Enhancing the Effectiveness of Sustainability Partnerships: Summary of a Workshop (2009)

LeRoy C. Paddock

The George Washington University Law School

The Smithfield Foods/Nathan Cummings Foundation/Ceres story involves a unique relationship between a philanthropic foundation with an environmental focus and a company in which the Foundation held a substantial investment. Smithfield Foods today is a global food company with sales approaching $12 billion dollars. Smithfield controls 17 percent of hog production and 31 percent of pork processing in the United States. Founded in 1989 through an endowment from Nathan Cummings, the Nathan Cummings Foundation’s mission is to help “build a socially and economically just society that values nature and protects the ecological balance for future generations; promotes humane health care; and fosters arts and culture that enriches communities.” Ceres describes itself as “a national network of investors, environmental organizations and other public interest groups working with companies and investors to address sustainability challenges such as global climate change.” Its mission is “integrating sustainability into capital markets for the health of the planet and its people.” Ceres helped develop the Global Reporting Initiative.

Seeing the exercise of its proxy for the 32,000 shares of Smithfield Foods to achieve transparency goals consistent with the Foundation’s grant-making mission as a fiduciary responsibility, the Foundation filed a shareholder resolution for Smithfield’s 2003 annual meeting. Although the resolution was challenged by Smithfield, the company initiated a dialogue with the Foundation. This dialogue led to Smithfield asking the Foundation to review the company’s annual corporate sustainability report which the

Foundation agreed to do. Smithfield identifies this point in the relationship as the beginning of the partnership between the company and the Foundation.

The Foundation persisted in filing resolutions seeking greater disclosure of the environmental impacts of Smithfield’s operations, soon shifting its focus to both company-operated and contract hog farming operations. While Smithfield resisted the idea of reporting on operations at contract farms for legal reasons that are set out in the full report, the company continued to discuss the idea with the Foundation and to look for an innovative solution both for reporting on the impacts of hog farming and the metrics that could be used to support the reporting.

Ultimately, Smithfield offered to undertake a pilot program through which it would report on the environmental impacts of one of its largest corporate-owned hog farming operations. Smithfield suggested using a new reporting protocol, the Facility Reporting Project or FRP, developed by Ceres that Ceres had recently tested at several locations including a Smithfield Foods affiliated processing plant. The Foundation agreed to support the pilot project and withdrew its 2007 shareholder resolution and did not file a resolution in 2008 to allow the pilot project to proceed. The Foundation sees this point as the beginning of its partnership with Smithfield, although both the Foundation and Ceres prefer to use the term “working relationship.” The pilot project is currently underway and includes FRP reporting at a slaughtering facility and a processing plant in addition to the farming operation.

For Smithfield Foods, the motivation to engage in the partnership included its desire to work with critics to solve problems, to strengthen the company’s reputation with the public and with some of its key customers (including McDonald’s and Wal-Mart), and to improve the company’s internal operations by generating better information on its environmental impacts. For the Foundation, the principal motivation was encouraging the company to increase transparency through better reporting. The Foundation believes that increased transparency will result in better economic and better environmental performance. For Ceres, involvement with the project provides an important method of testing its facility reporting protocol across an entire supply chain.

The Smithfield/Nathan Cummings Foundation/Ceres partnership is still a work in progress. More will be known about the substantive success of the relationship at the end of the year when the FRP reports are completed and the Foundation must decide whether the report on the company-owned farm is an adequate surrogate for reporting on hog farming operations throughout the Smithfield system including contract farms. What the partnership already demonstrates is the possibility of a new form of sustainability partnership—between concerned shareholders and the company in

which they own stock, the importance that reputation can play in corporate decision making related to sustainability, the influence that supply chain requirements have on company sustainability reporting, and the value of reliable information and good metrics in supporting partnerships.

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