Category Archives: CSR

To Make Your Supply Chain More Socially Responsible, Find the Value

An article late last year in the McKinsey Quarterly on “making the most of corporate social responsibility” — a topic that is at the forefront of everyone’s minds given the recent headlines about the rash of Foxconn suicides — made a great point: if you want CSR (Corporate Social Responsibility) initiatives to take off, find the value. Without it, you’ll be limited to pet projects, propaganda, and philanthropy — and while the latter can be good if you donate to the right organization, you’re not really doing anything as an organization if you’re just passing the buck.

The article suggested that the way to develop an approach that can truly deliver on lofty ambitions and achieve real success for the business and for society is through smart partnering which focuses on key areas of impact between business and society and develops creative solutions that draw on the complementary capabilities of both to address major challenges that affect each partner, and it made some good points. By combining strengths to overcome each partner’s weaknesses, two organizations can often make more of an impact than one.

But if you read closely, and think about the examples the article presents, the real key to success is finding a solution that brings short and long term value to society and to the business. If it only brings value to society, as soon as times get tough, funding for the initiative will be the first item cut from the budget. If the only real value is to the business, the recipients of the initiative won’t be that interested in participating and the company risks being, correctly, accused of propaganda and / or greenwashing. But if the initiative helps society and the business in the short term and contributes lasting value to society and the business in the long term, then the initiative will be a success (and the company will look like a hero in the eyes of the media, which will generate even more success for the company as it will increase its brand value).

The Unilever examples provided in the article are prime examples of how value insures success. In the Kericho example (in southwestern Kenya), where Unilever applied sustainability principles to the production of tea and focussed on productivity, sustainability, and environmental management, even though Unilever had to invest more money up front, Unilever won in the long run as they gained greater control over a critical supply of raw material while improving productivity. And the initiative was a success for society as the farmers made more revenue and increased their skills and living standards. Both parties win from the initiative, so both will continue to support it through the long term.

Share This on Linked In

The Governator Has Your Supply Chain In His Sights!

Are you prepared?

As recently reported in Procurement Leaders, California Governor Arnold Schwarzenegger is being lobbied to sign a bill that, if enacted, would require retailers and manufacturers doing business in California to disclose their efforts to eradicate slavery and human trafficking from their direct supply chain. A letter, signed by 32 signatories representing organizations with assets of $40 Billion under management, which supports The California Transparency in Supply Chains Act of 2010 (SB 657) has been sent to the Governor, urging him to sign the bill, which will affect approximately 3,200 global companies with revenues of more than 100 Million each.

Beginning January 1, 2001, the bill requires companies (with more than 2 Million in annual sales) to publicly disclose the policies they have in place to ensure their supply chains are free of slavery and human trafficking, including the extent to which the company uses third party verification to evaluate and address human trafficking and slavery risks in their direct product supply chains. It also requires companies to conduct independent, unannounced audits of suppliers to ensure compliance. A company that does not comply will face action from the Attorney General for injunctive relief in addition to remedies that may be sought for violating other state and federal laws.

Giving the realities of the marketplace, the pressing need for companies to be sensitive to social and ethical issues, and the support of organizations that control over 40 Billion in assets, there’s a very good chance that the Governator will sign the bill into law. Are you prepared?

Supplier Audits Must Be Surprise To Be Effective

As per this recent article in CPO Agenda by Meryl Bushell on why “ethical audits aren’t the final word on supplier standards”, in the past few years, audits have been shown to be ineffective for workers and also to be increasingly affected by fraud, double bookkeeping and coaching for workers so that they give “the right answer”.

If a supplier who knowingly violates common standards on child labour, health, safety, and hygiene, working hours, and wages (among other things) knows that they are going to be audited on a given day, they are going to be prepared. They’ll send the child labour home. They’ll reduce the work force on that day to “safe” numbers (which is whatever number they have enough “show” protective equipment for and / or whatever number fits in the factory without overcrowding). They’ll make sure to give the staff that will be present that day some “time off” the previous two days (i.e. they’ll only work them 8 hours instead of 16) so they don’t look dog dead tired. And they’ll fix all the books so that everyone makes a “living wage”.

But if you show up unannounced, you’ll see how things really run. You’ll see whether or not they (regularly) use child labour. (In some situations, child labour is okay. We let our children work part time at McDonalds when they turn 13. If they only employ children part time for light work in safe situations, in struggling economies, that’s a good thing because it boosts the family income, teaches them responsibility, and gives them a better quality of life. But if they work the child labour 80 hours a week in the mines or on the shop floor, that’s a different story. In this situation, they should all get life in work-camp prison doing the same job.) You’ll also see how “safe” working conditions really are and whether or not their people are not overworked simply by counting the number of employees with bags under their eyes and lifeless faces. (And if you get to the office fast enough, you might even catch them with the real books on the table!)

In addition, as Meryl recommends, you should also make sure that the surprise audit includes a detailed forensic assessment and unsupervised off-site interviews with random workers. This type of audit can quickly reveal a range of serious problems including child labour, below-minimum wages, faked records and protective equipment provide only during audits even when the standard on-site audit reveals only minor issues.

Now it’s true that regular surprise audits can pose quite a resource strain on your suppliers, and a financial strain on the suppliers that aren’t committing ethical atrocities in particular, and that your average supplier shouldn’t be subjected to more than a couple of surprise audits each year, but this problem is easily rectified if you cooperate with other major customers of the supplier and hire a reputable third-party that specializes in ethical audits to perform the extended surprise audits (with forensics and off-site interviews) on your behalf. This way, the supplier knows that they won’t be overburdened with too many resource and productivity draining audits, without knowing when the semi-annual audits will actually happen. It’s a win for everyone.

Share This on Linked In

This Is Gonna End Well … NOT!

As pointed out by Dick Locke in his post from earlier this week on More Headlines You Hate To See, this is an actual headline from DailyTech:

Foxconn Makes Employees Promise Not to Kill Themselves

FoxConn is asking all of its “colleagues” to sign a “health and wellness” letter that includes, in one of the numbered clauses, a statement that

I will not harm myself or others

in response to Apple’s demands to do something about the “suicide problem” in a factory that has seen almost fifteen suicides in recent months. (KokuGamer.com) I think the nets that Foxconn chairman Terry Gou plans to build around the dormitories are going to be more effecitive. (source)

After all, how are you going to reprimand a dead employee? Flail him? He’s already dead, moron.

Hopefully Apple and Dell can figure out what failed and force Foxconn to fix the problem. (source)

More Headlines You Hate To See

Editor’s Note: Today’s post is from Dick Locke, Sourcing Innovation’s resident expert on International Sourcing and Procurement. (His previous guest posts are still archived.)

Your supplier’s employees are committing suicide. News articles are showing up mentioning your company’s name as a major customer. Your actions are being tracked carefully. (Apple and Dell investigate Foxconn plant)

Headlines like: Foxconn Makes Employees Promise Not to Kill Themselves [DailyTech.com], “Plenty of Foxconn shame to go around”, and Foxconn suicides: capitalism and Marxism treat men like animals cover articles that name Apple, HP, Nokia and Dell as key customers. The term fair trade electronics gets increased currency.

What went wrong here? It would be professional malpractice to even venture a guess without talking to any of the principals involved. Instead I’ll write about electronic industry practice and ask a question or two.

The electronic industry has an Electronic Industry Code of Conduct that major buyers require suppliers to agree to follow. You can download a copy from the EICC site. You can also see the logos of their members, which include Foxconn. It looks like a good specification to me. It covers the key issues of employee relations and environmental responsibility and requires that signers require at least their first level suppliers to comply.

Of course, a key question is whether Foxconn actually complies or just agreed to comply. I don’t think anyone not directly involved can answer that.

So here are my questions:

  1. What do others think of the EICC specification?
  2. And do other industries have similar, cooperatively developed codes of conduct (on a global scale)?

Let’s get some discussion going.

Dick Locke, Global Procurement Group and Global Supply Training.

Share This on Linked In