Supply Chain CSR
Corporate Social Responsibility (CSR) is so much more than corporate philanthropy or indulging in CSR reporting. If you truly want to be seen as a socially responsible organisation (surely the true meaning and ultimate goal of CSR programs?) then socially responsible behaviour; those values you claim to be so important to you, have to become part of the corporate DNA.
News Limited’s One Degree program is a good example of a company reducing its carbon footprint and expanding the impact of this by taking the message to its customers. I applaud the initiative: Every person, every company, everywhere, just making one small change at a time, could result in some very big outcomes worldwide.
So too, is Westpac Bank’s change in its lending policies for a more positive impact on environmental outcomes, another example of a company exerting its influence up the supply chain (vs. down) – to encourage corporate banking customers to have better business and CSR practices.
Sure, do and report that you do. But walk before you talk.
Remember, believability is important, and there is a good chance you will be caught out if claiming CSR activities or guidelines that your organisation is not practising.
There was a full page ad in the Australian Financial Review, Friday November 16th, 2007, about Woolworths apparently doing just that. Paid for by a union, it challenges Woolworths’ purchasing practices, and specifically suggests that Woolworths has failed to apply its own CSR guidelines to its house brand, Woolworths Select, supply chain.
Supply chain management today is an area of enormous reputational risk. And while Chinese manufacturing quality and global product recalls steal the headlines worldwide, there are many other areas of reputational risk in the supply chain, including the Woolworths example.
This is specifically relevant to CSR, because however much your organisation changes its own practices, is it walking the talk if it has suppliers who don’t share the same CSR commitment?
Supply chain issues are not limited to companies engaged in unsustainable forestry practices as in the Woolworths/APP allegations above.
There are the issues of “blood diamonds”, child labour (with which Nike and Gap are intimately familiar), animal cruelty and environmental disasters, the latter perpetrated by some of the world’s largest mining companies. Some of these companies act as though they are among the most respected companies in the world, yet have caused irreparable damage in the course of doing business. Not by their own direct activities, but by accepting the less than socially responsible practices of their suppliers. More to the point, some of them argue that they do not have control or are not responsible for the policies and conduct of their suppliers.
Really? If that is the case, if you really think just rolling over and passing the buck is OK – just how socially responsible are you? AND, if that is the case, how can you claim in your own code of conduct or advertising that you have “A” CSR standards when in fact you sell product built with “F” standards?
(My thanks to fellow Twitterers mrochte and elainecohen for the heads up on this one). Wal-Mart has just proved that it doesn’t take responsibility and doesn’t really care what its suppliers do or don’t do, right or wrong, socially responsible or not. It just claims to do so.
In an interesting court case that made it to the Court of Appeals, Wal-Mart managed to have the case dismissed on appeal. It argued it wasn’t responsible.
The appellants were employees of foreign companies in Nicaragua, China, Bangladesh, Indonesia, and Swaziland that supply goods to Wal-Mart Stores, Inc. (“Wal-Mart”). They brought claims against Wal-Mart based on their working conditions. These claims were based upon a code of conduct included in Wal-Mart’s supply contracts, specifying basic labour standards that suppliers must meet, to maintain their contract with Wal-Mart.
Following is an extract from the United States Court of Appeals for the Ninth Circuit, argued and submitted May 8, 2009 – Pasadena, California, Filed July 10, 2009 – opinion by Judge Gould:
The Standards require foreign suppliers to adhere to local laws and local industry standards regarding working conditions like pay, hours, forced labor, child labor, and discrimination.
Thus, each supplier must acknowledge that its failure to comply with the Standards could result in cancellation of orders and termination of its business relationship with Wal-Mart. Wal-Mart represents to the public that it improves the lives of its suppliers’ employees and that it does not condone any violation of the Standards.However, Plaintiffs allege that Wal-Mart does not adequately monitor its suppliers and that Wal-Mart knows its suppliers often violate the Standards. Specifically, Plaintiffs claim that in 2004, only eight percent of audits were unannounced, and that workers are often coached on how to respond to auditors. Additionally, Plaintiffs allege that Wal-Mart’s inspectors were pressured to produce positive reports of factories that were not in compliance with the Standards. Finally, Plaintiffs allege that the short deadlines and low prices in Wal-Mart’s supply contracts force suppliers to violate the Standards in order to satisfy the terms of the contracts.
In sum, we conclude that Plaintiffs have not stated a claim against Wal-Mart. Wal-Mart had no legal duty under the Standards or common law negligence principles to monitor its suppliers or to protect Plaintiffs from the suppliers’ alleged substandard labor practices. Wal-Mart is not Plaintiffs’ employer, and the relationship between Wal-Mart and Plaintiffs is too attenuated to support restitution under an unjust enrichment theory.
What Wal-Mart may have won in the court, it has lost in public opinion.
There is today a moral obligation on companies to uphold a stated code of conduct. It is this code of conduct – specifically when used in a marketing context – that would win some customers over to your brand, or product or outlet. It was used in this way at Wal-Mart, and was used in the same way at Woolworths in Australia.
Nothing turns customers and potential customers off faster than the whiff of BS, or greenwashing a company’s message for the sheer intent of profiting from what is seen by some, still, as a marketing fad rather than the way of the world.
And anything that cause the loss of customers constitutes reputational risk.
There is something else to ponder – what is generally considered good corporate citizenry today, is a far cry from what it was just five years ago. Society’s standards have changed and our expectations are a lot higher than they were. So too is the speed and global nature of communications.
Wal-Mart can make good here by enforcing its own code of conduct, not because it is forced to by the law (because it isn’t) but because it is the right thing to do.
More investors today, increasingly more institutional investors, are assuming the practice of ethical investing and actively seeking out companies that as a business, or by a core business process, are net contributors to the environment and their communities, and conduct themselves in a manner consistent with good corporate citizenry – at the very least.
• Have your business practices changed in line with societal expectations?
• Has your view and practice of CSR changed with the times?
• Have you made restitution for previously irresponsible behaviour?
• Has the reporting of your business results changed to include sustainability reporting?
• Have you also started reporting your CSR activities – and why they are important to the business – internally and externally?
The topic of managing the supply chain for reputation (defence, protection and enhancement) is as much an economic argument as one of image.
As time goes by and general consensus continues to grow in favour of more stringent and authentic CSR engagement, how companies do what they do, will be as important as how well they do financially.
What it costs will ultimately include environmental, social and reputation cost. It simply has to, don’t you think?
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Category: CSR & Sustainability, Reputation Management
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