Supply chain ethics

Expand your ethical boundaries.

As the scope of business ethics has developed from a shareholder-centric approach to a stakeholder and triple bottom line approach, so too is the scope of ethics facing another extension. This centres on unethical practices among suppliers.

Supply chain management has long been a facet of normal business practice for many organisations. However, this is now being expanded to supply chain ethics, where corporations are increasingly expected to influence and improve ethical conditions among their suppliers. The rationale behind this shift in responsibility is that the large corporates have the power and influence to impact the behaviour of their suppliers.

This initiative is specifically supported by the Organisation for Economic Co-operation and Development (OECD), and the OECD Guidelines for Multinational Enterprises (MNEs) are considered the most comprehensive set of government-backed recommendations on responsible business conduct. They address disclosure, human rights, employment and industrial relations, environment, combating bribery, bribe solicitation and extortion, consumer interests, science and technology, competition and taxation. The governments of the 46 countries that adhere to the Guidelines aim to encourage and maximise the positive impact MNEs can have on sustainable development and enduring social progress.

The central message being shared in the OECD Guidelines is that production can be outsourced, but the corporation’s responsibility cannot be outsourced. However, the title of an article written by Roel Nieuwenkamp, the Chair of the OECD Working Party on Responsible Business Conduct, is illustrative of the challenges inherent in this pursuit – “Cut and Run, or Stay and Help?”.

The challenges that organisations confront to reform or improve issues among suppliers are evidenced, unfortunately, by the worst practices and disasters. The garment industry is a particular case in point where gross violations in working conditions have cost many lives. An extreme example was the collapse of the Rana Plaza in Bangladesh on 24 April 2013 where the death toll was 1 129. The abuse the garment workers faced is reflected in the fact that while other businesses in the building closed when major cracks were discovered, the garment workers were ordered to return to work.

Cocoa production is another area in the spotlight because of the widespread use of child labour. The children are subject to serious exploitation and, in some cases, are the victims of trafficking or slavery. The International Programme on the Elimination of Child Labour found evidence that suggested that nearly 12 000 of the 200 000 child labourers working in Côte d’Ivoire, the world’s biggest producer of cocoa, had been trafficked. In 2012 CNN’s David McKenzie travelled to Côte d’Ivoire to investigate children working in the cocoa fields. The investigation found that child labour, trafficking and slavery were still rife. This issue was given a major boost when it became a focus of CNN’s Freedom Project, which is aimed at ending modern-day slavery.

While the major chocolate companies were slow to address the issue, they are now working together with NGOs to tackle the problem. For example, Nestlé admits it drew up an action plan, the Nestlé Cocoa Plan, only in response to a report on Nestlé’s cocoa supply chain in Côte d’Ivoire by the Fair Labor Association. On its website, the company has now made a commitment that it will “involve communities in Côte d’Ivoire in a new effort to prevent the use of child labour in cocoa-growing areas by raising awareness and training people to identify children at risk, and to intervene where there is a problem”.

There are other organisations that are making significant efforts. Unilever, the international consumer products corporation, has been recognised for its supply chain accountability under the banner of sustainability, which is noteworthy given the scale of their supply chain: the company sources materials from over 150 000 suppliers. They manage this on a “prioritise and conquer” approach, setting goals for the top ten raw materials to move them to sustainable supply. For example, Unilever has set a target to exclusively use sustainable palm oil by 2015. The company admits that the return from this investment is variable but they believe that they will “see the return in years to come”.

Companies unwilling to take on this added responsibility may have been able to ignore the abuses happening in factories or plantations in areas remote from their corporate premises. But public pressure needs to be taken into account. This has most frequently taken the form of product boycotts, such as the well-known boycott in the 1990s against Nike in Europe and America for unacceptable labour practices in their factories in Indonesia and Vietnam. The combination of boycotts together with the consequent negative publicity has the potential to affect profits adversely – thereby linking supply chain ethics directly to the company’s (economic) bottom line, which is mostly an effective motivator.

The added responsibility which supply chain ethics entails should not be underestimated. Effectively managing ethics among the organisation’s suppliers will require on-going time, attention and resources and will incur costs. But the consumer lobby for sustainable products and decent working conditions where their purchases are sourced or made is an ever increasing societal force. It is therefore likely that this will be an increasingly high profile ethical touchpoint that corporations will not be able to ignore.

By Cynthia Schoeman
Published in HR Future, April 2015