1. Introduction
For the last thirty years, new constraints have been imposed on companies, including the impact of their activities on climate and local communities. Corporate social responsibility (CSR) is now a necessity for corporations. The World Bank defines CSR as “the commitment of businesses to behave ethically and to contribute to sustainable economic development by working with all relevant stakeholders to improve their lives in ways that are good for business, the sustainable development agenda, and society at large” (see the World Bank’s website). Faced with the questioning of corporate self-regulation perceived as greenwashing, a new approach has emerged: coregulation and multistakeholder initiatives [
1]. The coregulation method involves civil regulation, in which nongovernmental organizations (NGOs) play a key role. The desire to counterbalance the negative reputational impact of self-regulation instruments is a driver of companies’ partnerships with NGOs. In this sense, the activities of NGOs in corporate–NGO partnerships appear to result from regulatory failures since NGOs are the institutions in which citizens have the most confidence in almost all countries in Europe, America and Asia—leading companies, governments, and the media for many years [
2]. NGOs and firms exert “private political authority” as nonstate actors that can exert legitimate authority at national and international levels in the provision of
public goods [
3]. In other words, they form private regulative institutions, that is, a form of private governance of global social and environmental issues [
4].
This research focuses on a particular type of partnership, voluntary product labeling schemes, that can be viewed as corporate social innovation [
5] and falls under “strategic CSR” as a socially responsible approach to reinforcing a firm’s market position and increasing its long-term profits [
6]. The specificity of a corporate–NGO partnership in product labeling schemes is that the names of the partners are explicitly displayed through products as the object of the partnership. In this case, the firm is a channel for the expression of consumer values, which Bénabou and Tirole call “delegated philanthropy” [
7], and it helps consumers express their philanthropic desires through their economic decisions. Voluntary product labeling schemes involve a tripartite standards regime: the establishment of criteria or standards, the creation of evaluation mechanisms with independent enforcement or certification, and the recognition of a control party by an authoritative body or through accreditation [
8,
9]. Therefore, voluntary product labeling schemes are equivalent to Type I (ISO 14024) ISO’s classification of labels, which are based on a set of minimal criteria defined by private or public environmental labeling programs and are controlled by third-party certifiers [
10]. Type II labels are self-declared claims adopted by manufacturers or retailers, and type III labels consist of quantified product information based on life cycle impacts [
10]. Labels are a visible means of signaling to consumers that products meet required standards. In this context, an increasing number of NGOs have developed their own third-party certifications or standards with labels to distinguish sustainability practices from conventional ones. In this way, NGOs often act as standard setters. According to the 2010 Global Ecolabel Monitor, most ecolabels (58%) were operated by nonprofit organizations, 18% by for-profit organizations, 8% by governments, and the remainder by other actors [
11].
This study is therefore limited to large NGOs that act as sustainability standard setters for the common good and at a national or international level, such as Fairtrade Labelling Organizations (FLO) International (Fairtrade label), Rainforest Alliance, the Marine Stewardship Council, or Forest Stewardship Council. It is important to understand why and how firms choose to work with NGOs rather than standardization offices and agencies or consulting firms. With voluntary product labeling schemes, corporate–NGO partnerships are no longer unilateral, limited, and based purely on a financial transaction, because, with these tools, the two organizations combine their name and then share risks. Together, these two very different types of organizations, multinational companies (MNCs) and NGOs, play an increasingly important role in providing public goods—the former because they have resources, global reach, and levers of action, and the latter because they have legitimacy, knowledge, and expertise. The choice of an NGO, that is, of a label, for a firm as partner and the acceptance by the NGO of the firm’s proposition then become strategic variables for both partners. Therefore, the question is, does the partnership truly work for the benefit of both partners?
The number of corporate–NGO partnerships has increased significantly, and these partnerships are viewed by academics and practitioners as an unavoidable and powerful means to implement CSR [
12,
13,
14,
15,
16,
17]. However, the ways in which these partnerships are implemented are not completely understood [
18]. The methods of implementing such partnerships are highly related to the partners’ motives. To develop successful business–NGO partnerships, it is important to understand the world views, interests, and risks of each party. Moreover, in concrete terms, the proliferation of different labels set by different types of organizations creates consumer confusion, indifference, and even skepticism towards labeling schemes, which may negatively affect their credibility [
10]. As a consequence, even third party certified labels awarded by NGOs can be viewed more as a communicating tool than as a signal of environmental or social benefits of a product or service, that is, greenwashing [
19]. This phenomenon can have profound negative effects on CSR and NGOs as a whole.
The aim of this study is to explore the problem of loss of credibility that may affect sustainability labeling schemes supported by corporate–NGO partnerships. In a deductive approach, I first analyze why corporate–NGO partnerships in voluntary product labeling schemes are implemented by cross-referencing theoretical analyses from the economics, management, and business literature on this topic to discuss cross-checking, consistencies, and complementary features. The paper then provides the core of my study, that is, the blurred roles between MNCs and NGOs. In other words, using literature from different disciplines, I highlight the most important motives for developing collaborations through labeling schemes for both partners. This allows me to state a hypothesis: a possible reversal of roles between corporations and NGOs. Indeed, the development of shared goals, viability and visibility, and the complementarity of resources, information and legitimacy, are the basis for a successful implementation of a partnership. However, they also create a “mix of genres” between these two types of organizations. By means of these partnerships, NGOs enter the business sphere and MNCs enter civil society space. This phenomenon allows for better communication between partners, a clear and common vision of the partnership, mutual trust, and a symmetric commitment. All these elements enable the successful implementation of the partnership and the success of the partnership itself. Second, I study this hypothesis through the practical processes of partnership implementation using examples from the agri-food sector, which is one of the most important economic and political areas in the world, with key implications for sustainability, such as the fulfillment of human needs, the support of employment and economic growth, and the impact on the natural environment. Information for cases comes from my previous work (especially the examples related to fair trade and Unilever), as well as from academic and publicly available sources. More specially, I analyze three specific elements in the formation and implementation of partnerships through labeling schemes: the cause of the partnership, the level of involvement of partners, and the brand management. These elements are fundamental for the success of the collaboration. At the same time, they reinforce the mix of genres. Finally, again using concrete examples, I show that this phenomenon of blurred roles also leads to new risks for partners, namely, competition among NGOs, like among MNCs, “NGO capture”, and inconsistency for both types of partners. Thus, this analysis allows me to highlight joint benefits and risks of partnering via voluntary product labeling programs.
Figure 1 presents the analytical framework of the article.
The original contribution of this approach is that the analysis is conducted from a dual perspective in terms of concepts and the literature: an economic perspective and a management and business perspective. The academic economics literature includes very few works concerning CSR, and the issue of partnerships is never quite addressed. The authors of [
20,
21] review the economics of CSR from a broader perspective by analyzing CSR as an answer to four types of market failures: public goods and externalities, imperfect competition, incomplete contracts, and innovation and resources access. The authors of [
22] define CSR from an economic perspective having developed a comprehensive taxonomy that connects formerly disparate approaches to the subject. Finally, the authors of [
23] review the literature on CSR, considering social preferences and issues such as CSR and firm size and the influence of different corporate governance systems on CSR.
Contrary to the economics literature, the CSR field in the management and business literature is vast and heterogeneous, with a proliferation of theories, approaches, and terminologies [
24,
25]. One such theory is stakeholder theory, which emphasizes the need for companies to respond to a broader range of stakeholders. Most of the academic literature on business–NGO relations is positioned in a business case orientation, that is, benefits that can be taken away by companies by better considering the expectations of stakeholders [
26,
27]. Moreover, theories of risk management and organizational learning stress the importance of multistakeholder dialogue and NGO–business partnerships as ways by which firms can acquire knowledge. Furthermore, a growing part of the business and management literature analyzes business–NGO partnerships and their role in affecting CSR, although dyadic antagonism and the pressure response model appear to be the most analyzed issues [
15,
27].
This article proceeds as follows. First, I present partners’ motives for engaging in a voluntary product labeling scheme. Second, some elements of the partnership implementation process are analyzed in greater depth. Afterwards, I analyze the related risks for both partners. Finally, I conclude by summarizing the results and offering suggestions for further research.
2. Motives of Partnerships
A company may engage in CSR activities for various reasons, namely, philanthropy, CSR in a stakeholder approach, strategic CSR, and defensive CSR [
6,
22,
28]. However, it is also important to take NGOs’ motivations into account and to consider them as actors in the relationship rather than merely as objects [
26], especially in the context of voluntary product labeling schemes that combine the brands of both partners.
2.1. Information
The increasing role of NGOs in CSR activities is explained by the information asymmetry between firms and citizens/consumers [
29]. Information asymmetry problems are related to the difficulty of obtaining information about firms’ behaviors, operating practices, and sustainability quality of their products. Sustainable goods have attributes that consumers cannot evaluate even when they use them. Consumers cannot inspect particular produce items and, simply by purchasing and using them, determine whether they were grown organically, whether they are the product of biotechnology, or whether a firm harms the environment or builds strong relationships with local communities. Such products are called credence goods [
30,
31]. There are two other broad classes of products: search goods, which have characteristics that are discoverable through inspection prior to purchase and consumption, and experience goods, which have characteristics that are revealed only through consumption. The presence of credence attributes can create three phenomena: free riding [
32], moral hazard [
33], and adverse selection [
34]. First, greenwashing can be compared to free-riding behavior, as firms may lie about their CSR activities, in particular through self-declared claims (ISO type II labels), and they may receive the benefits related to CSR attributes created by others [
29]. Second, this problem can also be compared to moral hazard, which arises when an agent’s behavior is not appropriate. In a purchase contract, a firm may provide misleading information about its CSR activities, always through a self-declared label, and customers are then affected because they do not receive the good for which they paid. Third, the adverse selection problem is due to the impossibility of verifying the quality of a product or a corporation’s behavior. This leads to oversupply of “low-quality” goods in the market in the classic “lemons” effect [
34].
Partnerships can solve these problems with respect to the intangible aspects of business because third-party certification and monitoring improve communication about sustainability issues. Therefore, contractual safeguards, certification, and labels are mechanisms designed to address problems derived from the presence of credence attributes and the consequent information asymmetry. Indeed, quality signals, especially labels, can transform credence attributes into search attributes, whose quality is readily observable prior to purchase [
35].
In this context, NGOs represent an important source of information for citizens/consumers who value the behavior of firms and the quality of products. NGOs may affect the information that is available to consumers for their purchasing decisions through two main channels: cooperation and confrontation. These channels are described within the terminology of Lyon as “Good Cop/Bad Cop” [
36]. The so-called “bad cops” or polarizing NGOs, such as Greenpeace, tend to achieve change by disrupting the status quo through confrontation and by revealing information about firm practices [
37]. Empirical studies of boycotts are inconclusive about their effectiveness [
38]. Free riding may be a cause of boycott failures: since boycotting is costly in terms of consumer utility, any consumer has an incentive to free ride, that is, to not participate in the boycott while hoping that it succeeds. Vogel argues that even publicized protests have an insignificant financial impact [
39]. For instance, through their condemnation of peoples’ rights violations, environmental damage, and greenwashing, the Pinocchio Awards, launched by Friends of the Earth France and ActionAid France in 2008, were an opportunity to report a gap between messaging about sustainable development and actual practices on the ground, and they contributed to CSR by pressuring companies to change their practices by putting their reputations on the line. This initiative was stopped in 2015 because these NGOs report that “naming and shaming and citizen petitions are no longer the only way to keep companies in check” [
40]. Moreover, some NGOs and environmental groups are uncomfortable with boycotts since this practice could punish small producers and vulnerable populations, especially in the agri-food sector, in which many globally traded commodities, such as coffee and cocoa, are produced by smallholder farmers and poor workers in developing countries.
The inefficiency of boycotts and their unexpected repercussions may first have induced a new form of ethical or political consumerism, the buycott. In buycotting, consumers make use of product information and labeling to select products or corporations with specific practices and qualities that are considered ethical or sustainable. Second, this may also explain the change in interactions between corporations and NGOs. Indeed, “good cops” or integrating NGOs, such as the World Wildlife Fund (WWF), aim to promote their goals through constructive partnerships with businesses, governments, and other civil society organizations [
41].
In the context of the globalization of exchanges and the transnationalization of companies, NGOs are in better position than certifying agencies or governments to provide standards, certifications, and labels because, similar to MNCs, most NGOs act at an international level. In addition, the creation of a label with a tripartite standards regime represents a significant investment in terms of time, knowledge acquisition, expertise, and recognition. Thereby, the necessity to work with MNCs that produce or buy many agricultural products from developing countries, and the high costs of creating, implementing and monitoring proprietary standards, explain the internationalization and professionalization of NGOs with well-identified brands. NGOs engaged in this process become a source of credible information due to their accreditation system supporting the label quality assertion. Indeed, most initiatives provide guarantees and prove their ability to carry out inspections according to standards criteria through an accreditation: the ISO guide 65 regulates work methods (procedures, instructions) for certification bodies no matter what their domain. Finally, through their external intervention, by developing a wide range of more or less strict, non-discretionary regional, national, or international standards and, by delivering credible information, NGOs allow firms to credibly signal that their products possess sustainable attributes.
2.2. Legitimacy
Why are NGOs legitimate actors in disclosing relevant information about corporations? Legitimacy is “a generalized perception or assumption that the actions of an entity are desirable, proper, or appropriate within some socially constructed system of norms, values, beliefs and definitions” ([
42], p. 574).
Stakeholder theory argues for the existence of a contract between the firm and society. In the case of a breach of such a contract, the firm loses its legitimacy. Porter and Kramer note that “the notion of license to operate derives from the fact that every company needs tacit or explicit permission from governments, communities, and numerous other stakeholders to do business” ([
43], p. 80). Therefore, companies must maintain their stakeholders’ authorization to operate and must therefore address their stakeholders. A stakeholder is defined as any group or individual who can affect or is affected by the achievement of the organization’s objectives, including employees, customers, consumers, suppliers, investors, communities, governmental bodies, political groups, competitors, trade associations, trade unions, and NGOs [
44]. By definition, NGOs basically have a rightful place as a stakeholder. Baur and Palazzo note that the reference to the notion of a
public good or
common good in NGOs’ claims induces legitimacy per se [
3]. Moreover, NGOs spearhead CSR for a number of environmental or social purposes through the information or instruments they provide. The authors of [
45] show that such NGOs are recognized by other stakeholders as the primary actors in the introduction and development of CSR and that corporations perceive NGOs as one of their primary stakeholders.
NGOs act as a representative of people, the environment, or future generations, that is, as a representative of any entity affected by companies’ activities. For that reason, NGOs are a bridge between corporations and their other stakeholders [
46], especially through the flow of information that NGOs create among these entities and the trust that they inspire. Thus, NGOs become the suppliers of legitimacy for firms, and engagement between NGOs and corporations can serve as a risk management tool, i.e., a reputational insurance policy, against attacks on their products or brands.
Nevertheless, it seems that some highly professional and business-oriented NGOs have to reinforce their legitimacy among their potential business partners, corporations and consumers, and other NGOs. For Schepers, global governance mechanisms must possess both moral and pragmatic legitimacy, as the latter is vital to their success. He adds that “the achievement and maintenance of such legitimacies, however, is a constant struggle for such organizations” ([
47], p. 293). This is the case for the FLO in the fair trade movement. In 2003, the FLO split into two distinct organizations. While the FLO-I’s mission is to develop and review fair trade standards with the Fairtrade label, FLO-Cert as a certifying body ensures that producers and traders comply with these standards. By creating a tripartite standards regime, the FLO has gained legitimacy in the business sphere. Conversely, fair trade movement initiators, such as Alternative Trade Organizations, which are characterized by relational governance in which exchange relations are coordinated through norms of trust, obligation, partnership, and shared expectations, believe that the FLO has lost its legitimacy by undermining the original intent of fair trade [
48].
2.3. Profitability and Mission
Firms may secure their supply chain and use CSR as a source of competitive advantage by reducing costs. Indeed, for many MNCs, a large proportion of their agricultural raw materials are purchased on global commodity markets where there is little control over source, quality, and growing methods. MNCs thus risk losing reputation and profitability because of a decrease in their product quality. By developing sustainable relations with suppliers through standards, firms can secure their sources of supply through a long-term partnership, maintain quality standards along the supply chain, and optimize purchase costs since producers and other suppliers will therefore feel more secure. For instance, in the Unilever-Rainforest Alliance partnership on Lipton tea, the created certification system increases the amount of direct transactions between Unilever and farmers, which allows the firm to carry out fewer purchases on the spot market. Finally, the certification scheme boils down to cutting out some intermediaries, which reduces the sourcing cost [
48]. Thus, standards can result in more efficient supply chain management along with the environmental and social benefits generated. This is a good example of synergistic collaborative value.
NGOs’ resources, such as legitimacy, expertise, and sources of information, are used to achieve certain objectives. It is well known that NGOs operate under the guiding principle of “mission, mission, and more mission” [
49]. Mission statements, which can be viewed as a set of concepts toward which an NGO can direct funds, can be used as a strategic instrument to attract donors or consumers and produce a social impact [
50]. The intensity with which an NGO addresses issues, such as the stringency of a standard, is also a strategic variable. Moreover, the choice of issues and the level of requirements are sources of differentiation among NGOs [
51,
52]. A substantial body of literature on the economics of labels compares standard levels by the type of standard-setting organization: government, NGO, or industry [
53,
54,
55,
56]. In this literature, the objective of the NGO is to maximize social or environmental quality or to minimize a specific threat, which is usually related to an externality or a
public good in the sense that NGOs are prosocially motivated. However, in the vein of the literature on the donation market, the authors of [
51,
52] assume that NGOs are concerned only with their own programs, that is, the social output they individually produce. In this sense, NGOs act on behalf of the
common good and may have particular interests [
3]. Given an NGO’s mission statement, the rise of societal problems motivates NGOs to collaborate with corporations. Indeed, a partnership is a way to sensitize corporate clientele to the NGO’s cause and mission.
The second principle of NGOs is “no money, no mission” [
49]. The increasing scarcity of public funds and the increasing number of NGOs force these organizations to find new sources of funding. Because firms are institutions with relatively easier access to financial resources, NGOs are motivated to establish alliances with corporations.
2.4. Visibility and Differentiation
For NGOs, one motivation for collaboration with corporations is the increase in social problems. Indeed, a partnership is a way to sensitize corporate clientele to an NGO’s cause. A positive consequence of such partnerships is an increase in visibility that may enhance the NGO’s notoriety: an association with a firm with a strategic position in the market is one way for an NGO to strengthen its reputation, public image and political influence [
13,
57]. For instance, the concept of fair trade experienced an impressive expansion following the launch of the Max Havelaar label (Fairtrade), which is awarded to brand-name products or private label products sold in large retail stores [
48,
58]. Another example is the partnership between Unilever and Rainforest Alliance, which enabled the American NGO to make itself known in Europe and to develop its activities on this continent.
CSR activities can create a competitive advantage for firms through vertical or horizontal product differentiation. In this context, a firm’s supplied product is distinguished from other products by its quality or by specific characteristics or attributes, which might also allow the firm to sell the product at a higher price, create a niche market, or see its market shares grow through the first-mover advantage in the market. Indeed, consumers generally take into consideration firms’ CSR activities when making purchase decisions, and this consideration leads to either an increase in willingness to pay (WTP) a premium for the product or an increase in purchase intention [
6,
59]. With the leading tea brand Lipton, Unilever adopted this last strategy with the conversion of an existing leading brand. In May 2007, Unilever, the world’s largest tea company, became the first company to commit to sourcing all of its tea in a sustainable manner, employing the Rainforest Alliance to create standards and to use its label [
48]. At the end of 2015, all the tea for Lipton tea bags was sourced from Rainforest Alliance–certified farms, and Unilever is committed to sustainably sourcing 100% of its tea by 2020. This first-mover strategy was actually followed by some competitors, as a few years after the launch of this new labeling scheme, many of Unilever’s major competitors, such as Tetley, Twinings, and Pickwick, made similar commitments with different NGOs, including Rainforest Alliance, UTZ Certified, and Fairtrade (FLO), to certify their products.
The use of credible labels allows firms to signal the presence of sustainable attributes and, in doing so, to create the potential for premiums based on that signal. On the demand side, a large number of studies address consumer WTP for environmentally friendly foods and for social sustainability attributes, and their determinants. In a meta-analysis conducted on eighty studies that estimate WTP for a large number of product categories, the authors of [
60] show that certification increases WTP for socially responsible products by 7% on average and that WTP is greater for products for which the socially responsible element benefits humans (e.g., labor practices) compared to those that benefit the environment. In addition, several studies using controlled experimental frameworks show that consumers are willing to pay (slightly) higher prices to buy a product that implies a donation to an NGO [
61,
62,
63].
Wagner confirms the profitability of this strategy for firms. Indeed, his study on 358 US firms shows that corporate sustainability performance impacts economic performance less positively in firms with low levels of differentiation and signalling (as measured by advertising intensity) than it does in firms with high levels of differentiation and signalling [
64].
As a first conclusion, while companies and NGOs are generally seen as pursuing different objectives, the initial elements of this study show a convergence of their drivers because each partner enters the other’s sphere. Through a partnership, an MNC and an NGO share similar objectives, viability and visibility, and exchange essential resources, information and legitimacy.
Indeed, one can observe organizations born of civil society initiatives with a common good objective. Given their motivations and objectives, such organizations have an incentive to work with large, consumer-oriented, well-known companies to obtain visibility and viability. They are then transformed and adopt the methods and functioning of these MNCs. As is often the case with companies or consulting firms, they communicate little, if anything, about the services they perform for the sake of confidentiality. These NGOs have clients, they are inspired by the methodologies of consulting firms and the operations of MNCs, and they thereby become business-like [
65]. These corporate–NGO partnerships thus introduce a market-driven logic into the nonprofit sector.
On the corporate side, these partnerships are also changing the positioning of companies and blurring existing boundaries. In recent years, some MNCs have decided to give impetus to CSR by joining forces with NGOs to promote sustainable development and CSR in their sector or country. For instance, since the turn of the century, roundtables have been created to gather the main private actors in a global commodity chain in addition to social and environmental NGOs to make the entire commodity chain more sustainable, often through a labeling scheme. A roundtable on sustainable palm oil, an initiative of Unilever and the WWF, set the trend for the initiation of roundtables in other commodity chains.
5. Conclusions
Partnerships between businesses and NGOs in the pursuit of CSR through voluntary product labeling schemes have become increasingly prevalent in recent years. This article studies these collaborative relationships based on economic and management concepts and streams of literature and includes numerous examples. The aim is to provide some theoretical explanations for such developments, with the main conclusion being that the drivers and risks of both partners converge and mix. Indeed, the previously well-defined boundaries between companies and NGOs are blurred in the context of some CSR activities, thus allowing the expression of new identities that carry solutions through a new way of conceiving of both the company and the NGO. The existence of shared goals, viability and visibility and the complementarity of resources, mainly information and legitimacy, are the basis for a successful partnership. However, these blurred roles between MNCs and NGOs may also entail risks for both types of organizations. In other words, if the roles and the motives of each partner mix, then the risks also mix.
In this context of partnerships through voluntary labeling schemes, like firms, NGOs bear the risks related to the competitive market, specifically, direct competition, commercial failure, and lack of profitability. NGOs may make concessions, for instance, on the criteria of their labeling standards, to keep their market power on the label market, to the detriment of their mission and social or environmental issues. This argument is related to the dependence. Indeed, partnerships may be problematic because they create resource dependence for NGOs, compromising their ability to challenge firm behavior. This dependence also induces the risk of “NGO capture” by businesses due to information asymmetry between partners because the main input in the relationship is information; through labels and certifications, NGOs summarize the information that firms reveal to them directly or indirectly through the certification process. This can result in a loss of trust in the nonprofit sector along with a loss of identity for NGOs, essentially turning NGOs into consulting firms. To limit the risks related to corporate–NGO partnerships, NGOs must try to differentiate themselves by focusing on specific and well-defined issues. By collaborating with several firms from different sectors on specific issues, NGOs avoid direct competition and remain independent from the corporations with which they work.
Future research should investigate empirical evidence of the risk of “NGO capture”, especially by focusing on case studies with information exchange analysis. Future research should also focus on variation in the corporate side while accounting for the differences among NGO partners and their strategies. In economics, it might be interesting to develop theoretical studies about NGOs’ objectives to better forecast their behaviors and the relationships with the agents with whom they interact, such as consumers, firms, governments, and other NGOs. Moreover, as the role of NGOs is continuously growing, questions of their accountability and legitimacy become more relevant and should require consideration. Since large NGOs become business-like, the issue of NGO governance should be studied through theoretical and empirical approaches, in the same way as is done in the literature on corporate governance and CSR [
86,
87].