Wednesday, March 24, 2010

The Ethical Supply Chain

I recently returned from a trip to Hong Kong and China, where I had the opportunity to visit some of the factories that produce our goods. In today's economy, supply chains are global behemoths, with companies balancing, among other things, cost, quality, speed, trade preferences, technical capability, product assortment and "social and environmental compliance."

Obviously, it's impossible to maximize all the different variables, which is why companies also seek to diversify their sourcing base. You don't want to be beholden to one country and/or factory for all your goods. If anything happens to that country/factory, your company would find itself up the proverbial creek without a paddle.

My job is to help maximize the last dimension I mentioned in the opening paragraph: "social and environmental compliance." In my and other industries, "social compliance" is a common term. Many people are surprised to hear that most any western company with a global supply chain has a "compliance" organization. The tricky part for stakeholders is to understand what authority that "compliance" team has and how they approach this work.

Some companies take a "checklist" approach to compliance where they have a list of important attributes for their contract factories to follow. Typically, this includes a no child labor provision, no corporal punishment and paying workers. These companies are minimizing the risk that's inherent in sourcing from developing countries.

Other companies encourage their contract factories to "own" social responsibility and work with them to provide management and worker training. They focus on building socially responsible practices into factories' management systems and seek collaborative partnerships with local civil society organizations to keep all parties honest.

Not surprisingly, more companies follow the former model than the latter.

I had the chance to only visit three factories during my trip to Asia and I was pleased to see that they were all pretty good from a social and environmental perspective. Two factories had pretty robust programs where they self-monitor for social and environmental issues. They had stated philosophical approaches to social responsibility and one had even developed a set of standards that it hoped would be stricter than local law or any of its customers.

In thinking through my own company's approach, we definitely fall between the two extremes I describe above. By no means are we doing the bare minimum, hoping that social and environmental risks will never rear their ugly heads. But we haven't evolved to the point where we are actively building management systems in place for factories to embrace and own social responsibility. It's a journey that takes time and an evolution that requires resources.

I'm lucky that the executives I work with "get it" and support me in my efforts to elevate the company's ethical sourcing efforts. Would I consider my company a leader in the ethical supply chain? Not yet, but if I have anything to do with it, we'll get there.

Monday, March 8, 2010

The Ratings Game

Last week I had the chance to meet with several corporate CSR leaders and in many conversations, the CRO's annual list of "100 Best Corporate Citizens" came up. Like every other list that purports to rank companies based on CSR, differing viewpoints and minor controversy always arise.

When I mentioned the list last week (usually to congratulate a colleague whose company earned recognition on it), I heard several comments, including:

  • "You know how it is. It's a game you've got to play and hope to influence."

  • "When [company name] is in the top 25, you have to wonder how credible the list is."

  • "Well, it means something only if you agree with the methodology, which I really don't."

Usually, these comments were accompanied by a roll of the eyes, a shrug or a dismissive noise.

In my last two CSR positions, I worked at companies that appeared on the list and part of my job was to furnish SRI investment firms with information that would help them provide accurate and timely information about our company's CSR practices to their clients. Since the CRO list gathers its research from such an SRI firm, I served as the point of contact to provide them with information about our company's efforts.

And while I agree with my fellow CSR practitioners who feel that these rankings create unnatural competition and cannot possibly provide an apples-to-apples comparison of companies' CSR programs, I do believe they can have value.

As one of my colleagues said last week, "At least it gets our CEO talking. He's mentioned it to investors and other business partners." It's a clear and easy proof point for executives to drop in a conversation. It can serve as a "measurable" way to validate the hard work of a CSR team. It can also serve as a framework for a company to organize, build and communicate a CSR program. (Although I wouldn't recommend using the last bit as a driving force for a CSR strategy.)

In the end, I truly do congratulate CSR leaders whose companies appear on this and other CSR rankings list, but I always remain skeptical of where companies are placed in relation to each other, especially when a company can jump 20 spots in either direction in the course of a year. But as long as they encourage companies to continuously improve upon their stated missions to help people, communities and the planet, I'm all for it. Even if it may be an artificial motivator.

Sunday, March 7, 2010

Partnership Groundrules

I've spent the past several weeks trying to figure out how exactly we should be working with our third-party supply chain audit partners. Part of my responsibilities will be to make sure all the factories around the world that manufacture our products respect human rights, labor rights, communities and the planet's natural resources.

I used to work at a company where we had a very big, effective team that would visit factories on a daily basis. Not only did they conduct factory audits to ensure that they were upholding the company's standards, but they also ensured that factories followed up on corrective action plans and worked toward continuous improvement. At my current company, we've decided to contract with two providers of "social compliance."

The benefits of using third-party auditors is that it can be less expensive and time-consuming than building up an internal team, third-party auditors can leverage expertise and relationships from working with other customers and many of these auditors are certified by internationally respected NGOs.

The biggest challenge I've discovered with working with third-party auditors is that they don't have skin in the game. They're required to deliver audit reports, but they're don't necessarily have the incentives to follow up with factories or to do extra work to improve factory working conditions.

With that said, I don't think it's a lost cause. I'm realizing that we have to be crystal clear with what we expect as follow-up to a factory visit and we have to create mechanisms that make our auditors accountable for remediation. We need to figure out ways for our auditors to share our goals and to "own" the responsibility of factory improvement.

So, I've taken a stab at some standard operating procedures, which I hope will get us closer to this goal, but I'm not sure how well-received they will be. Hopefully they'll be strong enough to create a new dynamic of ownership and responsibility while giving us the assurance that these factories are indeed "good" factories when we don't have the manpower or the time to visit them firsthand.