Daily Archives: July 25, 2012

New Trend! Globalization!

Today’s post is from Dick Locke, Sourcing Innovation’s resident expert on International Sourcing and Procurement.

Over at a blog called pool4tool the company (apparently an Austrian company with large clients) alerts its readers of opportunities in globalizing. It also talks of the breakthrough concept of Total Cost of Ownership and holds Boeing’s outsourcing of Dreamliner design and construction as a success story. Strange alternate universe over there in Austria.

Film at 11.

Rant on, Dick, Rant on!

We Need More Corporate Ethics – Bring on the No-Maximum Mega Fines!

As noted in a recent article on Fine and Punishment, it has been a bumper summer for corporate fines and settlements. With firms in Britain and America agreeing to pay over 10 Billion in the past three months alone, there’s too much corporate wrong-doing these days. But the current fines are not enough. For example, a mere 5K for violating 10+2 is a CEO’s lunch money these days in most Global 3000’s. The only act close to defining a fine that will take a real chunk out of the corporate coffers of the guilty that the doctor knows of is the National Defense Authorization Act (NDAA) which allows 15 Million Dollar fines for first offenses and 30 Million Dollar fines for second offenses.

The reality is that a fine is only a deterrent if getting caught would mean a loss. Let’s say the fine for stock-fixing is 1 Million but an investor group could make 10 Million on the fix. Guess what’s going to happen? The stock is going to get fixed if the investor group has anything to do about it because, worst case, they only make 9 Million. The fine HAS to outweigh the reward, or corporate wrongdoing is going to continue to permeate both the financial sector, and the supply chain practices in industries where unlicensed knock-offs (especially in pharmaceuticals or electronics) can save a middle-man millions of dollars and push profits through the roof. As the Economist article stakes, given a risk-free opportunity to mis-sell a product, or form a cartel executives will grab it. To them, it’s all about the almighty dollar — and earning more than their peers to earn Wall Street’s favour and have something to boast about at the next charity dinner. (For a great Wall Street Perspective, you have to check out Randall Lane‘s The Zeroes: My Misadventures in the Decade Wall Street Went Insane [now at a bargain price for the hardcover edition on Amazon.com — you can’t go wrong]. Audiobook also available).

Unless the potential fines are crippling, wrong-doing will persist*, and so will cheapening out. And this is the biggest problem. Right now, we need sustainability in supply management, but initial investment in sustainability always costs more, so not only are executives not going to green light sustainable efforts, but if the organization has to look green or socially responsible, they are going to fund the lowest-cost “accredited” third parties that they can find to be “socially responsible”, and, in particular, likely fund those that use shady practices and cut corners everywhere possible. Because when the dollar rules, as long as you can buy the image, why create the real thing?

But if we force ethics back into the corporate world, then maybe we can force sustainability in as well. And when the only choice for gains is again long-term strategy, which is precisely where the economics of sustainability really make sense, maybe we’ll see improvement in ethics and corporate responsibility across the board. Or maybe it’s a pipe-dream. Either way, heftier fines would be a great start!

After all, remember what Randall Lane discovered when he did a Trader Monthly survey in the zeroes:
  If you received an illegal insider tip, a sure thing, and had a 50% chance of getting busted, would you use it? Only 7% would. What about only a 10% chance of getting caught? The numbers spiked to 28%. And what if you had a 0% chance of getting discovered? Suddenly, the number surged to 58%! To the majority of our readers, cheating wasn’t an ethical issue, it was simply a matter of whether they’d get caught.