The ESG dilemma of start-ups from the Manner coffee shop conflict incident

Recently, videos of Manner Coffee employees splashing coffee powder on customers and employees and customers beating each other have caused widespread discussion. After the incident, problems such as the high work intensity of Manner Coffee employees and the low coverage rate of five insurances and one housing fund were exposed. The "collapse" of Manner's employees in the video under high pressure triggered the resonance of the workers, and many netizens expressed sympathy for the working conditions of Manner employees.

Earlier this year, another incident related to migrant workers also caused heated discussions. On April 8, Liu Tao, co-CEO of Zhiji Automobile, delivered a speech at the L6 press conference, mentioning that some employees missed the birth of their children for product research and development, and some employees were infected with the new crown four times in a row and still stuck to their jobs.

Many people believe that this kind of behavior that promotes employees sacrificing their families and overworking is unethical and may involve violations of labor laws. Some people even used the slogan "No Sale, No Harm" to call for a boycott of Zhiji cars, arguing that for every purchase of a Zhiji car, employees may sacrifice their family life because of this.

Although these two companies belong to different industries, they have both "overturned" on ESG employee care. A careful comparison shows the similarities between the two companies: first, they are both newly established enterprises, Manner Coffee was established in 2015, and Zhiji Automobile was established in 2020; Second, they have all won the favor of capital, Manner has received hundreds of millions of capital investment from Today Capital, ByteDance and other capital, and Zhiji Auto has received more than 8 billion yuan of investment from more than 10 well-known institutions in Series B financing; Third, the product positioning has high requirements for human resources, Manner's affordable specialty coffee route requires the manual operation of a large number of baristas, and the technology such as the "six king fried configuration" pursued by Zhiji requires high-intensity investment from R&D personnel; 4. At the time of the controversy, both companies were in a critical period of development, Manner was accelerating the deployment of stores in many cities across the country, and Zhiji Auto was trying to break through in the crowded new energy vehicle market.

Why start-ups lack ESG awareness and investment

Both Manner Coffee and Zhiji Auto lack ESG investment, and there are no ESG or sustainability disclosures on their official websites. Manner's official website only mentions a 5 yuan discount for self-brought cups in the brand concept part, encouraging customers to "contribute to environmental protection together". The "User Rights" section of the official website of Zhiji Auto does not involve policies or measures to protect the rights and interests of customers. On the Internet, both companies have a lot of negative ESG public opinion, including Zhiji Auto due to false propaganda and car machine failures caused by customer rights protection, and former employees of Manner Coffee pointed out that the company's employee rights and interests are not protected in place, and the store has poor sanitary conditions.

ESG is closely related to corporate values and requires companies to incorporate their environmental and social impacts (both positive and negative) into their business strategies. The early stage of entrepreneurship is a golden period for shaping the values of an enterprise, which can help enterprises more clearly position their business value and social value. However, many start-ups do not have an understanding or plan for ESG systems, and we believe there are three main reasons:

The first is that it lacks a full understanding of the importance of ESG issues. The cases of Manner Coffee and Zhiji Auto show a lack of care among employees. The concept of ESG is relatively new, with many topics involved, and many start-up founders and management teams lack relevant knowledge. There are also startup teams who superficially believe that ESG is too "high-minded" or just something that large enterprises need to consider, and it is not important to start-ups.

Second, start-ups are often short of funds and resources to invest in ESG. In the early stages of a business, companies need to focus on limited energy and capital to develop products, build markets, and recruit teams. There are many entrepreneurs who believe that ESG projects (such as the construction of environmental protection facilities, the improvement of employee benefits, the improvement of corporate governance structure, etc.) require a lot of resources to implement, which is a heavy burden for start-ups.

Third, there is a lot of competition pressure on start-ups, and ESG is lagging behind as an "important but not urgent" issue. In the case of fierce market competition, enterprises often need to focus on improving the quality of products and services and reducing costs to meet market demand. Manner and Zhiji's coffee drinks and new energy vehicle industries are fiercely competitive, and the two companies are devoting more energy and resources to sales and customer expansion in order to "survive".

Why ESG is particularly important for start-up value

Judging from the general sympathy of the public for Manner and Zhiji employees, the values of the current era have changed - the success of the enterprise cannot be sacrificed to the well-being of employees, and the corporate culture that unilaterally emphasizes "struggle" and "hardship" has become more and more difficult to be accepted by the younger generation.

As a "new" company, it must understand and use the "new" concept positioning, "new" methods to do things, and "new" context communication in order to gain more recognition from stakeholders, and ESG is an indispensable content.

Some entrepreneurial teams think that ESG is too "high" or only needs to be considered by large enterprises or mature business development, but in fact, they ignore that ESG focuses on the practical problems faced by enterprises at multiple levels of business development under the changes in the business environment, and systematic consideration can avoid entrepreneurship hitting the rocks.

Regarding the issue of ESG increasing costs, in fact, many aspects of ESG belong to cognition and methodology, and what needs to be adjusted is the concept and attitude of respecting stakeholders, and the actual resource investment is not necessarily a lot. Therefore, start-ups need to embed ESG concepts and strategies from the beginning to help them avoid risks, build their image, and attract investment.

First of all, ESG can help start-ups accurately position their own value and avoid hot-headedness and short-sightedness in the fierce competition. Examining a company's growth strategy with ESG standards can make companies aware of the unsustainability of certain strategic directions or business models in advance, help them find the right strategic rhythm, and avoid blindness in decision-making.

Second, ESG can help start-ups avoid business risks and reduce the cost of trial and error for "newbies". As a company that is still in its infancy, its ability to resist risks is much lower than that of its competitors in the same track, and by following ESG principles, companies can ensure that their operations meet environmental and social standards, and avoid penalties and public relations disasters caused by environmental pollution or social responsibility issues. Through ESG scenario analysis, we can detect risk signs at an early stage and reduce the difficulty and cost of dealing with problems.

Thirdly, ESG can help startups build a critical brand reputation. In the early stage of entrepreneurship, brand reputation is established through products, services, and employee experience, and once it is accumulated, it can help enterprises gain certain growth advantages, which is more important for startups seeking in the wind and rain.

Finally, compliance with ESG standards can improve corporate transparency and governance. Investors are more willing to invest in businesses with good governance structures and transparency. By establishing a sound governance structure, open and transparent financial information, and a decision-making process, start-ups can increase investor trust and gain access to more funding opportunities.

How start-ups should embrace ESG

For start-ups whose survival is the first priority and do not have abundant funds, they can follow the following diagram to start from the concept, policy, planning, practice, performance and publicity. There are some areas that do not require a large investment of resources, but only need to adjust the way of working.

Figure drawn by the author

First of all, we need to examine our own management values based on ESG standards. In the case of Zhiji and Manner, although the two companies are in different industries and event backgrounds, one thing is clear: both companies neglected the protection of employees' rights and interests and humanistic care under the pressure of market competition, and finally fell into the dilemma of public opinion, corporate image and even performance. For start-ups, they should first have a clear understanding of the ESG concept, then review their own business philosophy to see if there are any things that do not conform to the ESG concept, adjust them in a timely manner, and review and align them frequently in the operation to ensure the soundness of the operation.

Secondly, use ESG standards to benchmark and sort out the management norms of enterprises. The concept of ESG has derived many different evaluation systems, although these systems are slightly different in terms of index setting and evaluation weight, but the core values are the same. Start-ups can use the existing rating system as a benchmark and under the guidance of the determined core business philosophy to sort out their own management norms, systematically plan, check and fill gaps, ensure that there is a unified and followable code of conduct within the enterprise, and embed ESG concepts into the operation and management requirements.

In addition, when hosting a large-scale event or responding to public opinion, ESG criteria can be used to do a pre-diligence checklist. Companies need to be clear about the values that align with the ESG concept and what the issues stakeholders care about at the moment, and carefully consider the content to be released to avoid counterproductive communications by outputting ideas that are contrary to public values. The public opinion turmoil caused by Zhiji and Manner in the later period is largely due to the lack of awareness that the public cares deeply about the responsibilities of corporate employees.

Finally, businesses need to find a balance between rapid expansion and sustainable development. From the case of Zhiji and Manner, we can see that the short-term expansion of enterprises has brought great pressure on internal human resources. Enterprises need to find a balance between the two, rather than blindly squeezing one side and pursuing a moment of rapid development or cost advantage.

Attached: Evaluation and improvement methods of enterprises in employee care

If you want to know what is covered by impact on workers, you can refer to the B corp's guide to make a simple assessment of yourself. Then, combined with the most relevant and urgent issues for the development of the enterprise, the corresponding improvement plan is formulated.

Subsidies, benefits and wages

• Pay employees (including part-time and temporary) and independent contractors a living wage
• Compare the salary of the same industry to confirm whether the company is above, equal to or below the market level
• Calculate the multiple of the income of the highest-paid employee to the income of the lowest-paid full-time employee
• Provide regular employees with the same benefits package as management
• Provide employees with a retirement plan and/or a bonus system that benefits all employees
• Provide a socially responsible investment option in the participating plan
• Subsidies are provided for the career development and training of employees
• Re-employment guidance and/or severance pay for terminated full-time employees

Employee ownership

• Offer stock options, stock equivalents, and/or business ownership transfer plans to full-time employees

Working environment

• There are health and welfare programs
• Issuance of employee handbooks (including policies on working hours, anti-discrimination, anti-sexual harassment in the workplace, anti-child and forced labor, disciplinary and grievance procedures, etc.)
• Conduct anonymous employee satisfaction and engagement surveys on a regular basis
• Regularly collect (and publish) employee metrics such as employee retention, turnover, and diversity
• Reasonably offer employees the option of part-time, flexible working hours, or remote work
• Establish an employee committee to supervise and advise on occupational health and safety

(Author's Affiliation: Innovation, Entrepreneurship and Public Policy, The Hong Kong University of Science and Technology (Guangzhou))

He Jinyu, Liang Xiaodi, Zheng Runjia

Editor-in-charge: Kanghua