fact that no prior research has been done on the shift towards sustainable cocoa shows that there is a lack of knowledge on this topic. As the Netherlands is the biggest cocoa importer in the world we are in the unique position to do research on the change process of the cocoa industry. 7

8 Multiple events between January 2007 and December 2011 have led to new institutional pressures for the cocoa industry to conform to rules and regulations, professional and societal norms and the performance of competitors. The media have reported extensively on the pressures and the responses of the cocoa industry. Therefore the case of the cocoa industry seems to be the appropriate case to research the dynamics and roles of institutional pressures and strategic responses in the change process and test theory about organizational change in practice. In this thesis institutional theory is used as a theoretical lens to analyze the institutionalization process of sustainable cocoa, and it seeks to understand the behavior of stake holders in the cocoa industry. According to Dacin et al. (2002) institutional theory has risen to prominence as a popular and powerful explanation for both individual and organizational action. In previous years the theory has been expanded, for example with the idea that institutions can change over time. In the studied case the cocoa industry experiences multiple pressures from NGO s, competition, price volatility, government and others. These pressures are exerted by institutions, in institutional theory defined as regulatory structures, governmental agencies laws, courts, professors, interest groups and public opinion (Scott, 1987). Institutional theory, which finds its foundation in the works of DiMaggio and Powell, 1983) and Myer and Rowan (1977) argues that organizations will conform blindly to these institutions as formal institutions reflect widespread understandings of social reality. Later, Oliver (1991) has argued that organizational responses to these pressures do not only depend on the pressure that is exerted, but also on the willingness and ability of the organization to comply. Organizations can use a broad range of strategic responses to the institutional environment in order to shape the debate. Oliver however, does not include the different types of organizational pressures in her research. As organization theory represents an intermediate level between organization and society and is instrumental to processes by which socially constructed expectations and practices become disseminated and reproduced (Scott, 1995) organizational theory is chosen as the most appropriate theory to investigate a process of institutional change, as is the case in the cocoa industry Research question This research has as a goal to test existing literature on institutional change with the use of a case study on the Dutch cocoa industry. This thesis assesses the appropriateness of institutional theory in explaining recent changes that have occurred in the cocoa industry. This assessment is made by doing an analysis of the institutional theory literature, especially literature on processes of change and diffusion. Then, a qualitative study of the institutionalization process of sustainable cocoa is developed, using newspaper articles that are published in three mayor Dutch newspapers between 2007 and Given the nature of this thesis and the research purpose the following key research question is formulated: How can Institutional Theory explain the increase in usage of sustainable cocoa since 2007 and the decision of the cocoa industry and its stakeholders to work towards a fully sustainable cocoa chain by 2025? 8

9 In order to answer the research question three sub-questions were formulated. By dividing the research in a theoretical, an empirical and an analytical part all dimensions are covered. With the help of the first, theoretical, sub-question we will investigate the existing theory on institutional change. With the second, empirical, sub-question we will further investigate line of events in the cocoa industry between 2007 and Third, we will answer an analytical sub question in order to find the similarities and differences between the theory and the studied case. The three subquestions that lead to answering the research question are: What was written about institutional pressures, strategic responses and their role in the process of institutional change in the literature? What was the dynamic between institutional pressures and strategic responses in the process of institutional change of the cocoa industry between January 2007 and December 2011 leading to the increase in usage of sustainable cocoa? Are there differences between the literature about organizational change and the events that occurred in the cocoa industry, and how can these be explained? 1.3. Relevance Investigating the role of institutional pressures and organizational responses in a change process will add to the theoretical body of knowledge on institutional theory. According to traditional institutional theory the institutional pressures that are exerted on organization are a part of a process in which the industry conforms to the pressures and regains legitimacy. However, newer theory claims that organizations can influence the change process and that the different institutional pressures fulfill a different function and role in the change process. In this thesis the model of institutional change as conceptualized by Greenwood et al (2002) is applied to analyze institutional dynamics in the cocoa industry between 2007 and Using this model in this new context provides an ideal test for investigating its applicability in the cocoa industry. The speed in which change has happened in this field provides the author with an ideal setting to explore and improve the model of Greenwood et al (2002). By identifying the similarities and differences between the case and theory, this thesis will add relevance to the existing theory on institutional change. A major criticism on institutional theory is that it downplays the role of agency and interest in an organizational decision process (DiMaggio, 1988; Oliver, 1991; Scott, 1987). This thesis applies the framework of Oliver (1991) to analyze the decision of stakeholders in the cocoa industry to adopt sustainable cocoa. Thereby, this thesis explains the purposive action of organizations within an institutional approach. The findings of the research are relevant for other organizational fields that are confronted with the dynamics of change. By recognizing the different pressures and knowing the time sequence organizations can choose their response strategy more consciously and create room for agency, which can lead to conforming or resisting to institutional pressures Research method The research is qualitative and aimed at providing a detailed analysis of events in the cocoa industry between January 2007 and December In this analysis the interpretation of the context is of 9

10 great importance because it studies causal relations in a local context. The chosen strategy for this research is the case study; the case in which the cocoa industry shifted towards sustainable cocoa. The data used to describe the case is extracted from four major newspapers in the Netherlands; Trouw, Volkskrant, NRC Handelsblad, Financieel. These newspapers have reported on the changes in the cocoa industry from different points of view. From these newspapers articles are selected based on search in the digital database LexisNexis. From these articles events have been selected that can be coded according to a type of pressure or response. The time span in which the articles will be selected in set upon 5 years as we are trying to get a clear view on the changes in the industry over time. The method of newspaper analysis was chosen because the articles provide a qualitative insight in the debate and events in the cocoa industry over a longer period. Not only give the newspapers a detailed view of the debate, they also shape the debate by framing and focusing on specific elements of a broader subject (Nelson et al., 1997). By analyzing newspaper and coding them in detail we are able to see the development of the debate Research outline This research has the following structure. In chapter two we will introduce the concept of sustainability and the theory on institutional change. We will introduce theory on the pressures that are enacted on organizations, strategic responses and we will introduce the model of institutional change as developed by Greenwood et al (2002). At the end of the chapter we will present a model that is a combination of multiple theories on organizational change. In chapter three contains the methodology including the kind of research, research strategy and the methods of data collection and analysis. Chapter four will describe the results of the data analysis. We will describe the events in the cocoa industry and the coded pressures and responses. In chapter five the collected data will be analyzed and interpreted. The different pressures and responses that have played a role in the change process will be discussed in the light of the theory and insights are gained and presented. In chapter 6 the answer on the research question is formulated with help of the sub-questions. We will further analyze the similarities and differences between the case study and the theory. Chapter six will be finished with an elaboration on the limitations of the study and will give recommendations for further research. 10

11 2. Theory review First, this chapter will introduce and briefly discuss the concept of sustainability and sustainable cocoa. After we have introduced and explained the concept of sustainability, the author will investigate the existing knowledge and literature about institutional theory. The chapter will briefly introduce the history of institutional theory. Selznick will be introduced as one of the first to write about the topic and the chapter will explore the scholars that further developed the field of institutional theory, eventually leading to neo-institutional theory. After the basis is explored the chapter will focus on theory on institutional pressures such as the three isomorphism mechanisms as introduced by DiMaggio and Powell (1983) and the different types of social pressures as developed by Scott (2001). The chapter will briefly introduce theory on strategic responses on institutional pressure as conforming to pressure is not the only response. The different stages of institutional change are studied and put in a model by Greenwood, Suddaby and Hinings (2002). This model will be introduced and discussed leading to the introduction of a new conceptual model that combines pressure mechanisms, response strategies and theory on change and will be used as basis for this study Sustainability The term sustainable chocolate is widely used to describe chocolate that is made with cocoa that is produced sustainable. In this paragraph we will try to find a definition for the term sustainable and explain the different kinds of certification and the differences between them. It is extremely different to find a single definition for the term sustainable chocolate as there is a wide variety of programs and certifications that try to increase the share of sustainable chocolate. To clear the fog around sustainability we will introduce the different articles that were written about the link between sustainability and businesses and explain the background of the field of research about sustainability, or as some say, environmentalism. Environmentalism in businesses is a relatively new field of research that studies the impact of decisions that organizations make on their environment. Before the 90 s business and environmentalism were seen as two separated fields of study with and therefore the attention for environmental issues in business literature was very limited. Literature was mainly focused on the economic impact of decisions and did not focus as environment as criterion for decision making. However, in the last few years more attention has gone to the field of environmental business. The reason for this can be found in multiple factors that have gained momentum in the last years. First; businesses started to implement environmental standards which had a positive effect on profitability. Furthermore, the issue gained interest from society and media, examples of these are the movie an inconvenient truth by Al Gore or the book Hot, Flat and Crowded by Michael Friedman. Several organizations and NGO s promote sustainability, one of them is Oxfam Novib, this NGO defines sustainable cocoa as following: A supply chain of cocoa in which each person investing time or money in the supply chain should be able to earn a decent income for themselves and their family, work in good conditions, and in a manner that does not harm the environment. (Oxfam Novib, 2009) 11

12 In the definition above we can find three main issues about the traditional cocoa supply chain; farmers cannot earn a decent income, farmers work in bad conditions and the traditional harvest of cocoa harms the environment. By putting attention to the issue of sustainable cocoa NGO s try to convince organizations to use environmentalism as a way of doing business. In academic literature the first scholars to raise attention to the issue of environmentalism were Porter and Damain (1991). In his article Damain argues that having an environmental strategy can benefit to the company s manufacturing process as it saves inputs and creates more efficient manufacturing processes. Porter (1991, p170) argued that an environmental protection can benefit America s competitiveness if we simply approach it properly. This phrase was later used in a study by Cordeiro and Sarkis (1997) who argued that corporate proenvironment actions and strategies such as pollution prevention, emission reduction, product redesign and materials stewardship benefit to the competitiveness of the company. Sharma and Vredenburg (1997) mentioned in their study that companies were only considered proactive if they exhibited a consistent pattern of environmental practices, across all dimensions relevant to their range of activities, not required to be undertaken in fulfillment of environmental regulations or in response to isomorphic pressures within the industry as standard business practices. Since Porter and Damain raised awareness on the issue of environmentalism as business strategy the literature on this topic evolved. In their article Porter and van der Linde (1995) argued that the strategy of being environmentally responsible can create a first mover advantage and therefore a competitive advantage. The authors argue that well-designed environmental regulations stimulate innovation which, by enhancing productivity, increases the business benefits. A consequence is that environmental regulations are not only good for society but also good for the organization. This statement was later called the Porter hypothesis and was contrary to the, in that time, contemporary thinking that environmental issues are a burden to the profitability of organizations. Although the article was criticized because it lacks a rigorous foundation and it does not specify why regulations are needed to stimulate organizations into adopting profit-increasing innovations (Palmer et al, 1995) the statement made by Porter and van der Linde was quickly picked up by policy makers and press. Another author that identified sustainability as a valuable resource was Hart (1995) who introduced the natural resource based view by arguing that models of competitive advantage needed to be expanded in order to focus more on the constraints and challenges that the natural environment places on organizations. In his article Hart argued that resources and capabilities rooted into the organizations capability to interact with its natural environment can lead to competitive advantage. The article by Hart and Porter and van der Linde are both based on the resource based view that was described by multiple authors, particularly Wernerfelt article in 1984 gained popularity. Wernerfelt (1984) argues that competitive advantage is created by the use of resources that are at the disposal of organizations. To transform a short run competitive advantage into a long term advantage companies need to identify their key resources and nurture them. This requires that resources are heterogeneous and not perfectly mobile (Peteraf, 1993). Valuable resources are not imitable or substitutable without great effort (Barney, 1991). Therefore both Hart and Porter and van der Linde identify a strategy in which managers choose to operate sustainable as a valuable resource and a road to competitive advantage. 12

13 After Hart and Porter and van der Linde introduced the concept of environmentalism or sustainability as a way for organizations to be competitive multiple studies have supported this claim. A positive correlation between an organizations sustainable strategy and its stock market performance was found by Klassen and McLaughlin (1996). Also, companies that implement a formal environmental management system like ISO14001 experience a positive impact on operations like, reduction of costs, reduced waste, better quality and improvement of the organizations reputation (Melnyk et al., 2003) Early institutional theory When studying institutional theory the first articles to mention the direction institutionalism are written by Selznick (1948, 1957), Parsons (1956) and Simon (1945). These three scholars represented three different streams of institutionalism. Selznick main focus was on institutionalizing of organizations, he argues that organizations are, over time, transformed into institutes. This transformation happens because non-rational behavior of stakeholders influences the rational behavior of the organization. Stakeholders provide the organization with a sociological meaning resulting in the organization giving up structures and processes as reaction on changing demands of stakeholders. With this change the organization gets infused with value and processes are not longer mechanic but organic as it changes with changing demands. Parsons (1956) main study topic was the normative influence of the environment on organizations. He argued that an organization as a social system has a specific type of goal that contributes to a more comprehensive goal, such as society. Organizations obtain legitimacy for their goals and the mechanisms they use to achieve their goals. Parsons identified three different types of mechanisms. First the procurement of necessary resources, second the way organizations make decisions and third, the institutional structure which integrates the organization with other stakeholders. Simon (1945) wrote about the limited rationality within organizational structures. According to Simon rationality is limited because choices are limited and individuals are lead by rules. Simon and March (1958) argued that organizations limit the possibilities of individual choice by creating rules and routines. In line with traditional institutional theory other scholars emphasize the importance of institutional theory. Pröper (1993) argues that institutionalization is important because an organization as technical instrument is replaceable. An organization that has institutionalized is build and supported by its stakeholders. It is a part of the goals of the stakeholders and has therefore the need of selfpreservation. Berger and Luckmann (1966) argue that with the development of institutions complexity and insecurity in organizations is diminished. Institutions exist of standardized interactions, not because they are designed like that but as a result of tradition and expectations Neo-institutional theory Both old and new institutionalism argue that rationality within organizations is limited by institutionalism, however, in old institutionalism the main focus of the researchers were the shared norms and values within organizations. In neo-institutionalism more value was put on non-rational aspects of organizations such as rituals and symbols. The difference with other theory on organizational culture the focus in neo-institutionalism is the way how culture influences rationality and the structure of organizations (Morill, 2008). Neo-institutionalism claims that institutionalized 13

14 behavior and organizational actions are both formed by institutions in the macro environment (DiMaggio and Powell, 1991). Meyer and Rowan (1977) were the first to state that many formal organizational structures arise as reflections of rationalized institutional rules. According to Meyer and Rowan elements within organizations often exist because of traditions instead of efficiency. By incorporating the institutional rules (expectations) that the environment has made for formal organizational structures the organization shows its legitimacy and secures its resources, stability and survival prospects. However, institutional rules are often based on rationalized myths, and not on empiric evidence, causing a decrease in coordination and control. The myths are taken grated as legitimate apart from evaluations of their impact on work outcomes. Meyer and Rowan state that organizations adapt structures which their environment expects from a functioning organization, rather than creating a structure that fits the organization best. This institutionalized behavior is related to the concept of institutionalization, the process in which social processes, obligations, or actualities come to take on a rule like status in social thought and action (Meyer and Rowan, 1977). Institutionalization happens on macro level within organizations but also on micro level between individuals. Close to the macro perspective of Meyer and Rowan is the micro perspective used by Zucker (1977). He claims that cognitive systems form individual behavior. Social, subjective knowledge gets institutionalized until it is adopted as a fact and seen as objective reality. Although multiple scholars did research on the micro and meso level of neo-institutional theory, the macro perspective has been most dominant. DiMaggio and Powell (1983) use this perspective by explaining how institutions are influenced by actors outside of the organization, called macroinstitutional theory. In their article they describe a paradox; once a set of organizations emerges as a field the actors in these organizations make them increasingly similar as they try to change them. DiMaggio and Powell describe three processes which cause institutional effects to influence the whole organizational field, as a result a homogenization between different organizations in the same line of business. This process of homogenization is called isomorphism, a process that forces one unit in a population to resemble other units that face the same set of environmental conditions. With their article DiMaggio and Powell introduce a new research direction, institutional isomorphism. The step after homogenization of multiple companies in the same line of business is described by Tolbert and Zucker (1983). In their research on the civil service they described the process in which procedures were adopted among multiple cities. They find that, as an increasing number of organizations adopt the same procedures it becomes institutionalized and it becomes widely understood as a necessary component of the organization structure. In short, when organizations all adapt the same processes they legitimize the procedure and create a stimulus for later adopters to do the same. By adopting best practices and rationalizing cultural rules organizations create legitimacy. In previous articles legitimacy is defined as the amount of support for an organization and its norms by its environment (Meyer & Scott, 1983; Scott, 1987, 1995). Being legitimate important for organizations as they contentious adapt to the expectations of the institutional environment, scholars have proposed legitimacy as being vital for organizational survival and success (Meyer & Rowan, 1977). In previous literature legitimacy is a result of mimetic behavior between organizations. When ideas and 14

15 norms are copied by other organizations, and give the adopter an economic benefit for adopting it ideas get institutionalized and therefore legitimate (Scott, 2001). Studies about legitimacy are divided into two different groups (Suchman, 1995). The direction of strategic legitimacy has a managerial perspective and investigates the ways in which organizations manipulate and deploy evocative symbols in order to get societal support for their actions. The institutional direction focuses on the ways in which sector wide dynamics generate cultural pressure leading to that transcend a single organizations control. According to Suchman there are two main reasons for organizations to seek for legitimacy. Organizations seek for continuity and therefore need to be credible so they can get resources and understanding from external organizations. A second reason to strive for legitimacy is to get support from stakeholders. Dowling and Pfeffer (1975) argue that organizations are legitimate when they are able to combine the social norms that are linked to their activities with the norms of behavior in the system they are part of. Suchman (1995) defines three different kinds of legitimacy, pragmatic legitimacy, moral legitimacy, and cognitive legitimacy. Pragmatic legitimacy is based on the self-interest calculations of the organizations most immediate audiences. Often it is based on direct interactions between the organization and its audience, but it can also involve broader political, economic or social interdependencies in which organizational action affect the audiences well-being. Pragmatic legitimacy can be boiled down to three sub-forms, exchange legitimacy, influence legitimacy and dispositional legitimacy. Pragmatic legitimacy plays a big role when other organizations copy ideas and obtain economic value from them, when this happens ideas get their legitimacy (Scott, 2001). Moral legitimacy reflects a positive normative evaluation of the organization and its activities. It rests not on judgments about whether an activity benefits the evaluator; it is based on whether the activity is the right thing to do. Moral legitimacy comes in four different forms; evaluations of outputs and consequences, evaluations of techniques and procedures, evaluations of categories and structures and finally, a rarer form, evaluations of leaders and representatives. Cognitive legitimacy is not based on self interest or on evaluation; it is based on comprehensibility and taken-for-grantedness. Legitimacy stems mainly from the availability of cultural models that explain the organization and its endeavors. Cognitive legitimacy plays a role when ideas are institutionalized, in this process ideas are judged as standards (Tolbert and Zucker, 1996). The idea that gaining legitimacy makes organizations conform themselves onto the values and norms in their institutional environment was further developed by DiMaggio and Powell (1983). They argue that institutional isomorphism is a useful tool for understanding the rationalization of modern organizational life. When all organizations in the same field of business face the same pressures homogenization takes place. In their paper DiMaggio and Powell (1983) discuss the process of homogenization and the three different kinds of isomorphism; coercive, mimetic and normative. Coercive isomorphism exists when formal or informal pressure is exerted on organizations. Organizations need, in order to obtain legitimacy and operate successfully, support from their environment. Because an organization depends on its environment the environment has the power to influence an organization. Pfeffer and Salancik (1978) describe the perspective of resource dependence in which organizations are constrained by the actor on which they depend because organizations need resources from other parties. According to Parsons (1960) audiences are most 15

16 likely to supply resources to organizations that appear desirable, proper or appropriate. Scott (1995, 2001) describes three kinds of social pressures that organizations need to face in order to be legitimate. These pressures described by Scott form a new perspective that will be further explored in chapter 3.5. According to DiMaggio and Powell (1983) the existence of a juridical environment influences the behavior of an organization such as in legal requirements. As multiple actors put pressure on an organization these pressures can contradict. Organization will adapt to the wishes of the most powerful actor, which is often a government. Politicians make decisions that apply to the whole sector, which results in isomorphism between organizations. Mimetic isomorphism is often the result of uncertainty. Changes in the organizational field can cause existing strategies to be suboptimal. When organizations face this challenge in which they do not know what strategy or solution to choose they can decide to adopt best practices from other organizations in the field. This response is often cheap, safe and quick because it saves the cost of creating a new strategy (Cybert and March, 1963). According to DiMaggio and Powell (1983) copying can be achieved by implicit and explicit methods. Implicit methods are sometimes unintentionally and can take place in the form of employee transfers or turnover. Copying can also be explicit by hiring consultants that have experience with the same challenges in other organizations or fields. Multiple scholars have written about the mimetic response, challenging its long term success because it leads to institutionalization. As the mimetic response is a coercive power that is undertaken as a reaction to others organizations adapt the institutional norms of others as their own as they may feel that unless they undertake change, the organization might be in permanent decline (Kondra and Hinings, 1998). The mimetic response however is a follower s reaction that can be effective, but as all competitors in the field will adapt effective ideas in the long term mimetic responses will become the new standard and therefore be inefficient as way to compete (Barney, 1991). Normative isomorphism is a third mechanism that is caused by professionalization like formal education and the growth of professional networks within organizations. Education is a driver of normative isomorphism. As organizations guard career paths of their employees and use the same selection criteria when hiring new staff norms and routines in a specific field get institutionalized. An example of this is the growth in business schools. Under pressure of ratings and students business schools have increasingly copied each other programs. As schools try to move higher on the list programs become more generic and less impressive in one area (Doria et al, 2003; Pfeffer and Fong, 2004). This example illustrates that the mimetic response of business schools cause isomorphism between students of different business schools. The second cause of isomorphism is the growth of professional network within organizational fields. These organizations enable professionals to share their norms and values in congresses of literature, causing the norms to get institutionalized. 16

17 Another important neo-institutional author is Scott (1995) as he conceptualizes institutional as multifaceted systems incorporating symbolic systems-cognitive constructions and normative rulesand regulative process carried out trough and shaping social behavior. Scott states that institutions are relatively resistant to change. This because of a process set in motion by regulative, normative and cultural-cognitive elements, called the three pillars of institutions. Scott names these three pillars the building blocks of institutional structures, providing elastic fibers that can resist change. Rules, norms and meanings arise in interaction and they are preserved and modified by human behavior (Scott, 2001). The first pillar named by Scott is the regulative pillar. According to Scott this pillar is able to establish rules that function primarily as guiding mechanisms for organizational action. The pillar involves sanctions, such as rewards and punishments, for behavior. According to Kostova and Roth (2002) regulative elements of an institutional environment reflect the existing rules and laws. By promoting certain types of behavior and restricting others the institutional structure takes its form. The second pillar is the normative pillar which involves normative rules that introduce a prescriptive, evaluative and obligatory dimension into social live (Scott, 2001). The pillar influences norms and values within an organization by shaping expectations of behavior. According to Scott norms describe how things should be done as they define legitimate means to pursue valued access. Values are defined by Scott as the conceptions of the preferred or the desirable, together with the construction of standards of which existing structures or behavior can be compared and assessed. Normative systems are often seen as a way of imposing constraints on social behavior, but they also empower and enable social action. Normative rules exist in the expectations that others have of our behavior (Scott & Meyer, 1994) The third pillar is the cultural-cognitive pillar which contains the cognitive elements of institutions: the shared conceptions that constitute the nature of social reality and the frames through which meaning is made (Scott, 2001). It puts emphasis on widely shared social knowledge and cognitive categories that influence the way that a particular phenomenon is categorized and interpreted (Kostova & Roth, 2002). By adapting the rules and conceptions organizations institutionalize behavior causing isomorphism. The three pillars show that there are three different ways organizations create legitimacy. By adapting rules like laws, policies and regulations that belong to the regulative element, by adapting norms and values that were created by social systems as the normative element and finally there is a cognitive element like the process of reality creation and legitimization. The different pillars can help with the identification of legitimacy problems within an organizational field. The pillars however can contradict or change during time. Hoffmann (1999) stated that the institutional pillars are not analytically and operationally distinct but rather overlapping, so that development of one aspect will influence the development of other aspects. Meaning that when identifying legitimacy problems the three pillars should be used as independent analysis tools. 17

18 2.4. Institutional pressures Chapter 2.3 elaborated on essential works on institutional theory, several influential works have been described and summarized. From this works the author is able to extract different essential pressures. Although there are some differences between the views of previous authors there exists some overlap between the different categorization and descriptions given by the treated authors. In this chapter a clear distinction between the different kinds of pressures will be provided. Some overlap between pressures does exist between categorizations or different theories provided by authors. Therefore it is important to explain the distinction clearly as the categories provided in this chapter will be the guideline for further research on the cocoa industry. The pressures that can be extracted from earlier theory can be defined as the social normative pressure, the professional normative pressure, the regulative pressure, the competitive pressure and the mimetic pressure. Social Normative pressures Social normative pressures involves the process in which social processes, obligations or actions come to a rule like action in social thought and action (Meyer and Rowan, 1977). Led by interest groups such as NGO s, traditional media and social media the public opinion starts to change. Multiple scholars name different kinds of social pressures as reason for organizations to change their practices. According to Meyer and Rowan (1977) social pressure is a result of the social norms and values of how things are done and should be done. When values are breached social beliefs will become conscious. Scott (2001) describes the normative pillar in which he refers to normative rules that involves a prescriptive, evaluative and obligatory dimension into social live. The pillar influences norms and believes by shaping expectations of behaviour; in this case; expectations of change in the cocoa industry. Furthermore the social normative pressure mechanic influences the status quo by empowering and enabling social action by influencing the expectations that the social community has of the behaviour of the cocoa industry and by creating normative rules for that behaviour (Scott & Meyer, 1994). Professional Normative pressures Professional normative pressures are rooted in social normative pressures as many of the positions, policies and procedures of modern organizations are rooted and enforced by public opinion. In the process of striving for legitimacy organizations contentiously adapt to the wishes of their environment (Meyer and Rowan, 1977). In their article DiMaggio and Powell (1983) described normative isomorphism as a mechanism for institutional change. Organizations create normative isomorphism by institutionalizing social norms and values. Professionalization, the process in which organizations create rules and standards for their practices, is a driver for change. A form of professionalization is certification, which is specifically described by Scott (2001) as a source for legitimization. Regulative pressures Regulative pressures can be described as the pressure that roots in regulations in all forms. These regulations are laws or rules that are diffused by documents and legislation. In order to operate successfully organizations need to be legitimate, as the organization depends on its environment the 18

19 organization has the power to influence the organization and create regulations (Pfeffer and Salancik, 1978). Earlier Meyer and Rowan (1977) introduced the concept of rationalized myths in which they state that rules and laws are legitimate because they are supported by public opinion, meaning that official rules and laws are formalized procedures that are enforced by law. As multiple actors put pressure on an organization these pressures can contradict. Organization will adapt to the wishes of the most powerful actor, which is often a government. Politicians make decisions that apply to the whole sector, which results in isomorphism between organizations (DiMaggio and Powell, 1983). The regulative pressure is also described in Scotts (1995) regulative pillar. Scott describes this pillar as being able to establish rules that function primarily as guiding mechanisms for organizational action enforced by sanctions, such as rewards and punishments. Competitive pressure Institutional isomorphism explains the process in which organizations institutionalize. It recognizes institutionalization as a social process in which organizations and individuals create shared believes and visions. Additional to institutional isomorphism DiMaggio and Powell (1983) recognize an economic incentive for change, called competitive isomorphism. Competitive isomorphism explains isomorphism as a result of changes that were made in the search for the most efficient and economic rational way of organizing an activity. Competitive isomorphism takes place in an open and competitive environment where, according to a Darwinist point of view, powerful organizations will survive and less powerful organizations will fail. As a result the variety in organizations will decline and only a few, strongly alike, organizations will survive (Groot and Van Helden, 2003). Both Groot and Van Helden and DiMaggio and Powell (1983) do not discuss competitive isomorphism as a part of institutional isomorphism because, unlike institutional isomorphism, competitive isomorphism is only relevant in an environment with free and open competition. Mimetic pressure The behavior of companies in the theorization and diffusion stage can be explained as a result of the mimetic pressure. As the organizational field changes and existing strategies seem to be suboptimal organizations choose to imitate other organizations that are perceived to be successful or similar. As a result of believe systems and cultural frames that are imposed on organizations, organizations will behave conventional, trying not to stand out. Conventional ideas that have proven to be successful are legitimized because they are adopted by new organizations (Scott, 2001). Copying can be achieved by implicit and explicit methods. Implicit methods are sometimes unintentionally and can take place in the form of employee transfers or turnover. Copying can also be explicit by hiring consultants that have experience with the same challenges in other organizations or fields (DiMaggio and Powell, 1983). This response of mimicry is often cheap, safe and quick because it saves the cost of creating a new strategy (Cybert and March, 1963). When, in the process of diffusion, the number of organizations that adopt an innovation or idea increases, remaining organizations will be pressured to also adopt this innovation or idea (Mansfield, 1963). This phenomenon occurs because non adopters fear being different from adopters and fear missing out on competitive advantage. The mimetic pressure as organizations make independent decisions to adopt innovations because these innovations can help solving their problems and yield positive returns (Tolbert and Zucker, 19

20 1983). With an increasing number of companies that adopt the new innovation, the innovation gets infused with value (Selznick, 1957) meaning that the fact that multiple organizations adopt the innovation makes is legitimate for others to adopt is as well. After an innovation is infused with value, organizations that do not copy the innovation seem abnormal or not legitimate for their stakeholders, resulting in a loss of stakeholder support (Meyer and Rowan, 1977). The fear for losing its legitimacy forces the last organizations to adopt the innovation or idea, not the potential competitive value of it. Overview of pressures In table 1 an overview of the different pressures is provided as a guideline for further research. This table offers a clear description of the pressures that are identified by different authors. This overview will form the basis of further research and will be used in measuring pressures in order to answer the research question Table 1: Overview of pressures 20

21 2.5. Process of institutional change As most research has focused on the process of institutionalization instead of re- or deinstitutionalization (Greenwood et al, 2002) little is known about how and why institutional practices within a field change. Therefore they offer a multistage model of institutional change based on literature of multiple scholars. Through the use of this theoretical framework it is possible to conduct an in depth analysis of the processes of change in a certain case study. The framework conceptualizes the change process by describing the stages in which it takes place, precipating jolts, deinstitutionalization, pre-institutionalization, theorization, diffusion and re-institutionalization. Figure 2: Model of institutional change Stage I occurs when events, or jolts, destabilize established practices. Jolts may take the form of social upheaval, technological disruptions, competitive discontinuities or regulatory change. These changes precipitate stage II, the entry of new players, the ascendance of existing actors, or local entrepreneurship. Their effect is to disturb the socially constructed field-level consensus by introducing new ideas and thus the possibility of change. Stage III, pre-institutionalization is the phase in which organizations innovate independently, seeking technically viable solutions to locally perceived problems. For new practices to become widely adopted, they have to be "theorized", stage IV. Theorization is the development and specification of abstract categories and the elaboration of chains of cause and effect. Such theoretical accounts simplify and distill the properties of new practices and explain the outcomes they produce. By theorizing new ideas they will obtain moral legitimacy and/or pragmatic legitimacy (Suchman, 1995). Successful theorization is followed by stage V, diffusion. When ideas diffuse they become objectified. They will gain social consensus concerning their pragmatic value. Full institutionalization occurs as the density of adoption provides ideas with cognitive legitimacy (Suchman, 1995) that makes them diffuse even further. The last stage is VI, re-institutionalization. Once fully institutionalized ideas can 21

22 survive across generations, uncritically accepted as they way of behaving. Parkhe (2003) suggests in his article to add the mimetic response to Stage IV of figure XX. Because mimicry is done by multiple organizations in the field it contributes to homogeneity or isomorphism rather than deinstitutionalization. Precipating jolts The first stage in the change process described by Greenwood et al (2002) occurs when events, or as Greenwood et al describe them, jolts destabilize established business practices. Jolts are events that take place before the actual institutional change occurs; they are part of the change process, not the driver behind it (Munir, 2005). Jolts may occur as social upheaval, technological disruptions, competitive discontinuities or regulatory change. In theory we find that the other authors have described the way in which jolt occur more specific in three different pressure mechanics, social normative pressures, professional normative pressures and regulative pressures which were described in chapter 2.8. Deinstitutionalization As explained before organizations do not necessarily have to adapt to the pressures that are exerted upon them. They have the choice to actively resist the institutional demands and to diverge from the norm. When this happens institutions may erode or break down causing de-institutionalization. Oliver (1992) has defined this process as: the process by which the legitimacy of an institutionalized activity or practice erodes or discontinues. Scott (2001) defines the process of deinstitutionalization as the process by which institutions weaken and disappear. According to Scott the process of deinstitutionalization should be viewed in the context of institutional change as the weakening and disappearing of institutions can be associated with the introduction of new institutions. Oliver (1992) defines three types of pressures that lead to deinstitutionalization; internal political pressures, functional pressures and social pressures. Political pressures include performance crises, conflicting internal interests, increased pressure to innovate and changing external dependencies. Deinstitutionalization forms a political response to changing power distributions or a protective response to a perceived threat or failure. Functional pressures include changing economic utility, increasing technical difficulty, increasing resource competition or emerging events and data. Functional pressures question the functional necessity of an institutionalized practice. Its presumed utility is challenged and rejected on economic grounds. Social pressures are increasing social fragmentation, decreasing historical continuity, changing institutional rules and values and increasing structural disaggregation. Although all these factors influence the process of deinstitutionalization, certain particular factors will exhibit primacy in determining de-institutionalization. Changing government regulations and internal performance crises are termed by Oliver (1992) to be the most important causes for deinstitutionalization. As all these causes of deinstitutionalization root in the fear of losing competitiveness are referred to as the competitive pressure. Greenwood et al (2002) mark the beginning of the deinstitutionalization process as the moment that new players enter the market, the exit of existing actors or growth in local entrepreneurship. The effect of these new players is that they disturb the socially constructed consensus and challenge it by introducing new ideas and thus the possibility of change. 22

23 Pre-institutionalization The third stage of institutional change that is described by Greenwood et al (2002) is referred to as Pre-institutionalization. In this stage organizations start to innovate independently in order to find solutions for the problems that have occurred in the first two stages (Tolbert and Zucker, 1996). The process of pre-institutionalization did not get a lot of attention in theory as it leads directly to the fourth stage, theorization. Theorization Pre-institutionalization leads to theorization, a subject that has attracted a lot of authors and discussion. Theorization finds place before practices get institutionalized. In order for practices to get widely adopted they need to be theorized meaning that in this stage ideas are developed from abstract ideas to concrete chains of cause and effect. Without the theorization stage ideas are less likely to arise and gain force, the creation of models is a strategy for making sense of the world (Strang and Meyer, 1993). According to Tolbert and Zucker (1996) the process of theorization involves two main tasks. First it needs the specification of a general organizational failing for which a local innovation is a solution or treatment. The second task is justification of the innovation that has been created in the specification stage. These two steps have to evolve the theoretical formulation of the solution into a practical solution that is more compelling than the existing practice and can be adopted widely. This transition can be achieved by nesting and aligning the new idea within existing moral prescriptions, thus giving them moral legitimacy (Suchman, 1995). Strang and Meyer (1993) describe two levels of theorization, local and global. In the first level involves the theorization of an individual or a formal organization. This form of theorization might expand rapidly in the circle of the individual; but the effect stays local. In order to create broader effects of diffusion theorization needs to less structured by social relations and differences between adopters. With the use of general models it is possible to generalize and communicate between actors with weak ties, and between theorists and adopters. By generalizing an idea into a general model it will spread more easily and it supports communication between actors. The final stage in the theorization process is the stage of legitimating ideas, this is important in institutional theory as it is the stage in which ideas are aligned within prevailing normative prescriptions. Suchman, (1995) describes three primary forms of legitimacy, pragmatic which is based on audience self-interest, moral which is based on normative approval and cognitive, which is based on comprehensibility and taken-for-grantedness. Greenwood et al (2002) argue that the first two forms of legitimacy, pragmatic and moral legitimacy are important in the theorization process. Specification of the organizations problem makes it possible to implement changes in the organizations existing practices where they gain in moral legitimacy (Suchman, 1995). Pragmatic legitimacy can be also be created due to mimicry (Parkhe, 2003). Cognitive legitimacy is most important in the process of re-institutionalization, when ideas are assumed to be taken for granted (Tolbert and Zucker, 1996). 23

24 Diffusion Diffusion is the stage that follows the theorization stage; the term refers to the socially mediated spread of a practice within a population. Diffusion occurs when an innovation is communicated through certain channels over time among the members of a social system (Rogers, 1995). Diffusion is a special type of communication concerned with spreading messages that deal with new ideas and necessarily represent a degree of uncertainty to an individual or organization. The process of diffusing new ideas has four main elements, innovation, communication channels, time and the social system. In the process of diffusion ideas need to be adopted by participants of a social system. Rogers (1995) describes five dimensions of adopters and classifies them on basis of innovativeness. First to adopt new ideas are the innovators, they have a natural interest for new ideas and their curiosity leads them out of their local circle. Second are early adopters which form a more integrated part of the local system than innovators, early adopters have often the highest degree of opinion leadership and are looked at by potential adopters for advice and information about an innovation. Reaching the early adopters is crucial in speeding up the process of diffusion. The third group described by Rogers is the early majority; this group looks at the early adopters and follows Figure 3: Rogers Adoption curve their lead. The fourth and fifth groups are named late majority and laggards, these groups are the last in a system to adopt an innovation or idea; they will only adopt an idea when they are surrounded by peers who have already adopted and who are satisfied with the new idea or innovation. The process of diffusion is crucial in institutionalization as a new idea will get institutionalized as more organizations adopt it (Tolbert and Zucker, 1983). When diffusion follows theorization it is not a copy of practices elsewhere; only the model that was developed in the theorization stage that will be diffused and optimalized by the organizations implementing it. Such models are implemented in companies that adopt the idea or innovation during the diffusion stage (Strang and Meyer, 1993). Reinstitutionalization After ideas are diffused and widely adopted they are transformed to institutions. Selznick (1957) describes institutionalization as a process that happens over time and in which ideas and innovations are getting infused with value. Because ideas and innovations are widely adopted by members of the organizational field they are taken for granted and social behavior is based on comprehensibility instead of instrumentality (regulative) or appropriateness (normative) (Suchman, 1995). Once they (ideas) are institutionalized, they are judged as standard and they can survive generation on generation (Tolbert and Zucker, 1996). 24

25 2.6. Room for strategic agency The assumption in original institutional thinking was that the activities of an organization are dominated by its institutional environment. In order to stay legitimate scholars argued that organizations changed upon institutional pressure and changing demands and standards. However, even the early papers on institutional theory include sometimes only very brief, elements of rationality, strategic choice, interests and power. According to Meyer and Rowan (1977) organizations do not only adopt institutional beliefs because they constitute reality or are taken for granted, but also because organizations that adopt institutional beliefs are rewarded with legitimacy, and as a result, resources and survival capabilities. Tolbert and Zucker (1983) argue that early adopters of organizational structures are driven by perceived efficiency and followers by expected efficiency and assumed superiority of the structural changes implemented by the early adopters. Strategic responses were described in early papers of Meyer and Rowan (1977) who introduced the concept of decoupling. According to Meyer and Rowan attempts to control and coordinate activities can be counterproductive and lead to conflicts and loss of legitimacy. By decoupling structures and activities inspection and evaluation is ceremonialized. Powell (1985) argued that organizations can save their face by creating a façade in which the organization seems to respect the existing rules and standards, but in reality the operational activities are decoupled from an organizations formal structures and processes. As theory in institutional change developed multiple scholars adopted the issue of organizations trying to influence institutional ideas and processes for their own benefits. DiMaggio (1988) introduced the concept of institutional entrepreneurs which are organized actors with sufficient resources as drivers of institutional change. These institutional entrepreneurs try to realize their own interests by creating new sets of social arrangements and replacing existing institutional rules, standards and norms (Fligstein, 1996). By actively breaking the established rules and challenging the status quo these institutional entrepreneurs try to find new ways of doing business. DiMaggio (1988) describes institutionalizations as a process that is profoundly political and reflects the relative power of organized interests and the actors that mobilize around them. Where original institutional theory is static and argues that organizations are following institutional beliefs in order to stay legitimate, neo-institutional theory is shifting more to defining an institutional field as a field in which organizations and their institutional field exert power on institutional beliefs in order to stay legitimate. Strategic responses Although Meyer and Rowan and DiMaggio and Powell did mention the possibility for organizations to influence the way pressure is exerted upon them Oliver (1991) was the first to describe potential response strategies from organizations in a systematical manner opening up the field towards a more strategic management. In her study Oliver states: institutional explanations of reproduction and isomorphism emphasize the role of conformity, habit and convention, rather than organizational power and control, in contributing to stability, and power trends to be attributed to the institutional environment rather than the organization. By applying insights of institutional theory and resource dependency theory Oliver demonstrated how, in response to institutional pressures, company behavior can vary from passive conformity to active resistance. Oliver states that managers in organizations can actively choose between five different strategic responses varying from passivity to 25

26 increasing active resistance towards institutional pressures that are exerted on organizations. This perspective of an actively adopted strategic strategy is not widely adopted in institutional theory. According to Oliver there is a form of interaction between the organization and its environment and, based on the dynamics of interaction, the management of the organization chooses a strategic response. Oliver summarizes the strategic responses behaviors that organizations enact in response to pressures from their institutional environment. The five types of strategic responses that are proposed by Oliver are acquiescence, compromise, avoidance, defiance and manipulation. Acquiesce The strategy of acquiescence refers to the organizational attempt to preclude the necessity of conforming to the institutional pressure. The strategy is closely linked to the classical institutional thinking that an organization has limited influence on isomorphic processes. Oliver describes three tactics of an acquiescence strategy, habit, imitation and compliance. All three are forms of passive involvement in the change process but their motives vary. Habit is linked to the most basic understanding of the pressure and is described by Oliver as unconscious or blind adherence to preconscious or taken-for-granted rules or values. Imitation is consistent with mimicry and is a more conscious strategy to reduce uncertainly by imitating successful organizations; described by DiMaggio and Powell (1983) as mimetic isomorphism. Finally, compliance is a conscious and strategic strategy to obey to institutional rules in anticipation of self-serving organizational interests. Compromise Strategies of compromise are generally a combination of conformity and resistance which are most likely to occur if conflicting institutional demands are supported by diverse institutional actors. The three tactics of a compromising strategy that are described by Oliver are balancing, pacify and bargaining. A balancing tactic aims at achieving parity among multiple stakeholders of an organization and is legitimized by a rationalized effort to obtain a compromise on competing institutional expectations. A pacify strategy contains some resistance to the institutional pressure but is primary driven by conforming to the minimal requirements of institutional expectations. When adopting the strategy of pacifying organizations put most work in calming the sources of institutional pressure. Finally, the tactic of bargaining contains an understanding of the institutional demands and aim at making concessions in a negotiation process with the sources of institutional pressure. Avoid Avoidance strategies are, together with acquiescence strategies, the best researched institutional response strategies. The tactics that are used in an avoidance strategy are concealing, buffering and escape. The tactic of concealment can be described as creating a façade structure (Powell, 1985) and window dressing (Meyer and Rowan, 1977) in order to hide non-conformity. A form of window dressing is green washing (Peattie, Peattie and Ponting, 2009) in which organizations promote the perception that a company s policy or product is environmentally friendly. The tactic of buffering follows the principle of decoupling (Meyer and Scott, 1983) the organizations technical operations from its formal structure in order to make it more difficult to investigate the organizations activities from outside the company. The tactic of buffering can only be used when the technical production can operate independent of public approval and does not depend on the willingness of an organization to open itself up to the public (Oliver, 1991). Finally, the tactic of escaping is reflected when an organization changes its goals, activities or even its location in order to exit the organizational field in which it is faced with institutional demands. 26

27 Defy The strategy of defiance is an active form of resistance against institutional processes. An organization is likely to follow this strategy when the costs of not conforming to institutional pressures are low and the goals of the organization do not comply with the institutional demands. When an organization chooses for the defiance strategy it beliefs that the alternative is the right choice or that it has nothing to lose when fighting the institutional pressures. The strategy of defiance includes tactics of dismissing, challenging and attack. When adopting the dismissal tactic an organization simply ignores the institutional rules and values by dismissing them. This tactic is most likely to be followed when there is little change that the organizations environment discovers that the pressure was ignored. The tactic of challenging is used when organizations actively seek confrontation with existing institutional expectations. Finally, the tactic of attack represents an aggressive form of challenging the existing institutions. Oliver (1991) describes the way in which institutions can be challenged as assaulting, belittling or vehemently denouncing institutionalized values and the external constituents that represent them. Manipulate The strategy of manipulation is the most active response strategy. By manipulation an organization is intended to change the existing institutions and exert power on the related sources. An organization that adopts this strategy does not view institutional pressure as a limitation but tries to actively manipulate it. The strategy of manipulation includes three tactics which are co-opt, influence and control. Co-opting refers to convincing the sources of the pressure to join the organization or to build a coalition in order to neutralize institutional opposition and increase legitimacy. The tactic of influencing is aimed at changing the institutional values and beliefs or public opinion. A way of influencing governmental regulations is lobbying. The goal of the tactic is to neutralize institutional sources and processes (Louche, 2004). The third tactic is controlling which is aimed at dominating instead of influencing institutional processes and sources. This tactic can be used when institutional expectations are weak. Overview of possible responses Jamali (2010) presents an overview of the responses along a continuum ranging from conformity to resistance. In figure 4 this overview is provided as a guideline for further research. This table offers a clear description of the pressures that are identified previously. This overview will form the basis of further research and will be used in order to answer the research question. Figure 4: Overview of strategic responses to institutional pressures (Jamali, 2010) Antecedents for strategic responses Having identified the variety of organizational responses to institutional pressures Oliver (1991) proposed conditions that limited the actions of organizations. She developed ten hypotheses that correspond to the five institutional antecedents, cause, constituents, content, control and context. With these hypotheses Oliver developed the characteristics of institutional pressures and the 27

28 response that organizations are most likely to choose. The hypotheses specify the effects of each institutional antecedent on the responsiveness of organizations. The institutional antecedents and the predicted strategic responses are provided in figure 5. Figure 5: Institutional antecedents and predicted strategic responses (Oliver, 1991) According to this framework organizational responses of companies to adopt institutional pressures depend on five factors: Cause: Why is the organization being pressured to conform to institutional rules and expectations? Constituents: Who is exerting institutional pressures on the organization? Content: To what norms or requirements is the organization being pressured to conform? Control: How or by what means are the institutional pressures being exerted? Context: What is the environmental context within institutional pressures are being exerted? Cause In her paper Oliver (1991) defined the cause of institutional pressures as the rationales, expectations and intended objectives that underlie institutional pressures for conformity. Institutional pressures are generally exerted on organizations to make them socially conformist or to increase economic efficiency or profitability. Acquiescence is the most probable strategic response to institutional pressures when organizations expect that conforming to the pressure will enhance legitimacy or economic gain. However, when the expected economic gain from conforming to institutional pressures is low organizations will try to compromise on the institutional requirements, defy them or they will try to manipulate the conditions for conformity. Legitimacy is more important for large organizations as they receive more attention from the state, general public, interest groups and the media (Goodstein, 1994). As large companies are visible and accountable they experience high levels of social and political pressure to act in a socially desirable manner (Brammer & Pavelin, 2004). As a consequence they have a stronger incentive to make decisions that increase their legitimacy. 28

29 Constituents Organizations are confronted with varying potentially conflicting forces (such as laws, regulations or expectations) that come from multiple sources such as the state, interest groups or the public. Organizations choose to adopt a strategy of acquiescence when the degree of the multiple conflicting constituents is low. However, when multiplicity is high there will be more resistance to institutional pressure. When multiplicity is high an organization has to choose between conforming to one source of institutional pressure, meaning it cannot conform to another source. When multiplicity is high an organization is likely to respond by compromising, avoidance, defiance of manipulation. According to Oliver (1991) organizational responses are also affected by the degree of external dependence of the organization, when institutional pressures increase acquiescence becomes more likely. Content Oliver states hat when the institutional pressures exerted on an organization are consistent with the goals of the organization there is more willingness to acquiescence to them. When different institutional pressures are not consistent, organizations will doubt the legitimacy of institutional expectations, leading to more active response strategies. Another predictor on complying with the pressures is the loss of autonomy associated with the conformation. Organizations are more likely to use the response of acquiescence when this does not threaten their decision making autonomy. Control Institutional control refers to the means by which pressures are imposed on organizations; it includes legal coercion and voluntary diffusion (Oliver, 1991). Acquiescence is more likely to occur when legal coercion is high and the consequences of non compliance are strictly enforced. When institutional rules and norms are diffused and supported by multiple stakeholders organizations are more likely to adopt them. Institutionalization takes place when new practices are taken for granted. Context Oliver defines institutional context as the conditions within which institutional pressures are exerted on organizations, more specific, the extend of environmental uncertainty and interconnectedness. According to Oliver organizational decision makers prefer stability and predictability. When organizations face high uncertainty they are more likely to acquiescence because conforming to institutional pressures protects them from uncertainty. A high degree of interconnectedness between organizations facilitates diffusion of new innovations, encouraging conformity. In highly connected environments norms are diffused through relational channels. Organizational connectedness is more likely to occur in less fragmented or competitive environments that encourage the spread of institutional consensus and conformity (Oliver, 1991). 29

30 2.7. Conclusion Chapter 2 provided an overview of the literature on which this research is build. The author provided the reader with an overview of the relevant streams and scholars in the field of institutional theory and the field of strategic management by describing the history and development of the theories and the scholars that attributed to these subjects. The author introduced institutional theory as a theoretical lens that links organizational practices with the values in the social environment of organizations. The author introduced the concept of legitimacy and the need for organizations to maintain legitimate. Being legitimate is important for organizations as they contentious adapt to the expectations of the institutional environment, scholars have proposed legitimacy as being vital for organizational survival and success (Meyer & Rowan, 1977). Authors on institutional theory have argued that formal organizational structures are shaped by institutional pressures. As a key element of institutional analysis is establishing how institutional mechanisms enforce or weaken the prevailing social order (Scott, 2008) the author has combined multiple views on organizational isomorphism into a table of institutional pressures. These pressures are social normative pressures, professional normative pressures, regulative pressures, competitive pressures and mimetic pressures. The author has introduced the model of institutional change as provided by Greenwood et al (2002) as the right instrument to conduct an in depth analysis of how the different pressures lead to the changes in the cocoa industry. This model that conceptualizes change in six stages provides insight in how institutional change develops by describing the stages in which it takes place, precipating jolts, de-institutionalization, pre-institutionalization, theorization, diffusion and re-institutionalization. Institutional theory makes the assumption that activities of organizations are dominated by its institutional environment. However, multiple scholars have addressed the room for agency that an organization has to shape the debate. From this literature Oliver (1991) has identified the conditions under which organizations are able to resist institutional pressures. Oliver introduced five strategies that organizations can adopt varying from conforming to resisting institutional pressures. These strategies are acquiescence, compromise, avoidance, defiance and manipulation. Having identified the variety of organizational responses to institutional pressures Oliver (1991) proposed conditions that limited the actions of organizations. She developed ten hypotheses that correspond to the five institutional antecedents, cause, constituents, content, control and context. With these hypotheses Oliver developed the characteristics of institutional pressures and the response that organizations are most likely to choose. The hypotheses specify the effects of each institutional antecedent on the responsiveness of organizations. 30

31 3. Method This chapter will elaborate on the methods we use to study the process of institutional change in the cocoa industry. The author will specify the aim of the research and the chosen methodology. After discussing why a qualitative method is most reliable the author will explain why we have chosen for the instrument of a case study. Also; this chapter explains how data with a high validity is collected Research design According to Tolbert et all (1996) research on Institutional Theory does not require a specific methodology. It is not associated with any standard research methodology or a set of methods. Previous studies have used o broad variety of research techniques such as case analysis, crosssectional regression or longitudinal models. Empirical work in the neo-institutionalism can be divided in two main categories (Mohr, 1982; Scott & Meyer, 1994; Tolbert et al., 1996). The first category is characterized by the application of quantitative data collection methods. Data was collected over a broad section of an organizational field or a large time-span. The quantitative studies generally test neo-institutional theory against alternative organizational theories which gives relevant insights of institutional arguments versus other theories. The second category is using qualitative data collection methods to investigate the institutionalization and the adoption of organizational practices over a broad time span. A method used with qualitative research is the case study. This research is qualitative, focused on the in depth analysis of a single casus. In this research the interpretation of the context is important because it studies the causal connections in a local context and we are studying and describing new questions and problems ( t Hart et al., 1998). The research is also explorative as it is aimed on getting new insights that may lead to new propositions in institutional theory. A qualitative method to study the changes in the cocoa industry over a five year time span is a case study. A case study is a good method to study a social phenomenon in a natural environment. In our topic it is not possible to isolate the phenomenon from its context or environment. In a case study it is important to use multiple sources of data and to focus on a detailed description of change in multiple variables. These descriptions have to be tested with the use of statements given by the people that are researched (Swanborn, 2000). Another argument for the use of a case study is the fact that a case study can be used for multiple levels of analysis within a single study (Yin, 1984). This research will use a multiple level analysis to examine the different perspectives of different parties over a longer time span. Limitations of a case study A case study, like any other research strategy, has its limitations. The first limitation is that a case study compromises of a lengthy process (Bakker, 2001). The process of establishing contact with a possible case study, gaining access and gathering information can take considerable time. Therefore, the number of case studies is limited; as the time for this research was limited only one case study has been done. According to Yin (1994) there are two other important drawbacks of a case study, these are validity and reliability. Yin (1994) has defined three problems: - Construct validity, concerned with developing the right methods of measurement and instruments to operationalize the concepts that are studied. 31

32 - External validity, concerned with establishing the correct domain to which the findings in a study can be generalized. - Reliability, concerning the extent to which data collection techniques or analyzing procedures will yield consistent findings. In his article Yin (1994) provides multiple solutions to overcome these limitations. To overcome the first limitation, construct validity it is advised to use multiple sources of evidence. Interviews documentation and observation can be combined to decrease the limitations of each source and to create, what Yin calls, convergent lines of inquiry leading to more accurate findings. The second solution Yin provides is to construct a chain of evidence that allows external observers to follow the exact steps which were taken in the research to answer research questions. A third solution is to make sure the draft case study is reviewed by key informants. The limitation of external validity is a major point of criticism of case studies as there is a limited basis on which to make generalizations. In his article Yin argues that case studies can generalize more to theoretical propositions than whole populations. It is important to acknowledge that case studies and qualitative data analysis in general are related to subjectivity, which can diminish the reliability of the research. By example, different researchers can attribute different meanings to the data. On the issue of reliability Yin suggests the use of case study protocols and case study databases. This serves the purpose of clarifying how research was performed, which data was collected and the interpretation of data The case The research subject of this study is the cocoa industry and its stakeholders. In March 2010 the cocoa industry committed itself to the use of 100% sustainable cocoa by 2025 while the concept of sustainable cocoa was only introduced and gratified in the beginning of During this three year transition period a strong and diverse set of institutional pressures was enacted on the industry, causing organizations to rethink and redesign their organizational structure and production process in order not to lose their legitimacy. The cocoa industry is an example of the speed in which an industry can change, when organizations do not recognize the drivers behind change the may lose their position in the market, contrary, organizations that do recognize the drivers behind change can create a strategy to influence the change and improve their position in the organizational field Data collection In order to analyze the process of change in the cocoa industry the author chooses to review the density and content of the discourse on sustainable cocoa. This will be done by reviewing articles that are published in time span between 2007 and The use of newspaper articles, or often referred to as print media indicators (PMI), can be seen as qualitative research because the elements that are investigated are known beforehand on the basis of existing theory. The researcher will investigate the density and the context of newspaper articles on the case, making it possible to make theoretical assumptions about how and why the process of institutional change took place in the cocoa industry. The author has chosen to analyze newspaper articles in the period between January 2007 and December The author has chosen to start the studied period with the year 2007 in which the concept of slave free cocoa was introduced and gratified by a Dutch court. As end of the study 32

33 December 2011 was chosen because the concept of sustainable cocoa was diffused. As the goal of the research is to investigate the pressures and responses during the shift towards sustainable cocoa this timeframe is most relevant for the research. Data collection is the most important phase in the research because only from good data valid conclusions can be drawn. The reliability of the research can be increased by using multiple methods of data collection. By combining multiple sources of data, such as interviews, newspaper articles and questionnaires the validity of a research increases. Unfortunately, the field of stakeholders is too big and diversified, making it to complex to interview enough stakeholders in the given time frame. Instead, a method of secondary data collection is chosen. Although secondary data is not directly from the source choosing the right newspapers does provide the author with qualitative data. Database composition To study the dynamics and discourse on the cocoa industry and sustainable cocoa the LexisNexis database will be used as a source of empirical data. In order to attain an accurate reflection of the discourse on cocoa and sustainable cocoa through the print media it is important to use a database that incorporates references in multiple newspaper sources. As the Lexis Nexis database incorporates all national newspapers from 1990 and includes more than articles it is a suitable database for studying the process of institutional change in the cocoa industry. This is further shown by the fact that Lexis Nexis contains representation from different communities. In order to study the change process it is important to have a database that provides the opportunity to analyze the interpretation of events by multiple communities. Search procedure The search for relevant data consists of two important phases. It is essential to capture the right concept under investigation and operationalize it into the right keywords. Also; searching in a different language makes it important to express the search request in to the right key word (Benders et al, 2006). In order to identify articles that are written about sustainable cocoa the author chooses to use multiple keywords that capture all articles on the subject. As the newspapers that are selected are written in Dutch the author has chosen Dutch keywords that will provide a broad range of articles. The keywords that will be used in the search are: - Cacao - Chocolade - Duurzame + cacao The articles that are provided by the search are first grouped per year to give a graphical representation of the intensity of the discourse on sustainable cocoa and with that the evolution of the change process during the researched time frame. Second, all articles will be read to filter it from articles with limited relevance, such as recipes. The newspapers we will analyze are Trouw, Volkskrant, NRC Handelsblad, and Financieel. Trouw is selected because the newspaper has a background of reporting social inequalities and has an international focus. In the database we will use for this study Trouw has wrote the most articles about sustainable cocoa. Volkskrant as a newspaper is chosen because it provides us with more generic articles. NRC Handelsblad and Financieel are known for their economic perspective 33

34 on news. The selection of these four newspapers covers all backgrounds and perspectives on the cocoa industry. Limitations In this research articles from four newspapers are used to analyze the dynamics of institutional change. Earl et al (2004) point out two sets of criticisms of the quality of such data, representing possible limitations of the use of this source of data. The first criticism is concerned with the researcher s collection practices. Some scholars claim that newspapers report certain events selectively, called the selection bias (McCarthy et al, 1996, 1999). This selection bias occurs because newspapers do not always report all events that occur. The events that are reported are subject to various factors such as the space in a newspaper, reporting norms and editorial concerns (Earl et al, 2004). The second critic concerns certain flaws in newspaper reports themselves, referred to as the description bias (McCarthy et al, 1996, 1999). The description bias concerns the veracity with which selected events are reported in the press, and is also concern when using newspaper data (Earl et al, 2004). Earl et al state that in terms of selection bias the media focuses on events that have major social impact and are newsworthy. The newsworthiness depends on the event being notorious, unusual, large, violent, dramatic or rare. As the change process in the cocoa industry is a result of a combination between multiple newsworthy events and a lingering process the author argues that with the use of multiple newspapers and a long time span it is possible to obtain enough newspaper articles to address the case. Earl et al conclude that researchers should understand that, although newspaper data is not without flaws, it is a useful source for data. They state that newspaper data does not deviate markedly from accepted quality standards Data analysis After having described the method of data collection we will clarify the method we will use to analyze the obtained data. First we select all articles about sustainable chocolate published in the time span between 2007 and 2011, in the earlier mentioned newspapers. Second, all articles are screened for relevance, for example, recipes are excluded. The articles that are left will be analyzed on the kind of pressure that is described or the response of the chocolate industry. One article can contain multiple comments from different stakeholders or actors. After filtering the whole database for unwanted articles 315 articles are left to study. These will be placed in an excel spreadsheet in chronological order, we will include the following information in the spreadsheet: (i) the actor, (ii) the quote from the newspaper, (iii) the newspaper that reported it, (iv) the date on which it was reported. By registration of these details we can measure if certain pressures occurred earlier than others. Also; we can see how and when the industry responded on the pressures. The analysis of the newspaper articles will lead to describing the process of institutional change in the cocoa industry. Also; it will give the author opportunity to formulate a hypothesis about the changes and the most dominant processes. Based on institutional theory the different pressures can be described as regulative, mimetic, social normative, professional normative and competitive. Earlier table XX has been provided in order to give the reader clarity on the different pressures. To help the reader understand the different kinds 34

35 of pressures we will give an example of every kind of pressure that is put on the cocoa industry and how it is deducted from a newspaper article. The section below will provide examples of the different types of pressures. Example of a Regulative pressure European sanctions against the government of Laurent Gbagbo can damage the trade between Ivory Coast and the European Union. The president, that does not want to give up his presidency, needs to be hit at his weakest spot. That was said by Catherine Ashton, foreign commissary of the European Union. The Union wants to cut Gbagbo away from his sources of income. The most important export products of the west-african country are cocoa, wherein Ivory Coast is the world s biggest producer, and coffee (232). Example of a Social Normative pressure Oxfam Novib director Adrie Papma: We think that the chocolate producers and supermarkets in the Netherlands need to show more guts by buying sustainable cocoa and selling it to consumers. Big brands like Mars, Verkade and Cadbury have taken the step towards sustainability. When the demand for sustainable cocoa from companies increases the farmers in developing countries get a chance for a fair pay (124). Example of a Professional Normative pressure Last Friday the Tropical Commodity Coalition was founded, an organization that will focus on coffee and cocoa. Multinationals like Sara Lee are represented. Multiple concerns such as Mars, Nestle, Heinz and Ahold started a program for sustainable cocoa in Ivory Coast earlier this year. The initiative should prevent issues like child labor and deforestation. It is a small project that will get its first results end of 2009 (42). Example of a Competitive pressure The price of the main ingredient of chocolate has risen with 11% last week. This is the biggest increase since September This year the price has increase with 55% already. In the UBS Bloomberg CMCI Index with 26 commodities cocoa is the only one that has increased this year. One of the biggest cocoa producing countries is Ivory Coast. Because of diseases and bad weather the harvest will be only 1mln tons of cocoa. This was said by Ali Lakiss, director of cocoa exporter Saf- Cocoa, last week (72). Example of a Mimetic pressure Chocolate flakes and hagelslag from De Ruijter will be made from sustainable cocoa; this was announced by the company today. Within five years De Ruijter plans to produce all chocolate with sustainable cocoa. At this moment the supply of so-called UTZ-certified cocoa on the world market is too limited to shift towards full sustainable cocoa already, says De Ruijter. The UTZ Certified label is given to producers of cocoa that produce under certain regulations, such as using limited chemicals. Earlier Verkade made the shift towards sustainable cocoa (184). 35

36 4. Findings In this chapter we will present the results that are drawn from the analysis of 315 newspaper articles about the cocoa industry that were published in the Volkskrant (99), Trouw (68), Financieel (87) and NRC Handelsblad (61) in the period between January 2007 and December The events described in the newspapers will be linked to different pressures and organizational responses and the results that stand out are described in the light of the previously treated theory. In the first sub paragraph of the chapter we will explain the mode of presentation of the results. Secondly we will chronologically describe the loop of events that triggered the rise in sustainable cocoa starting in 2007 and finishing in December Finally, we will summarize the most important events and pressures and discuss these Presentation of the results In this chapter the results of the analysis will be made more understandable with the help of illustrated data such as graphs, tables and bar charts. In the following paragraphs we will elaborate the color coding and the different types of charts that are used Graphs of frequencies In order to give a more detailed overview of the events in the cocoa industry graphs are produced which include all newspaper articles that were published in the timeframe of a month. The published newspaper articles were selected because they describe a certain form of pressure that is exerted on the cocoa industry. In the graphs the horizontal axis represents the time and the vertical axis represents the number of events. Care is needed when interpreting the graphs. The number of events is just an indication of the amount of pressure that is exerted on the cocoa industry. A peak that is twice as high does not necessarily mean that the pressure is twice as strong; it does only mean that the pressure captured more media attention. Also, the responses from the industry are not always a direct response on a pressure. The reader has to realize that the reaction to institutional pressure in an ongoing process and therefore a strategic response does not necessarily relate to an incident or a pressure that is exerted that moment General results This section will present the overall results of the study concerning pressures, pressure reliefs and strategic responses that stand out in general. First chart 1 will show how much articles were studied and how the number of articles is distributed over time. This chart makes clear that the distribution of articles fluctuates during the studied period. There are two explanations for this: 1. Certain pressures or events are covered by multiple newspapers or occur at the same time. 2. The harvest of cocoa is at the end of the summer and de demand for chocolate is highest in the winter season, this explains why the peaks are higher in the months between August and January. 36

37 Chart 1: Number of studied articles 4.3. Results per period In this section we will present the results of the article analysis per period. In order to give a clear view on the change process we have divided the total period in 20 blocks of 3 months each. Behind the description of the events in the text numbers can be found, these numbers correspond with the rows in the excel sheet in which all quotes of the events in the newspapers are written down.at the end of each year we will present a graph with a visual representation of all events, pressures and responses in that year. As the pressure reliefs are very limited the author has decided not to show these in the graphs. Both times a pressure relief occurs in the studied articles this will be extensively covered in the descriptive text. Period 1: 01 January 2007 until 31 March 2007 Period 1 starts with the television program Keuringsdienst van Waarde that focuses on the cocoa production chain. Reporter Teun van der Keuken tracks the supply chain of chocolate and discovers that the labor and living conditions are close to slavery. He starts his own brand of slave-free chocolate and tries to get attention for the slavery issue by eating 17 chocolate bars and reporting himself to the police for eating stolen goods (2, 3). In February 2007 an importer of chocolate Belissimo Foods sues Teun van der Keuken for claiming to have slave-free chocolate (5). According to Belissimo Tony Chocolonely cannot be 100% slave-free. Cocoa is produced in African countries with help of paid and/or unpaid children; Belissimo states that no one can guarantee that this did not happen (5). Belissimo Foods in Amsterdam, importer of the chocolate brand Swiss Noir argues that Tony Chocolonely s slave-free claim is false competition as it accuses other chocolate brands The importer demands that the television show drops its claim. As the trade and harvest of cocoa in Africa is not transparent, the claim cannot be proven (8). Teun van der Keuken wins the case when the judge orders that the claim slave-free is true (7, 8, 9). The television program causes more discussion around the supply chain of cocoa (12, 13, 14, 17). Journalist Vincent t Sas writes an article in which he claims that there are no cocoa slaves and that stating there are is a threat for the African people that work in the cocoa industry. I saw children working on the cocoa plantations and removing weeds is very hard work. But when I talk to them they do not seem to be tired or exhausted. Not at all, they are proud that they are able to help their big brother of father. Usually they work before or after school. If van der Keuken continues his actions 37

38 against Ivory Coast the cocoa plantations he buys from will prosper but he will be a serious threat to the 7 million people in Ivory Coast that earn their living in the cocoa industry (4). Others argue that eating more chocolate will fight the poverty and the bad wages. We should fight poverty, not cocoa. Teun van der Keuken should not eat less chocolate, but more! The higher the consumption is the higher the prices, the higher the farmer s income will be. And when the higher the income, the more children will attend school (13). Of all studied articles between 2007 and 2011 this period is the only period in which some discussion about the validity of sustainable cocoa takes place. In the whole period the price of cocoa rises and at the end of March 2007 the price of cocoa on the commodity market reaches the highest level since May The commodity bubble is moving towards soft-commodities. Investors are especially interested in commodities that are harvested such as grain, cocoa, sugar and coffee (1). Period 2: 01 April 2007 until 30 June 2007 Teun van de Keuken, reporter of the television program Keuringsdienst van Waarde, will not be prosecuted for consuming chocolate that is not guaranteed slave-free. This was the decision of the court in Amsterdam. The reporter tried to sue himself for the series of television programs about the production of cocoa and the use of slaves. With a prosecution for buying stolen goods van der Keuken tried to create awareness for the issue (18). Period 3: 01 July 2007 until 30 September 2007 The commodity market and the cocoa price keeps fluctuating and reaching new height records (21, 22). The higher commodity prices for the production of food will be included in consumer prices the rest of the year, according to the spokesperson of Albert Heijn. Grain and cocoa prices increased sharply in a short period. These higher prices are not in charged in our consumer prices yet (23). Period 4: 01 October 2007 until 31 December 2007 Three big players in the cocoa industry, Cargill, Heinz and Ahold announce that they are planning to start a sustainable supply chain for cocoa with the use of the UTZ Certified standards (26). It is the First time that UTZ Certified is used for another product than coffee. UTZ Certified, named UTZ Kapeh until march 2007, started five years ago by Ahold in cooperation with coffee farmers in Guatemala. At the fifth anniversary the plans for using the UTZ Certified on cocoa were announced (27). Oxfam Novib and Tony Chocolonely start with the Groene Sint campaign to put more attention to non-sustainable cocoa in chocolade letters. By launching a sustainable chocolate letter together with Tony Chocolonely they present a sustainable alternative (28). Not only do they criticize the current chocolade letters, they also present an alternative for non-sustainable chocolade letters. The CBL (organization for supermarkets and Foodservice) announces that it will start a certification program with producers of chocolate in order to work towards better living conditions at cocoa farms. According to CBL the producers do not take enough action and as the retailers are blamed they have decided to use their combined influence to pressure the cocoa producers (30, 31, 32). Spokesperson of the CBL says: actually the chocolate industry should set things straight themselves, 38

39 it s their responsibility. But because we get all the criticism we will take our social responsibility. Also, we know that we have the power to start change. Chart 2: Overview of pressures and responses in Period 5: 01 January 2008 until 31 March 2008 The price of cocoa increased by 28% in 2007 and reaches a new record since 2003 in January Several chocolate experts expect that the price of cocoa will continue to rise due to lower yields and bad weather in Ivory Coast and Ghana (70% of world cocoa production) and increasing demand for chocolate in China. Also it is expected that the quality will get worse as harvests in Ivory Coast are bad and cocoa plantations in Malaysia are replaced for bio-fuel plantations. Patrick de Maeseneire of the Swiss company Barry-Callebaut foresees price increases of 12 to 15 percent. The production of cocoa beans cannot be increased easily, he warns. Planting more cocoa trees and harvest cocoa with a good quality takes five to seven year (33). The high prices are a problem for producers of chocolate, as it is difficult to charge more for their products the margins on chocolate get smaller (33, 37, 38, 39). In Germany several big chocolate producers are accused of forming a cartel. The local authorities have seized the administration of seven producers including Nestle, Mars, Ritter and Kraft after these companies increased their prices at the same time (36). Period 6: 01 April 2008 until 30 June 2008 The Tropical Commodity Coalition is founded by multiple parties in the cocoa chain as an organization that should stimulate sustainable cocoa. Last Friday the Tropical Commodity Coalition was founded, an organization that will focus on coffee and cocoa. Multinationals like Sara Lee are represented. Multiple concerns such as Mars, Nestle, Heinz and Ahold started a program for sustainable cocoa in Ivory Coast earlier this year. The initiative should prevent issues like child labor 39

40 and deforestation. It is a small project that will get its first results end of 2009 (42). Behind the coalition are parties like UTZ Certified and Rainforest Alliance. In an interview Harold Poelma, managing director of Cargills cocoa division states the following: We went looking at the successes of the coffee industry. ( ) This industry adopted a third independent certification, as alternative for Max Havelaar and EKO, UTZ Certified. UTZ Certified has demands for environment, social environment and agriculture but has a different method, more focused n the mainstream market. This way it was possible to certificate more coffee growers, as a result the bulk of the coffee is certificated without affecting the price. This is why we contacted UTZ Certified and asked them to do the same for the cocoa industry (48). Also Oxfam Novib and Mars give their reason to join the Tropical Commodity Coalition. The industry needs to do something says Gine Zwart of Oxfam Novib. Chocolate is bought in an impulse and when there are too much negative stories, consumers will buy something else. Consumers expect that something is done, says Peter Grinsven of Mars, Improving the situation has become an economic must (50). The UTZ Certified program is supported by the Dutch ministry of Agriculture, Nature and Food that is a member of the RSCE (Round Table for a Sustainable Cocoa Economy). This organization aims to create conditions for certification together with governments of cocoa producing countries. Farmers have little money to do adaptations and the possibilities of individual education are limited. Also; the political situation in a country like Ivory Coast is instable and governments in production countries do not always cooperate. This is why an initiative for certification cannot succeed without an international framework, says Marcel Vernooij of the ministry of Agriculture, Nature and Food Quality. He is a member of the Round Table for a Sustainable Cocoa Economy (RSCE), an initiative which is joined by governments of cocoa producing countries. The RSCE aims to create the right conditions for certification and standardization. You need the cooperation of the cocoa producing countries (51). It is possible to have the first UTZ certified cocoa in the shops in the beginning of 2010, says Daan de Vries of UTZ. But it is not possible to certificate all cocoa in such a short period. That is why we are thinking of a transition period, such as candy bars with less than 100% certificated cocoa (52). In the end of June the price of cocoa reaches a new record; the highest level since 1989 (56). To cope with the high commodity prices for products like cocoa, sugar and milk powder Mars starts experimenting with other products such as energy bars (44). Period 7: 01 July 2008 until 30 September 2008 Verkade announces to buy only cocoa that is certified with the Fair Trade label by Max Havelaar. Verkade is the first A-brand that shifts its full production toward sustainable cocoa. The company will buy 1500 tons of certified cocoa a year, increasing the world market for fair trade cocoa by 20% (58, 59, 62, 63, 68). Verkade, says director Bart Merkus (40), is the first Dutch A-brand that starts producing certified chocolate on large scale. With this step we help farmers in developing countries, he says. We are really in the front line with this; we are about doing not only talking. The company will annually process tons of cocoa. That is 20 percent of the total world market of fair trade cocoa (58). According to Verkade the decision will have some impact on the consumer price of a chocolate bar; it will probably increase with 10 eurocent to

41 Period 8: 01 October 2008 until 31 December 2008 In October the price of cocoa is 60% lower than on its peak in June 2008 but after news about a bad harvest in Ivory Coast the price increases quickly; reaching its highest point in 22 years at the end of December (66, 72, 73, 74). The price of the main ingredient of chocolate has risen with 11% last week. This is the biggest increase since September This year the price has increase with 55% already. In the UBS Bloomberg CMCI Index with 26 commodities cocoa is the only one that has increased this year. One of the biggest cocoa producing countries is Ivory Coast. Because of diseases and bad weather the harvest will be only 1mln tons of cocoa. This was said by Ali Lakiss, director of cocoa exporter Saf-Cocoa, last week (72). In this period the IDH (Initiatief Duurzame Handel) is launched, cooperation between government and 37 companies that promotes sustainable trade. It is a multistake platform that was launched by minister Bert Koenders and SER chairman Alexander Rinnooy Kan. Stakeholders in the platform are companies, social organizations, trade unions and the government. The will work together the next five years to make international chains more sustainable. The IDH aims to work towards sustainable supply chains for products as cocoa, soja and tea. The government and the companies both invest 30 million euro in the program (69, 70, 71). Chart 3: Overview of pressures and responses in Period 9: 01 January 2009 until 31 March 2009 The price of cocoa increased last Friday on the London Stock exchange to 2000 pounds per ton (2128 euro). That is the highest level in 24 years (76). Period 10: 01 April 2009 until 30 June 2009 The sales of Fair trade products have decreased, with exception of fair trade certificated chocolate. Because of the step Verkade took in 2008 the sales of fair trade chocolate increased sharply. Most 41

42 household say they buy fair trade food out of idealism and 85% says the taste is better than other, non-certificated products (79, 85). Tony Chocolonely announces that 2008 was a good year but it could have been better, the demand for slave-free chocolate letters was higher than expected which caused out-of-stock. The year could have been better. We need to buy our cocoa in January and February. But, because we knew that Verkade would make the step towards fully sustainable chocolate letters. We expected that we would lose market share and bought less. Unfortunately Oxfam Novib did not inform us about their campaign in the end of This campaign led to a higher demand that we could not meet (86). Producers of chocolate report difficulties with the increasing cocoa prices, as they cannot charge the higher production cost to the consumer the higher production price impacts the margin. Baronie-De Heer reports to have started innovation programs such as sustainable cocoa in order to increase margins and maintain its position on the market. Continental Bakeries reports a loss in 2008, partly due to higher commodity prices (81, 82, 84). Multiple chocolate producers announce to work towards a sustainable cocoa supply chain. In April 2009 Mars announces that it will yearly increase the amount of sustainable cocoa in its products until all the cocoa it buys is certified in 2020 (annual tons). Mars aims towards 100% the use of sustainable in its products in Mars commits itself to invest tens of millions of dollars annually to guarantee that the cocoa used in its candy bars are produced following sustainable criteria. This includes a minimum wage for workers on plantations, water conservation, and limitation of chemicals (83). For Mars it is not as easy to start with 100% sustainable cocoa immediately. Mars has around 14 percent of the worldwide chocolate market. Together with Cargill, Solidaridad and Oxfam Novib the company works towards the use of certificated cocoa in all Mars products. But this will only be reached in The situation in cocoa producing countries is complex and we are talking about a lot of cocoa, says Anita Boekholt of Mars, much more than Verkade, in total tons worldwide. Next year the first certificated Mars products will be on the market in the UK, the Netherlands will follow. Mars does not choose for fair trade like Verkade, but for a combination between UTZ Certified and Rainforest Alliance. Mars wants to sign agreements with farmers, but if we want to certificate all our products we need ten times as much farmers, says Anita Boekholt (90). In June 2009 Albert Heijn announces to introduce a fair trade chocolate bar under private label and Cadbury announces to make its dairy milk chocolate bar fair trade (89). Rabobank and APG announce that they are reviewing their investments in the cocoa supply chain and are discussing sustainability with the organizations they invest in (87, 94). In 2008 APG started an investigation on companies that process cocoa from Ghana and Ivory Coast. Our goal is that those companies will take steps against child labor. Together with an investor from Scandinavia we are having conversations with those companies; we are putting pressure on them to find a solution (94). Period 11: 01 July 2009 until 30 September 2009 Minister Koenders announces to give an additional 20 million euro to IDH in order to invest in sustainable supply chains. The initiative was originally planned to last until 2013 but will be prolonged until 2015 (95). Since yesterday Ivory Coast has 2 cooperation s of cocoa farmers that are licensed to sell their products with an UTZ Certificate. The certificate is a guarantee that the cocoa is produced concerning 42

43 the interests of people and environment. The certification of the cooperation s is an initiative of Solidaridad and Cargill. It has taken eight months to certificate the farmers. The cocoa with the UTZ certificate will be on the market in the end of this year (96) more farmers in Africa need to be certified in the upcoming years as big producers of chocolate have committed themselves to buy more certified cocoa (96, 97, 98). Period 12: 01 October 2009 until 31 December 2009 The price of cocoa reaches its peak since 25 years at the 22 nd of October as a result of speculation and lower yields. Leaked reports of the government of Ivory Coast expect that the harvest in 2010 will be falling to 1 million tons. The harvest in 2009 was 1.2 million tons and the world production is 3.5 million tons. The ICCO (International Cocoa Organization) expects that the demand for cocoa will be tons higher than the supply, leading to higher prices (100, 101, 127). Oxfam Novib starts the Groene Sint campaign and is more active than previous years. In radio commercials the Groene Sint asks consumers not to buy chocolate letters at Jamin, HEMA, ALDI and Lidl (122, 123, 124, 128). Oxfam Novib director Adrie Papma: We think that the chocolate producers and supermarkets in the Netherlands need to show more guts by buying sustainable cocoa and selling it to consumers. Big brands like Mars, Verkade and Cadbury have taken the step towards sustainability. When the demand for sustainable cocoa from companies increases the farmers in developing countries get a chance for a fair pay (124). In a response the CBL announces that chocolate letters in all Dutch supermarkets will be made with sustainable chocolate in Starting 2012 all chocolate letters will be sustainable says Klaas van den Doel, chairman of supermarket organization CBL, in an interview with this newspaper. Van den Doel is annoyed by the radio spots of Oxfam Novib in which comedian Dolf Jansen tells consumers not to buy chocolate letters at Aldi, Lidl, Hema and Jamin because these are not sustainable (125).Albert Heijn announces to sell only sustainable chocolate letters in 2010 and Jamin, Lidl and HEMA announce to reach 100% sustainable chocolate letters in 2012 (132, 133, 135, 139). 43

44 Chart 4: Overview of pressures and responses in Period 13: 01 January 2010 until 31 March 2010 Again articles are published about APG and Rabobank, which are pressuring cocoa importers and producers to source only sustainable cocoa. Both parties are reviewing their investments in the cocoa sector as a result of pressure from consumers (131, 140). Insurer AON adds cocoa to its risk index as a highly insecure investment because 75% of the cocoa is produced in only four countries that all suffer political instability and changing climate. AON looked at the products that are vulnerable for risks such as natural disasters and climate change. Cocoa is very vulnerable as 75 percent of the production is in hands of only four countries (Nigeria, China 1, Ivory Coast and Indonesia), that all suffer changing weather patterns and political instability (142). Ben & Jerry s (Unilever) announces to only use ingredients that are fair trade certified in its products starting in 2013 (148). This week representatives from Dutch cocoa producing companies, NGO s, and certification bodies UTZ Certified, Rainforest Alliance and Max Havelaar signed, under supervision of minister Gerda Verburg, a statement in which they promise to only use sustainable cocoa in their products after The statement clearly says that the Dutch Government sees the certifications of UTZ Certified, Rainforest Alliance and Max Havelaar as similar (156).In the agreement multiple steps are included. Before Sinterklaas 2012 all Dutch Chocolate letters need to be made of sustainable cocoa. In 2020 this needs to be extended to 80% of all chocolate that is sold in the Netherlands (149). The agreement is signed by 20 parties including retailers, producers, importers and NGO s. 1 This is a mistake in the original newspaper article (142), as shown is graph XX the four countries in which 75% of the cocoa is produced are Nigeria, Ghana, Ivory Coast and Indonesia. China produces no substantial amounts of cocoa. 44

45 The agreement is facilitated by the ministry of Agriculture but it will not be included in laws and regulations; rather it will be guarded by social norms and NGO s. The certifications that are covered in the agreement are Max Havelaar, UTZ Certified and Rainforest Alliance, the ministry of Agriculture asks the industry and NGO s however to have a discussion about norms in order to work towards less certifications and logo s (149, 150, 151, 152, 153, 154, 155, 156). Three stakeholders have not signed the agreement, Cargill, ADM and Barry Callebaut; according to these parties it is too much trouble to have a separate agreement for a small country as the Netherlands (160). Period 14: 01 April 2010 until 30 June 2010 Friesland Campina Benelux announces its aim to use only sustainable cocoa in its chocolate milk products starting in 2014 (170). Period 15: 01 July 2010 until 30 September 2010 In one day enough cocoa for 5.3 billion chocolate bars, Anthony Ward s hedge fund Amarjo did a Willy Wonka-like trade by unexpectedly buying for 658 million pounds of cocoa. The cocoa world was unpleasantly surprised (177). The coffee and cocoa trader Anthony Ward is responsible for the highest cocoa price since His hedge fund has bought the total European cocoa supply for more than 800 million euro (175). The price of cocoa reaches its highest price since 1977 after hedge fund Armajaro buys tons cocoa, 7% of the annual world production for 800 million euro (175, 176, 177, 178). The trade causes discussions about the ethics behind commodity trade (181). Shortly after the trade the cocoa prices go down as a result of economic insecurity (180). Period 16: 01 October 2010 until 31 December 2010 De Ruijter (Heinz) announces its aim to use only sustainable cocoa in its products starting in 2015 (185, 187).De Ruijter will use sustainable cocoa from UTZ Certified. Two groups of researchers fight over the question who was the first to map the genome of the cocoa tree. Last Wednesday researchers of producer Mars announced that they had finished mapping the genes. Their announcement crossed the work of scientists at French laboratories and the Pennsylvania State University. These got financial support of a competitor of Mars, American chocolate producer Hershey. This group does not want to share its results until they are published in a scientific magazine (191). Mapping the genomes of the cocoa tree is important as it can lead to trees that are more resistant to diseases and climate changes, thus a more stable production of cocoa. Each year a large part of the cocoa production is lost due to these problems (190, 229). Unilever announces its plans to double its turnover and to cut its environmental impact by 50% in the next 10 years. A part of the strategy is to only use sustainable ingredients in its products by 2020 (209). To work towards its goal of sustainability Unilever will work together with other producers, such as Nestle (216). In December Albert Heijn announces to make all private label products sustainable by 2015 (222). 45

46 Of the 23 million chocolate letters that were purchased by Dutch shops, more than 50% is made of 100% sustainable cocoa. In total 22 million letters are now fair : made of sustainable or partly sustainable produced chocolate. This is the result of a research of Oxfam Novib. In 2009 there were 3.5 fair chocolate letters in the Dutch shops, mainly from producer Verkade. We can speak of a huge growth in fair chocolate letters. Frank Mechielsen of Oxfam Novib speaks of a huge success (210). All retailers that were targeted in the Groene Sint campaign in 2009 have taken steps towards sustainability. One producer of chocolate letters, Droste, was not able to source enough sustainable cocoa due to the high demand. As a result their products are not sold by big retailers, Droste announces to sell only sustainable chocolate letters in 2011 (210, 211, 212, 214, 215, 220). The cocoa price reaches new records due to political unrest in Ivory Coast, world s biggest producer of cocoa, after elections at November 28 th (223, 225). Chart 5: Overview of pressures and responses in Period 17: 01 January 2011 until 31 March 2011 Almost one third of the cocoa harvest of Ivory Coast is packed for seven weeks in the storage rooms of multinationals, around tons. A ban on the export of cocoa from Ivory Coast is keeping the world market in fear since January 2011 and pushed the cocoa price to record heights. Ivory Coast is the biggest cocoa producer in the world. Leader of opposition Alassane Ouattara, who is backed by the UN, the USA and the African Union as winner of the elections, tries to get his rival Gbagbo on his knees financially with the ban on export. No taxes are payed on beans that are not shipped. Multinationals that not respect the ban on export can lose their license when Ouattara is seated as president. On the other hand Gbagbo threatens to seize the cocoa when exporters did not ship it at the end of the month. The supplies are worth 1.5 billion dollar. We can t do anything an exporter says. There are no ships in Ivory Coast, and even if we could export we could not find buyers for cocoa from Ivory Coast. Chocolate makers do not want to be associated with supporting a bad regime (245). 46

47 Finally the European Union bans the import of cocoa from Ivory Coast to support Ouattara. The events in Ivory Coast cause the cocoa price to rise to the highest level in 32 years (230, 231, 232, 233, 234, 235, 236, 237, 240, 241, 242, 243, 245, 246, 247). Scared to death were cocoa traders in the last weeks. They didn t know for which president to choose in Ivory Coast: the chosen Alassane Ouattara or the seated leader Laurent Gbagba? Both camps threatened us and told us not to support the other camp; tells a trader from Amsterdam that only wants to talk anonymous. When I give my preference my position is in danger, even if I a far away (230). Period 18: 01 April 2011 until 30 June 2011 The new president of Ivory Coast, Ouattara, is starting the export of cocoa again, relieving the price pressure of the commodity (255, 258, 271). Several companies such as Cargill, Continental Bakeries and Verkade report to have difficulties with rising commodity prices. For Verkade the impact of higher cocoa prices is lower than it could have been because Verkade uses fair trade cocoa; which is less vulnerable for price fluctuations (257, 259, 260, 261). Period 19: 01 July 2011 until 30 September 2011 CSM announces that higher commodity prices will cost the organization almost 240 million euro in 2011 (279, 286). The company is not able to charge the higher costs to its consumers, which has a big effect on the margins. After this news the stock price of CSM lowers by 7.45%. Supermarkets start to charge higher prices for commodities, the sales price of coffee, cocoa and tea has risen with 20% since 2010 (280). Period 20: 01 October 2011 until 31 December 2011 CSM has more troubles in the third quarter of The third quarter was extremely difficult for the food industry, says CEO Gerard Hoetmer. On one side the food industry needs to charge more for coffee, sugar and cocoa to the buyers of CSM s croissants, cakes and brownies. On the other side customers do not want to pay more, see the record low consumer confidence index last months (303). CSM will sell its bakery division later in May Research agency GFK announces that the sales of fair trade products have doubled in three years. Reason for growth is the decision of producers and retailers to list Fair Trade products. One of the main drivers of the increase is the decision of Verkade to use Fair trade chocolate (302, 303). 47

48 Chart 6: Overview of pressures and responses in

49 5. Discussion of the results In this qualitative and explorative research the changes that have occurred in the Dutch cocoa industry between 2007 and 2011 have been analyzed in the hope of developing new insights in the field of institutional theory. From this analysis multiple interesting results have surfaced. This chapter will offer an integration of the results with the theory that was studied for this research. The author will draw attention to where the results are in line with the theory and where they diverge. The results that have occurred from the analysis mostly confirm the existing theory. However, is does provide some new insights and additions on theory. This chapter will first discuss general results that can be observed across multiple levels. This will be followed by discussion Precipating Jolts The first stage of the change process occurs when events, or jolts, destabilize existing business processes. Jolts can occur before the actual change process occurs. Jolts can take the form of social upheaval, technologic disruptions, competitive disruptions or regulatory change. These events were earlier identified as the social normative pressure and the regulative pressure. Throughout the year 2007 the media and the NGO Oxfam Novib drew attention to slavery and bad living wages in the cocoa industry. In the beginning of 200 the television program Keuringsdienst van Waarde produced a series of shows in which the cocoa supply chain was investigated; it was the first to draw the attention of the mass public to low wages and bad living circumstances in the cocoa industry. When reporter Teun van der Keuken sues himself for buying chocolate that was produced this is heavily reported by the press. Last Friday reporter Van de Keuken was heard by the Amsterdam court. After the public prosecution service (openbaar ministerie) had decided not to prosecute the reporter for being accomplice in slavery Van de Keuken protested Dutch citizens and four former cocoa slaves from Burkina Faso signed the protest. Two of these slaves wanted to testify in the court of Amsterdam but were not able to get a passport in time. The Judge decided to delay the case to February 9th so the former slaves are able to testify. If Van de Keuken will be convicted does not really matter says Hodes (producer of the Keuringsdienst van Waarde), our goal is that the judge gives a ruling about the responsibility of consumers (3). By addressing the case to the Dutch public, creating attention from the press and drawing attention to the responsibility of the Dutch consumers Van der Keuken is influencing the social norms and values on how things should be done. Later in 2007 social normative pressure was intensified by Oxfam Novib (in cooperation with Tony Chocolonely) with the Groene Sint campaign that directly asked consumers to only buy chocolate letters that are made with sustainable chocolate. Hereby empowering the consumer and enabling social action towards the cocoa industry. Although in the studied theory jolts can take multiple forms, in the studied case the only jolts found are those in the form of social upheaval. Although jolts take place throughout the whole change process between 2007 and 2011 the extensive press coverage of de Keuringsdienst van Waarde and the court case against Van der Keuken were the first to inform the large public about the bad living 49

50 wages in the cocoa industry. Remarkable is the fact that regulative pressure does not play a role in the jolt stage De-Institutionalization According to Oliver (1992) the main cause of de-institutionalization is the fear of companies to lose competitiveness. As this competitive pressure grows existing institutions may erode or break down, which leads to de-institutionalization. In the model of Greenwood et al (2002) one of the signs of the de-institutionalization phase can be recognized by new players entering the market, these new players disturb the socially constructed consensus and challenge it by introducing new ideas and therefore the possibility of change which creates competitive pressure. In the studied articles there are two main competitive drivers that cause de-institutionalization; first the entrance of new players marks the start of the stage, second the increasing resource competition is a factor that threatens profitability and pushes the need for change throughout the whole studied period. In the process of de-institutionalization organizations have the choice between following the developments or to diverge from the norm, leading to the reaction of avoidance or defy. Entrance of new players The first sign of de-institutionalization in the cocoa industry can be seen in the first half of 2007 when, again, Van der Keuken introduces a brand of chocolate that is made with slave-free cocoa. The brand, Tony Chocolonely, is available for consumers and gives them a choice. By introducing an alternative Van der Keuken challenges the existing norm in the cocoa industry that slave free cocoa does not exist. By introducing the concept of slave-free cocoa he introduces the idea that change is a possibility. In the beginning of 2007 individuals and organizations show the response of defy by attacking the concept of slave-free chocolate in the media. Belissimo Foods, a chocolate producer, files a court case for false competition. According to Belissimo Foods the concept of slave-free cocoa cannot be guaranteed and does therefore not exist. With this sentence the judge legitimates the concept of slave-free chocolate, increasing the pressure to change on the industry and further eroding the current status in the cocoa industry. Teun van der Keuken may repeat his claim that Tony Chocolonely is produced slave-free. The producer of the television program Keuringsdienst van Waarde was the big winner of the court case last Tuesday that was initiated by chocolate producer Belissimo. The judge disagreed on Belissimo s claim that slave-free chocolate does not exist (6). Price volatility The second driver for de-institutionalization is the increasing competition for resources. The price of cocoa is highly volatile; it reaches a total of three price records between 2007 and The insecurity about the price puts a contentious pressure on the industry. Throughout the period companies report lower earnings because they have trouble charging the higher costs of ingredients to their customers. The declining margins lead to consolidation, fall-out of producers but also accusations of forming a cartel (36). The margins in the chocolate industry remain low. That is a result of the organizational field. Producers are not able to charge the strongly increased cocoa prices to their customers. Where other commodities are getting cheaper the cocoa price remains high. Supermarket concerns, the most 50

51 important customers, do not want to charge the higher prices for cocoa to their customers as a result of the price war between supermarkets. Van Logtestijn (commercial director Baronie-De Heer): We always have to fight to charge a higher cocoa price in our end product. Often we have to make concessions, if we don t our customers will buy their products at foreign chocolate producers (81). In the studied articles three drivers for the volatile and increasing cocoa prices can be found; speculation, production risks and the decline in production and quality of the beans. In the beginning of 2007 investors withdrew money from stocks as a result of the financial crisis. Especially soft commodities gained in popularity, creating a bubble in commodities as grain, cocoa, sugar and coffee. As cocoa is the smallest commodity on the stock market it is vulnerable for speculation; an example is the transaction in July 2010 in which hedge fund Amarjo bought 7% of the world cocoa supply, pushing the cocoa price to the highest level since The second cause for price volatility are production risks, 75% of the world cocoa is produced in only four countries that all suffer political instability and have changing weather patterns. Multiple times reports of bad weather in Ivory Coast have strong effect on the cocoa price. When a civil war in Ivory Coast breaks out in the beginning of 2011 all exports from Ivory Coast are banned for the duration of three months. The ban takes a total of tons of cocoa (17.5% of the annual world production) temporally out of rotation, pushing prices to the highest level in 32 years. The third cause for price volatility is a decline in annual production and the quality of the cocoa beans. Farmers can get better prices when they harvest other commodities, such as palm oil. As a result farmers decide to stop with the harvest of cocoa. As a cocoa tree needs 5 to 7 years to start producing a loss in cocoa production (removed cocoa trees) cannot easily be replaced by another plantation. Lower yields combined with a higher demand for cocoa from developing countries like China this leads to a long term price pressure on cocoa. In the future chocolate will get more expensive and worse in quality. That is expected by multiple chocolate experts from Belgium and Switzerland, the biggest European chocolate countries. Reason is the increasing demand from China and the lower quality in cocoa producing country Ivory Coast. In Malaysia farmers have replaced cocoa trees for palm oil plantations because the price they can get for bio fuel is higher (33) Pre-institutionalization Pre-institutionalization refers to the stage in which organizations try to innovate in order to find solutions for the problems that have occurred in the first two stages (Tolbert and Zucker, 1996). As this innovation stage mainly occurs within the company it is difficult to recognize this phase in the studied articles. Also, in theory it did not get a lot of attention as it directly leads to the next stage, theorization. However; there are some signs of independent innovation to be found in the studied articles. The first A-brand that shifts the full production towards sustainable chocolate is Verkade in July Verkade has worked together with Max Havelaar (Fair Trade) in order to certificate 1500 tons of cocoa. By being the first company to take this step Verkade has generated a lot of positive attention from the press. Also, where other companies have trouble charging the higher cocoa price 51

52 to their customers Verkade is able to charge 10 eurocents more for its products which is an important competitive advantage. Oliver (1991) has argued that the higher the degree of economic gain that is expected from adopting an innovation, the greater the level of responsiveness to institutional pressures is. As Verkade has shows that it is able to charge more for their products this is a powerful antecedent for organizational change, other organizations are more likely to voluntarily adopt and acquiescence the innovation. An interesting article that occurred in September 2010 points towards pre-institutionalization. The article describes two research groups that have mapped the cocoa genome and are publishing the same results around the same time. Each group has been funded by an international chocolate producer (Mars and Hershey s) that is trying to secure its stream of cocoa by creating a species of trees that is more resistant to diseases and climate change. By trying to be the first chocolate producer that is able to create a reliable supply of cocoa with a good quality the companies are trying to secure their position in a market with growing resource competition Theorization In order for practices to get widely adopted they have to be theorized, which means that ideas are developed to concrete chains of cause and effect. According to Tolbert and Zucker (1996) the process of theorization includes two main tasks, the specification of the general organizational failing and legitimizing the innovation that has been created in the specification stage. In the case of the cocoa industry the process of theorization is dominated by the development of trademarks and certifications for sustainable cocoa. Certification is specifically described by Scott (2001) as a source for legitimization. The theorization phase in this case starts when the first industry stakeholders agree that there is an organizational failing that needs to be solved. This happens in the end of 2007 when the CBL (organization for supermarkets and Foodservice) announces that it will start a certification program with producers of chocolate in order to work towards better living conditions at cocoa farms. According to CBL producers of chocolate do not take enough action and as the retailers are blamed they have decided to use their combined influence to pressure the cocoa producers (30, 31, 32). Spokesperson of the CBL says: actually the chocolate industry should set things straight themselves, it s their responsibility. But because we get all the criticism we will take our social responsibility. Also, we know that we have the power to start change. At the same moment three parties in the cocoa industry, Cargill, Heinz and Ahold announce they are planning to start a sustainable supply chain for cocoa with the use of the UTZ Certified standards (26). It is the First time that UTZ Certified is used for another product than coffee. UTZ Certified, named UTZ Kapeh until march 2007, started five years ago by Ahold in cooperation with coffee farmers in Guatemala. At the fifth anniversary the plans for using the UTZ Certified on cocoa were announced (27). These three parties are working together with Solidaridad and Oxfam Novib. The initiative towards certification is made more concrete when the Tropical Commodity Conference is held in April During this conference multiple stakeholders from NGO s, retailers, importers 52

53 and producers commit to work towards a mainstream certification for sustainable cocoa under the UTZ or Rainforest Alliance label available in the beginning of By announcing the start of a certification program the organizations are taking the initiative in working towards a solution for the organizational failing in the form of certification. By building a coalition for cocoa certification together with the sources of the pressure opposition the critics are neutralized and at the same time, the certifications legitimacy is increased. This form of organizational response is defined by Oliver as manipulation. A method that organizations use to shape the debate is compromise. One way to do this is a balancing tactic in which parity among multiple stakeholders leads to a compromise for the timeline in which all cocoa will be sustainable. Remarkable is the fact that sustainable cocoa should be used in chocolate letters first; it seems that this is a result of the Groene Sint campaign by Oxfam Novib that can now be ended and celebrated as a success Diffusion After successful theorization the next stage in the change process is diffusion. Diffusion occurs when an innovation is communicated among stakeholders and organizations. In a change process the stage of diffusion is crucial for institutionalization as a new idea will get institutionalized a legitimized as more organizations adopt it. After an organization adopts a successful practice this may lead other organizations into following it, and thereby creating legitimacy for the innovation. When more organizations in an organizational field adopt to the new innovation the pressure to follow on the remaining organizations will get more intense, called the mimetic pressure. The pressure occurs because non-adopters fear being different from adopters and fear missing out on competitive advantage. When the majority of organizations have adopted the new innovation it gets infused with value, meaning that organizations that have not adopted it yet seem strange or abnormal. The fear for losing its legitimacy forces the last organizations to adopt the innovation or idea, not the potential competitive value of it. After the first A-brand producer, Verkade, started producing with fair-trade chocolate it received a lot of positive attention in the press and was even elected brand of the year. This step is quickly followed by Mars in April 2009 when it announces its aim is to only source sustainable cocoa in In June 2009 Albert Heijn announces it will introduce a private label chocolate bar with sustainable cocoa and Cadbury announces to make its dairy milk bar sustainable. In December 2009 Oxfam Novib extends its Groene Sint campaign by naming the retail shops that do not sell chocolate letters that are not made from sustainable cocoa. By directly addressing four nonadopters in radio commercials Oxfam Novib questions the legitimacy of the retail chains Aldi, Lidl, Jamin and HEMA. Aldi and Jamin are the first to announce they will only sell chocolate letters made with sustainable cocoa in With this announcement the pressure on Hema and Lidl gets higher and these retailers make the same announcement a few days later. 53

54 Figure 6: The moment an organization announces to work towards 100% sustainable cocoa. By questioning the legitimacy of non-adopters, but also confirming the legitimacy of adopters in radio commercials Oxfam Novib speeds up the change process. In 2010 the percentage of chocolate letters with sustainable cocoa increased with 80% to 95%. The sustainable or green chocolate letter is a huge success. Last year (2009) only 15% of the chocolate letters was (partly) made with sustainable cocoa. Since Teun van der Keuken started to first talk about slavery on cocoa plantations in 2003 the usage of sustainable cocoa increased quickly. So quick, that of the total amount of 23 million chocolate letters that are sold this year (2010) 6.7 are sold with the Fair Trade label and 6.4 with the UTZ Certified label. The percentage of fully or partly sustainable chocolate letters increased to 95% in one year (220). That the idea of chocolate letters made with sustainable cocoa has got infused with value is illustrated by Droste. Droste is the only A-brand supplier that did not produce chocolate letters with sustainable cocoa. As no A-brand retailer wants to sell this product anymore the company has difficulties selling its products. By the time Droste decides to buy sustainable cocoa it has sourcing problems and announces to sell only sustainable chocolate letters in That the pressure has gotten very high is illustrated by the following article, in which the distributor of Droste does not want to name the retailers that sell Droste chocolate letters because he does not want to stimulate people buying the wrong chocolate. The classic chocolate letter of Droste will not be put in many shoes this year. The German owner of the company was not able to adapt to sustainable cocoa due to the high demand, according to distributor Rembrandt Bikkers. Next year Droste will only produce sustainable chocolate. Fans of the wrong Droste chocolate letters can only buy the at some small retail shops. Bikkers does not want to name which shops that are: we do not want to stimulate that people buy wrong chocolate. (214). Important in the diffusion stage is the strategic response of acquiesce, in which organizations seek passive involvement in the change process. It is linked to the idea that organizations have limited influence on the change process but do attempt to conform to institutional pressures. We can describe three types of acquiesce, habit, imitation and compliance. In this case we see that the retailers Aldi, Lidl, Hema and Jamin show the strategy of compliance for self-serving reasons, staying legitimate. Droste followed the more passive strategy of habit and was too late to adapt to the changed values of the environment. Although some other retailers were not directly named in the Oxfam Novib campaign they decided to sell only chocolate letters made of sustainable chocolate in 2010; these retailers choose the strategy of imitation in order to prevent loss of legitimacy. These retailers are V&D and Kruitvat. 54