Ethics and its application have been studied by several academic fields over the years, leading to questions concerning what constitutes ethical behaviour.
In the corporate world, as the supply chain takes an increasingly strategic role striving for profitability at all costs, companies question what benefits they may derive from pursuing ethical conduct. Unfortunately, the paradox that a business’ operation needs to be as lean as it is broad often prevails over social responsibility.
What is an Ethical Supply Chain?
“Applying rigorous ethical standards to your supply chain is not just about compliance or completing necessary paperwork, but implementing good governance and preventing exploitation of human beings across the globe for the sake of profit,” - Cath Hill, Group Director at the Chartered Institute of Procurement & Supply (CIPS)
BBC described ethics as a system of moral principles that affect how people make decisions and lead their lives.
For supply Chain, ethics means guaranteeing that the procurement process abides by international standards against criminal conduct and human rights, including:
ethical sourcing: certifying that raw materials, components and/or products are sourced and obtained in a responsible and sustainable way
labour concerns: safeguarding all workers involved directly or indirectly in the supply chain. That means eliminating discrimination, child and/or forced labour, ensuring fairness and safety
environmental responsibility
fighting corruption (extortion, bribery)
“Figures from the International Labour Organization (ILO), released most recently in 2017, revealed that more than 40 million people worldwide were in modern slavery in 2016, including around 25 million in forced labour. Of those in forced labour, some 16 million were being exploited in the private sector. Furthermore, there were more than 152 million estimated victims of child labour, almost half of whom were aged between 5 and 11.” - Raconteur
A 2018 study observed that 83% of supply chain professionals say that ethics are extremely (53%) or very important (30%) to their organizations. However – and sadly – the study also observed that reality often fell short of theory as many companies perceived ethical sourcing as an expensive exercise with low to no ROI.
Thankfully the modern Supply Chain has realised that sustainability can drive profitability and offer a significant competitive advantage.
How Globalization Affected Operations
“Globalization, technology and the desire for profit made it possible to manufacture parts in one nation, put them together in another and sell them in a third. While controversial in some quarters, outsourcing proved to be expedient and profitable.” - Forbes
The increasing complexity of the global supply chain makes controlling their impact (on people and the planet) extremely tricky. Even large and well-meaning companies sometimes turn a nonchalant blind eye, shying away from the strenuous task of investigating the bona fides of remote supply chain links.
In this context is unsurprising to discover that two thirds of corporations ignore corruption in their supply chain, a significant shortfall in ethical performance:
“executives had unwarranted confidence about how responsible their supply chains were. A significant minority of businesses had also allowed supply chain responsibility to slide as a priority in the past five years. There was a bias towards issues connected to more “obvious” material business risks and opportunities, while topics which were harder to quantify or which only affected subsets of the population were often neglected.” – The Economist Report: No more excuses, Responsible supply chains in a globalised world
However difficult, the need for ethical practices is arguably much more critical in the modern global chain than ever before. As the aforementioned Forbes article duly explained, “the supply chain cannot be divorced from corporate social responsibility concerns about the environment, health and safety.” Failing to do so can cost a business more than revenue: it can permanently damage its reputation.
Ethics and Reputation
While it’s true that today’s global supply chain has less visibility or control over their suppliers’ practices, consumers nevertheless hold companies responsible for what happens throughout their entire organization.
The gap between consumers’ theoretical and actionable desire for sustainability is also narrowing. According to an international Unilever study, 33% of consumers choose brands depending on their social and environmental impact. Furthermore, Euromonitor International found that 65% of worldwide consumers are endeavouring to make a positive difference with their everyday purchases.
Therefore, a strong corporate social responsibility strategy can not only mitigate civil liability but also avoid reputational damage stemming from negative allegations.
“Stepping out of the moral maze for a moment, there are also many bottom-line business-case benefits to be gained by adopting such an ethical approach: “It can maintain the supply of goods, increase productivity and quality, and which is increasingly expected by consumers.” - Martin Buttle, Strategic Lead for General Merchandise at the Ethical Trading Initiative (ETI).
Some recent (and widely reported) examples of brands facing the consequences of unethical supply chain practices:
Apple / Foxconn Saga
Possibly the most prominent supply chain fiasco in recent history, Apple’s ongoing saga with Foxconn. Last year, Apple and Foxconn confirmed they broke a Chinese labour law by employing too many temporary workers. In late 2017, Apple found Foxconn had employed high school students who worked illegal overtime to assemble the iPhone X. And worst of all, in 2010 fourteen assembly-line workers committed suicide, twenty more workers were talked down by Foxconn officials. Surprisingly, fast forward to 2020 and Apple is still sourcing from Foxconn, across various sites. As well as giants Google, Huawei, Microsoft and Sony.
Automotive Industry Major Safety Woes
In 2014 a New York Times exposé revealed that the Takata Corporation, a Japanese car parts supplier to around 20 automakers including Toyota, Ford and BMW, had known for years that its airbags were defective— and it kept quiet on the matter – causing 17 deaths and 180 injuries. Takata declared bankruptcy in 2017.
Apparel Big Brand Child Labour Scandal
In 2016, a BBC undercover investigation discovered Syrian child refugees working in Turkish sweatshops that supply clothes to retailers like Asos, Marks & Spencer and Zara. Responses from the retailers ranged from promising legal employment to the workers to offering them financial assistance. Expectedly, a few claimed that the factories were not an approved supplier and the result of subcontracting.
We could unfortunately go on forever with examples of companies that, through greed or ignorance, failed to comply and abide by health and safety and labour regulation, but that’s not the aim of this article. The above examples served to illustrate our key message: get your ethical act together or face the consequences!
Preventive Efforts
Companies may worry about the costs of implementing preventive measures towards ethical sourcing. However, what happens when a company uncovers that its supply chain is compromised?
Well, aside from loss of credibility from consumers and stakeholders, that company is faced with the need of a complete supply chain overhaul – a much more expensive and disruptive exercise.
A preventive approach will ensure you’re ready to mitigate any possible weak or bad link as well as maintain a responsible corporate posture:
Map your supply chain
Implement a formal Code of Conduct for suppliers
Conduct strategic audits
Understand current statutory and regulatory requirements in the countries you directly or indirectly operate in
Forecast litigation risks
Education is Key
No change will occur, however, without stakeholder buy in. Here are some initiatives you could adopt in order to gain employee, management and supplier support:
educate all your staff from key executives and managers to field workers on regulatory and ethical challenges
offer face-to-face, qualitative training with wide debate of your policies practical application
train staff to recognise and report risks
offer anonymous channels through which employees, contractors and other third parties can raise concerns in confidence about unsafe, unethical or unlawful practices
promote your Code of Ethics as a guide for corporate culture and team behaviour
create ongoing awareness-raising programmes
Conclusion
Ethics is an integral part of corporate social responsibility (CSR). A well written (and thoroughly applied and audited) Code of Ethics can promote an organization’s reputation and ultimately drive profit.
“The importance of business ethics reaches far beyond employee loyalty and morale or the strength of a management team bond. As with all business initiatives, the ethical operation of a company is directly related to profitability in both the short and long term. The reputation of a business in the surrounding community, other businesses, and individual investors is paramount in determining whether a company is a worthwhile investment. If a company is perceived to not operate ethically, investors are less inclined to buy stock or otherwise support its operations.” - Investopedia