Corporate ethical responsibility should encompass supply chain ethics

A corporate’s ethical reputation crucially rests on its ability to build and maintain an ethical culture, which is shaped by the conduct and decisions within the organisation. What is often not recognised is the extent to which the ethics of its upstream and downstream supply chain – its suppliers and its distributors, users and customers respectively – can also impact the organisation’s ethical reputation.

 There has been a plethora of examples, new and old, which show the significant impact a supply chain can have on a company’s reputation.

 A prominent downstream supply chain example recently played out in October 2020 when the CEOs of Twitter, Facebook, and Google testified before the US Senate on their companies’ liability for content created by their users. The liability protection that these companies have enjoyed to date via section 230 of the US Communications Decency Act of 1996 – which provides that "No provider or user of an interactive computer service shall be treated as the publisher or speaker of any information provided by another information content provider" – is now being very seriously questioned.

 A more widespread ethical risk stems from the suppliers in an organisation’s upstream supply chain, as many organisations source a myriad of goods and services from a complex chain of diverse suppliers, sometimes from various countries, with different legal, regulatory, and human rights practices.

The recent Clicks furore is illustrative of the impact of supplier ethics. In September 2020 Clicks faced major public criticism for posting a TRESemmé advert that denigrated black hair – a reaction that was not diminished by the fact that it was using an advert supplied and developed by the product brand owner, Unilever.

In an employment context, the Business and Human Rights Resource Centre reports that human rights abuse in employment practices are pervasive in corporate supply chains in all regions of the world. This occurs especially in supplier industries that are labour intensive, low skilled and under-regulated. Forced labour and child labour persist in the cotton, chocolate/cocoa and tobacco industries, and labour conditions in the garment industry continue to violate basic rights for workers. Chocolate manufacturers Hershey, Nestle, and Mars have all been challenged in US courts for labelling that did not disclose the use of forced child labour. While these cases have been dismissed, it is nonetheless not the publicity any brand would want.

Consumer boycotts are also illustrative of the impact of breaches in supplier ethics. A well-known boycott was one against Nike in Europe and America in the 1990s for unacceptable labour practices in their factories in Indonesia and Vietnam. The long-running boycott campaign by animal rights group PETA also succeeded in getting major fashion houses to support their ban on fur: Burberry, Armani, Versace, Gucci, Vivienne Westwood and Stella McCartney. Boycotts are especially effective because, together with the consequent negative publicity, they have the potential to affect profits adversely – thereby linking supply chain ethics directly to the company’s financial bottom line, which is almost always an effective motivator.

A proactive example of managing supply chain ethics is the decision in September this year by major retailers – Pick n Pay, Woolworths, Spar, Makro, Game, and Food Lover's Market – to stop stocking products from the water brand aQuellé. Why? The brand is owned by the KwaSizabantu Mission in KwaZulu-Natal, and the Mission is the subject of investigative hearings by the Commission for the Promotion and Protection of the Rights of Cultural, Religious and Linguistic Communities into human rights violations and abuse allegations.

The above examples are illustrative of one simple truth: that supply chain ethics has the potential to deeply impact an organisation’s ethical reputation and thereby its bottom line. A key question is whether corporates recognise and accept supply chain ethics as an important facet of their ethical responsibility.

The obvious, starting motivation for a corporate to take on this expanded responsibility would be self-protection – no organisation wants its reputation tarnished by association with an unethical supplier, nor would any company want the scourge of human trafficking in its supply chain. But the expectation that corporations should exercise this responsibility extends beyond the motivation of self-interest for three reasons: the power of consumers and society to drive change, international best practice, and corporate actions in creating the conditions under which unethical supply chain practices can arise.

As illustrated by the above examples, consumers, as well as society at large, represent a very powerful group. Consumers want to know that there are decent working conditions where their purchases are sourced or made. Tiffany and Co., the luxury jewellery retailer, is a good example. It can trace all of its newly mined gold back to one mine of origin and conducts regular human rights assessments with the mine – in an industry where child labour, forced labour, and human trafficking have been documented in in Ghana, Mali, Nigeria, the Philippines, Tanzania, and Zimbabwe (Human Rights Watch 2018). Fair trade coffee is another example that is premised on ensuring better trading conditions for coffee bean farmers and the prohibition of child labour or forced labour. Beyond direct consumers, society also expects brands to be alive to societal issues, such as racism and misogyny. This is an increasingly powerful force that cannot easily be ignored – especially given the reach and impact of social media.

From the perspective of best practice, there are three global frameworks focused on corporate human rights responsibility which support supply chain ethics as falling with the scope of corporate responsibility: the United Nations Global Compact, the United Nations Guiding Principles on Business and Human Rights, and the Organisation for Economic Co-operation and Development Guidelines for Multinational Enterprises. Their stance is noteworthy inasmuch as they all advocate a leverage-based approach as regards corporate responsibility for human rights abuse. This recognises that organisations’ responsibility extends beyond impact-based responsibility via its “direct and indirect contributions to social … impacts”, to include responsibility that rests on “an organization's ability to influence the actions of other actors through its relationships” (Wood 2012:64).

The third argument supporting corporate responsibility relative to its suppliers’ ethics stems from corporations’ own complicity in the formation of lengthy, fragmented, and complex supply chains in pursuit of the goals of reduced cost and reduced risk. This business model often creates conditions that facilitate or lead to human rights abuse: “relentless cost cutting and the exercise of brutal commercial power … might stimulate supplying firms to feel the need to engage in, or turn a blind eye to, exploitative labour practices” (New 2015:701).

There is, therefore, a strong case supporting this area of expanded corporate ethical responsibility. The key questions this raises are: Is this responsibility fully recognised by the Board? Is this on the organisation’s risk register? What insight does the company have of its suppliers’ ethics? What is being done to manage and minimise this risk? The answers to these questions should, ideally, not be ‘nothing’.

By Cynthia Schoeman

? Ethics Monitoring & Management Services (Pty) Ltd, 2020