The Issue We are Concerned with:
Corporate social responsibility has received increasing attention in recent years.
Whenever high profile scandals erupt, consumers feel disappointed in the brands and hold them responsible for misleading the customers into purchasing products that are the results of unethical practices and laborers’ agony. Corporations would often deny knowledge or participation in the scorned exploitation in their supply chain, but the truth is, supply chain operates in both directions.
Suppliers move the materials up the chain, and the demand of the goods travel down the chain. When large corporations demand for supplies at unsustainable low price, the suppliers, often small and power less, will find a way of meeting the demands to survive or risk going out of business. In some less ethical suppliers’ perspectives, the easiest way for cost-cutting is to reduce wages, cut-corners on sustainability practices and hiring cheap labor such as underage workers. The domino effect of the supply chain leaves the retailers and brands at least partially responsible for what happens in their supply chain, a “custodial duty” as AuretvanHeerden, former CEO of Free Labor Association calls it.
So what is the status quo?
Right now, consumers rely the most heavily on governments to regulate how corporations are implementing their corporate social responsibility: not necessarily the active promotion of social good, but at least the implementation of law on labor and environment and so on. Unfortunately, some governments are ineffective of fulfilling the duties one can expect from them.
First, the national governments’ jurisdiction ends at the border. Corporations, however, are becoming increasingly global and extend their supply chains to the other side of the globe.
Second, governments in developing countries may lack the necessary resources to legislate and implement the laws. They are short of manpower to inspect both the manufacturers and the corrupt officials. Even when the officials withstand the bribes, the fine or penalty is negligible compared to the profit generated from unfair practices. This is a big problem because most of the world’s manufacturers and suppliers are located in the developing countries.
How is the issue being addressed?
So how can we address the issue? Pioneers of corporate social responsibility in supply chains emphasize corporations as initiators to game-change. The inherent problems of governments will not improve any time soon; NGOs and charity organizations lack the scalability of profit driven corporations, says Michael Porter, a business strategist and a professor at Harvard Business School. The incentive matrix transforms when the corporate social responsibility is incorporated into the business contracts.
For manufacturers and suppliers, contracts mean their survival. They know that if they violate the contract and lose the job, their business might have to close.The influence of indicating fair labor clauses and business responsibility clauses in the contracts force suppliers to attend to ethical practices in a way government regulations cannot.
For brands at the top of the supply chain, reputation really matters. Public’s trust in their goods and services can lead to an increase in sales, or vice versa. They spend millions of dollars annually in PR.
Responsible supply chain management empowered by contracts has shown success, including the US luxury goods industries in the 1990s. The brands devised a common code of conduct in 1996 that would be implemented throughout the supply chain via the power of contract. The malpractices such as child labor, forced labor, health and safety abuses decreased significantly as the new contracts were implemented.
What can we do as an individual?
What we, as individuals and corporate consumers, can do is to make sure that the brands’ incentive to keep a good reputation has proper consequences. Change our purchasing behaviors to take into account the companies’ fair business dealings. Several certifications help us understand how the company is doing in terms of CSR, but equally, being curious and find out the stories behind products and brands would help us drive more ethical business behavior.
Here are a few ‘certificates’ that you can spot on products and services that indicate the business’ consideration for fairness and sustainability:
1.Fair Labor Association: An international organization headquartered in Washington D.C., FLA aims to inspect and publish labor rights in corporations. By inspecting a random sample of suppliers of member companies and publishing the results to the public, FLA membership offers insight to how companies regulate their supply chains.
2. Fair trade Foundation: Fair trade certificates aim to bring products to the shelves at reasonable price so the farmers and producers can earn reasonable wages and work under decent working conditions. Majority of products with Fair trade certificats are food.
3. Industry specific certifications: Forest Stewardship Council marks are widely known as certificates for environmentally responsible sourcing of wood. In fact, FSC criteria also include working environment of the workers and the forest’s relationship with the local community. Roundtable for Sustainable Palm Oil is another example of industry specific third party organization to monitor responsible sourcing or companies.
We must, however, take these certifications with a caution. Often, the cost and resources required to attain these marks are prohibitive for small businesses. Even if their business is socially responsible and they manage their supply chain well, they may not be able to afford the time consuming and expensive procedure of attaining these marks. After all, for sustainability’s sake, we want to encourage business diversity and see everyone thrives in a fair trading environment.
Nevertheless, look out for these positive signs when placing an order for your brand or shopping for yourself. Be curious and find out what’s behind.
About the authors:
Bonnie Chan Woo is the CEO of Icicle Group
Jee Soo Lee is the CSR Intern (2014-2015) of Icicle Group