Top company profile: Tim Hortons

Tim Hortons has again proven the old adage that the race goes not to the swiftest, but to the most sure-footed.

The coffee chain tops Corporate Knights’ 2015 ranking of Canada’s 50 Best Corporate Citizens. It owes its No. 1 spot less to a stand-out performance in any of the 12 categories used to compile the overall ranking, than to solid marks virtually across the board, from waste recycling to use of water and energy.

“They are a good all-rounder,” says Michael Yow, research director at Corporate Knights Capital, the magazine’s sister company. “They don’t excel, but they do well on almost all indicators.” Tim Hortons ranked fourth last year.

Carol Patterson, senior director for sustainability and stakeholder relations at the Oakville, Ont.-based company, has no qualms confirming that assessment. “It really is a long journey and taking small steps towards a big goal, and being very transparent about that,” Patterson says.

In one example of its tortoise-beats-hare approach, the Canadian coffee and doughnut icon – known affectionately to many as “Tim’s” or “Timmy’s” – scored 67.5 per cent for its waste re-use and recycling practices. That’s above average, but well behind some other companies with lower overall scores, such as Husky Energy and Telus.

It’s important to note that the method used to compile the rankings measures a company’s performance in each category only against others in the same sector.

Thus, Tim Hortons’ scores reflect its achievements against rivals such as Second Cup, rather than against Vancouver City Savings Credit Union, also known as Vancity, or Mountain Equipment Co-op, which overall placed second and third, respectively.

“Tim Hortons does perform relatively well when compared to most other restaurants, including McDonald’s, Yum! Brands, Chipotle Mexican Grill and the Wendy’s Company,” says Sarah Cohn, director of marketing at Sustainalytics, a responsible investment research firm.

All but one of the 12 categories that make up the rankings are based on specific numbers disclosed to investors, usually in companies’ annual sustainability reports.

The exception is the “paylink” category – that is, whether executive pay is linked to corporate responsibility targets, such as a reduction of greenhouse gas emissions, and/or health and safety standards.

The vast majority of companies in the top 50 – including Tim’s -- maintain such a link. Exceptions on this year’s list include Hydro Quebec, WestJet and Husky Energy.

Phillip Haid, co-founder and chief executive of Public Inc., a Toronto-based social-impact marketing agency, says Tim Hortons has built itself into a powerful, iconic company by marketing itself as the community coffee shop. “It’s every person’s coffee shop. It’s part of small-town and big-town coffee culture,” he says.

Some of Tim Hortons’ social-responsibility initiatives are as much a part of the Canadian landscape as its 3,700-plus coffee shops. (It also operates nearly 850 outlets in the United States and 58 in Arabian Gulf states.)

The Timbits Minor Sports program puts up more than $3 million a year to sponsor kids’ sports teams, especially soccer and hockey. The program, funded by the company and local franchisees, supported over 300,000 youngsters last year. Sidney Crosby began his hockey career as a Timbits player in Cole Harbour, Nova Scotia, in the early 1990s.

On another front, the Tim Horton Children’s Foundation hosted more than 17,000 disadvantaged children last year at its five camps in Canada and one in the United States. The foundation plans to open a sixth Canadian camp in Manitoba this summer. Franchisees raised $11.5 million for the camps in a single day in June 2013 by donating their entire proceeds from coffee sales.

The company has also put in place what it calls “a meaningful, structured and long-term partnership” with aboriginal communities. Projects include an online training program that covers workplace diversity and greater awareness of aboriginal culture. Over 200,000 company employees have completed the training since 2009.

Its children’s foundation sponsors several thousand aboriginal youngsters each year to attend overnight “structured learning” camps. The camps are run with help from elders and community leaders, with an aim to promoting team building, confidence and other interpersonal skills.

Further afield, one recent thrust has been to address concerns surrounding production of palm oil in countries like Indonesia, Malaysia and India. Palm is the world’s largest source of vegetable oil used for making doughnuts, among many other consumer items.

But as demand has taken off, criticism has grown about widespread loss of forests and wildlife habitat, horrendous working conditions and threats to indigenous communities.

Tim Hortons says its entire palm oil order for 2015 will qualify for certification under the Roundtable on Sustainable Palm Oil, a non-profit seeking to implement global standards for producers.

“Palm oil is one of those emerging issues where we know there are environmental impacts associated with the production of palm in some parts of the world,” Patterson says. “As a company that is interested in sustainable practices, it was an area of the business where we saw an opportunity to make a commitment and work with our suppliers. Our ultimate goal is to source deforestation-free, peat-free palm oil.”

Patterson says the company keeps tabs on performance in faraway plantations by requiring suppliers to sign a code of conduct, which includes verification procedures.

 

Double double trouble?

In at least one respect, however, the company’s social-responsibility performance leaves much to be desired. Its score for diversity on its board of directors was just 25 per cent in 2013 (the most recent comparable year used for the 2015 Best 50), versus 56 per cent for second-ranked Vancity. Since then, the number of women on its board has dropped to zero.

The company also lacks a policy on working conditions, says Cohn, describing this as “troubling.” She says its supply chain standards, while reflecting industry best practices, still don’t address key issues in agriculture, such as living conditions and work hours.

While applauding many of Tim Hortons’ initiatives to date, Haid describes the company’s overall social-responsibility effort as “the old charity model.”

“Most companies are still in the mode of, ‘Well, we believe we should give back to our community, and we’ve got a charitable bucket of dollars’,’’ he says. “But most of them, I would argue, haven’t really tightly defined what kind of impact they want to create.”

Once again, it’s important to recognize that Tim Hortons’ ranking this year is based on its 2013 performance. In other words, before last December’s deal that saw the company acquired by Brazil’s 3G Capital Partners. The acquisition puts the Canadian chain under the same holding company as Miami-based Burger King, creating the world’s third-biggest fast food operator.

One big question mark that hovers over Timmy’s is how its social-responsibility efforts might be affected under new ownership. Many will be watching carefully to see if it can just maintain its reputation, let alone improve its sustainability performance.

Douglas Hunter, author of Double Double, a book about Tim Hortons, noted in an email: “It remains to be seen whether the new management will exhibit any of the corporate culture of the former company.” Indeed, skeptics point to 3G Capital’s reputation as cost-cutters and asset-strippers.

The Shareholder Association for Research and Education (SHARE), a non-profit “responsible investment” group based in Vancouver, said in a report last November that the transaction with 3G raised “some environmental, social and governance issues that may be of concern to shareholders.”

The concerns centre on the fact that the combined company is saddled with $10.4 billion of debt, which, the report warned, “could require either substantial cost cutting or increases in revenues.”

There are already signs that the company’s commitment to sustainability is beginning to fade, argue professors Andrew Crane and Dirk Matten, who both teach corporate social responsibility at the Schulich School of Business at Toronto’s York University.

In an April post on their “Crane and Matten” blog, they credit Tim Hortons for having “upped its game” over the past few years on issues such as sustainable sourcing, recycling, energy and water efficiency, animal welfare, nutrition, and disclosure and reporting. But efforts so far to cut costs have effectively shut down the company’s sustainability department, they write.

“In addition to jettisoning the dedicated sustainability team, the company appears to have also cut the budget for various corporate responsibility initiatives. There's not much sign of a company aiming to be a sustainability leader any longer. Not unless you think Burger King is a leader, that is.”

Crane and Matten speculate that 3G Capital executives aren’t convinced sustainability initiatives were adding value to the company or share price, and are acting more on “gut instinct” – and perhaps ideology – than on hard evidence.

Patterson says the Burger King deal has turned 2015 into a “transitional” year, the balance of which will see the next phase of Tim Hortons’ sustainability strategy mapped out. “Sustainability is a journey,” she says. We’ll know better over the next year or two just how far along the company is on that journey. After getting this far, let’s hope the company doesn’t lose its way.

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