Supply chain ethics
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 organisations’ suppliers.
Supply chain management has long been a facet of normal business practice for many organisations, especially large multinationals. 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 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. The story below (“Fashion to die for”) is one example: the death toll in the collapse of the Rana Plaza in Bangladesh on 24 April 2013 was 1 129, making it one of the worst garment-factory accidents in history. 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 non-governmental organisations 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”.
Two other related factors that are driving a further focus on supply chain ethics are corporate social responsibility (CSR) and sustainability. CSR, which is equated with corporate citizenship, is considered to encompass the three dimensions of the triple bottom line, economic, social and environmental, and takes into account the interests of affected stakeholders. These actions determine that CSR, in effect, supports a sustainable approach to business. The ethical aspect that is being included in these concepts relative to suppliers is not merely to consider those relationships in terms of trading interests or sound business practices (for instance, that supplier payments are processed promptly), but also the suppliers’ ethical conduct.
Thus supply chain ethics is also extending to industries where sustainability is the core issue. Palm oil is an example. This is an industry that has been characterised by deforestation, the destruction of peat lands, and human rights abuses. This also has ripple effect consequences: the deforestation in South East Asia is contributing to the endangerment of the orang-utan and the Sumatran tiger.
Numerous organisations – often not-for-profit organisations – are working for change, such as SumOfUs, a new world-wide movement for a better global economy, and Avaas, a global online activist network aimed at bringing people-powered politics to decision making everywhere. The positive outcome is to influence companies such as Kellogg’s. In February 2014 Kellogg’s committed to work with palm oil suppliers to source fully traceable palm oil that is produced in a manner that is environmentally responsible, socially beneficial and economically viable. The company announced that to do so, it would work through its supply chain – from suppliers to processors to growers – to ensure that the palm oil it uses is not associated with deforestation, climate change, or the violation of human rights.
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”.
The scope of what supply chain ethics can involve and demand could prompt a “cut and run” approach, as recognised by Nieuwenkamp. 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 for organisations that are reluctant to deal with the ethics of their suppliers, public pressure and, in some cases, the law can affect their inaction.
Public pressure 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. This is especially effective relative to global corporations for which boycotts together with the consequent negative publicity have 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.
In the sphere of legislation, developments in California are particularly noteworthy. Compliance with the landmark Transparency in Supply Chains Act of 2010 is now being required. The Act requires qualifying manufacturers and retailers to publicly detail – through a “conspicuous” link on their website – their efforts to eradicate human trafficking, slavery, child labour and forced labour from their worldwide supply chains. In 2013, the California Attorney General reportedly received a list of 6 000 companies that, based on their tax filings, fall under the Transparency in Supply Chains Act (Perkins Coie LLP, 2014).
The added responsibility which managing 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, therefore, 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. This will thus be an increasingly high profile ethical touch-point that corporations (mainly the large global corporation for now) will not be able to ignore.
by Cynthia Schoeman