Perspectives in Responsible Sourcing

Corporate Responsibility in the Food Industry

As part of the growing debate surrounding social and environmental responsibility in the food industry, Agra Informa—a leading information specialist on agriculture and food policy, markets and trade—hosted a conference entitled “Corporate Responsibility in the Food Industry” on September 21 and 22. Present at the London event were representatives from major European retailers along with various research organizations, non governmental organizations and private sector service providers. Although a wide range of topics were presented and discussed, a few key concerns emerged as areas for immediate engagement.

The first was primarily related to improving public awareness and perception of industry efforts in social and environmental responsibility. To help do this, greater transparency and more effective benchmarking and reporting mechanisms were identified as critical elements. It was also suggested that credibility and trust among external stakeholders could be further enhanced by reporting not only successful initiatives, but also those that did not work out or that had negative results. However, such reporting may be too premature for a number of companies in the food industry, especially those that have only just begun to investigate responsible sourcing issues in their supply chain.

The second theme of interest that evolved from the conference was the call for food retailers and manufacturers to work together and to coordinate efforts with regard to responsible sourcing. Although this is already happening to some extent, it is not on the scale that is required. As a result, monitoring costs continue to be high (due to replication of audits) and progress hindered by the array of buyer requirements and programs. As a speaker in one of the panel discussions entitled “Applying the Standards”, I was able to draw on our experience as a monitor in the food industry over the last few years to highlight common failings and best practices within the food industry thus far.

Common failings in the food industry include:
- Supplier/farmer resentment due to high cost and number of audits required (largely the consequence of varying buyer requirements)
- Inadequate supply chain information and difficulties with logistics and securing/mitigating risk from all suppliers
- Poor communication and support from the top to bottom of the supply chain regarding standards, program expectations, monitoring process etc.
- Lack of consistency among/within audit companies

Best practices in the food industry include:
- A multi-program approach, with greater emphasis on training and education for program implementation and remediation of violations
- Better support and development of internal management systems on farms
- Increased transparency by sharing supplier status and farm audit results between retailers and buyers and by disclosing supply chain partners to help with identification of sourcing risks and program logistics
- Improved communication between buyers and suppliers, with the goal of establishing long-term relationships

If we are to learn anything from social responsibility initiatives of the past, developed by pioneers in the field from textiles and garments and the oil and gas industries, greater cooperation early on can help minimize sourcing risk and improve compliance in the future. This means that multiple stakeholders, including competitors, need to meet at the table and develop more cost-effective solutions in order to improve social and/or environmental standards throughout our food supply chains.

Legal Hurdles: Part I

Many critics of CSR assert that a voluntary framework to improve human rights and labor standards is not adequate and that a regulatory framework must be established for this purpose.  This is easier said than done for a number of reasons, but two main hurdles are legal definitions and questions of jurisdiction.  In the next two blog entries, I will look at each problem in turn by means of analyzing newly proposed legislation in the UK and US respectively.

Legal Definitions and The Corporate Manslaughter and Corporate Homicide Bill (UK)

If you've ever seen or read The Corporation, you know that in the US and the UK, corporations are defined in law as "legal persons."  That means a large group of people are all bundled together as one person under the law.  As a result, if something goes wrong, it's very tough to successfully prosecute a business - how do you punish a "person" that isn't a person?  The frequently quoted line is "there's no body to kick, no soul to damn."  To make matters worse, under UK law at present, in order for a corporation to be found liable for corporate manslaughter, one senior official in the organization must be found responsible for what happened (this is called the identification doctrine).  Well, that's not how things work in the real world, is it?

Here's an example of the problem with applying this legal framework.  In 1987, the Herald of Free Enterprise, a ferry sailing between Zeebrugge and Dover, sank near the Zeebrugge harbor.  The incident resulted in 187 deaths, and the company that ran the ferry was charged with manslaughter. (BBC, "1987: Zeebrugge Disaster Was No Accident")  The Law Lords found that the tragedy was the result of "organizational sloppiness through and through."  But they concluded that while a corporation could be convicted of manslaughter, the organization could not be held liable legally for the incident, however culpable it was morally and in practical terms.  This is because the law requires that one person in the organization be found liable for "causing" the accident, and this person could not be pinpointed in the present case. (R v. P&O European Ferries (Dover) Ltd. [1991] 93 Cr. Ap. R. 72, June 5, 1990)  This legal approach helps to explain the following statistic quoted in The Guardian in July, 2006 - in the last 30 years, 10,000 people have been killed in work-related incidents; 70% of the deaths were attributed by the Health and Safety Executive to be a direct result of management failure, but only 11 company directors were convicted during this period, and only 5 were imprisoned for their crimes. (The Guardian, "Manslaughter Bill Must Ensure Justice for those Killed at Work," July 24, 2006)

The Herald of Free Enterprise was one of a number of tragedies that occurred in the UK at around the same time where a company was clearly responsible for a fatal accident but was not held liable due to the legal framework.  This spate of accidents led to public outcry and growing political support for a new law on corporate manslaughter. (BBC, "Corporate Killing Law to Change," July 21, 2006)  In 2005, proponents of such change kept their ears peeled during the Queen's speech for word of this development, but no mention was made. (King's College London, Lecture in Criminal Law, 2005)  Observers feared that Blair would never introduce a new law in this area after promising and failing to do so in three previous election manifestos. (The Guardian, "Corporate Manslaughter Crackdown Cheers Unions, July 20, 2006)  But on July 20, 2006, the Corporate Manslaughter and Corporate Homicide Bill was introduced in the House of Commons.  (It has 2 names for the offense because the Bill covers Scotland as well and the offense is called corporate homicide there.) (Corporate Manslaughter and Corporate Homicide Bill, Explanatory Notes)

The Proposed Law

The definition of the offense is as follows: "An organization to which this section applies is guilty of an offense if the way in which any of its activities are managed or organized by its senior managers causes a person's death and amounts to a gross breach of a relevant duty of care owed by the organization to the deceased."

According to a Home Office report entitled "Corporate Manslaughter: The Government's Draft Bill for Reform," the new offense would be based on "failures in the way an organization's activities were managed and organized" and would focus on "arrangements and practices in carrying out an organization's work, rather than an immediately negligent act by an employee."  So the focus would be more on collective company organization and action than on an individual employee's action, as is the case at present.  The offense would only kick in if the organization owed a "duty of care" to the victims - in other words, a company would not be liable under the law if it acted and something happened as a result to people for whom it had no responsibility.  Not surprisingly, a company will have a duty of care to its employees, but also to recipients of its goods and services.  If this duty of care is established, the breach of this duty must be "grossly negligent" (ie, a seriously serious kind of breach - the Bill gives serious management failure as an example).

The definition also states that the offense must "cause a person's death."  Causation can get pretty tricky as it's not always clear what causes an event, and sometimes there are multiple causes.  So the Home Office report seeks to clarify the definition of causation for the pursposes of the Bill by saying there must be: (1) more than a minimal contribution to death; and (2) no intervening act to break the chain.  In other words, the company must have contributed to the point that it influenced the outcome in some way, and nothing can have happened between what the company did and the death to change the course of events to the point that the company's act couldn't be shown to influence the outcome somehow.

Finally, the explanatory notes to the Bill state that the definition of senior manager "is intended to capture a level of responsibility that represents the overall way in which an organization manages or organizes any particular activity," such as when "management responsibilities relate to the whole of an organization's activities or to a substantial part of them."  This definition covers decision-making and management functions.

The Effect

So would this law work?  Let's look at it in the context of the Herald of Free Enterprise disaster.

(1) There would no longer be a question of whether an offense of corporate manslaughter exists, which was thee central question in that case - here's the law to prove it does!  Obstacle 1 gone completely.

(2) The new law would focus on activities, mainly decision-making and management, by senior company officials rather than looking for one culpable person as the identification doctrine requires.  This approach seems to fit much better with how corporations function, although one wonders if it goes far enough to account for the complexity of corporate structure in assigning accountability.  Still, it seems much more likely that the company operating the Herald of Free Enterprise would have been convicted under this test.  Obstacle 2 dealt with in a much better way.

(3) The offense would only kick in if a company owed a duty of care to the victims.  It seems fair to restrict the circumstances of conviction this way as manslaughter is an extremely serious charge, and it would not be fair to make companies accountable for every bad thing that happened, regardless of how remote it is.  With the Herald of Free Enterprise, it is reasonably clear that the company had a duty of care to the passengers of the vessel as recipients of its services, as well as to employees working the ferry.  So, the duty of care set by the law seems reasonable using this case as a guide post.  Obstacle 3 dealt with in a seemingly adequate way.

(4) Breach of this duty of care would have to be "grossly negligent."  Again, this high threshold seems reasonable given the seriousness of a manslaughter charge, depending on exactly what standard is set in this regard.  Given the Law Lord's assessment that the ferry company was sloppy through and through, it seems reasonably likely that an assessment of gross negligence would have been assigned to the company's organization and arrangement, thus fulfilling the definition of the new offense.  Obstacle 4 dealt with reasonably pending further definition.

(5) Causation is defined relatively broadly.  This element is important, particularly with regard to corporate crimes as it is often unclear exactly who contributed to an event and to what extent the person or people contributed in complex organization structures.  It seems clear that the ferry company's contribution to the accident was more than minimal and it does not appear that there was an extraordinary intervening act that would have alleviated its culpability, so most probably, this case would have met the causation requirement for the offense.  Obstacle 5 dealt with in a seemingly adequate way.

(6) The definition of senior management is flexible.  Again, this flexibility is important because it reinforces the notion that the organizational structure and decision-making process is more important than individuals.  The "sloppiness" of the ferry company's organization pointed to serious organizational deficiencies by senior management within the organization.  Obstacle 6 addressed, but as mentioned above, it would be interesting to see if this construction of responsibility adequately accounts for how corporations work.  It's better, for sure, but potentially still inadequate.

Will It Work?

Although this Bill rectifies a lot of the problems with the existing law, there are still concerns about whether or not it would be effective.  According to the House of Commons leader, Jack Straw, the ultimate test of the law's success is whether it changes behavior of managers so as to prevent accidents. (BBC, "Corporate Killing Law to Change," July 21, 2006)  In order to do this, according to the same BBC article from July 21, the definition of "grossly negligent behavior" will need to be clarified.  Furthermore, it seems that questions about penalties remain.  Under the current proposal, fines and remedial action are possible, but 2 major UK unions want a provision to jail corporate leaders directly responsible for corporate killing. (The Guardian, "Corporate Manslaughter Crackdown Cheers Unions," July 20, 2006)  With regard to whether the offense would extend down supply chains, my sense is that a duty of care would not carry this far because of the gravity of the offense - it would cast the net of liability too wide to be politically feasible.  I also wonder if the fact that this law does nothing to redefine the corporate entity (recognizing the many implications this would have for corporate law) will have implications for other types of corporate liability.  Finally, this law only applies to deaths in the UK, but I'll cover jurisdictional concerns more next week.

Africa: Challenges and Opportunities

I recently returned from a lengthy trip to Africa. Kenya was one stop on my itinerary, a country that has reaped benefits from the African Growth and Opportunity Act (AGOA). I met with some garment workers in Nairobi and asked them what they like about their jobs and also what challenges or difficulties they face. It was interesting to hear their responses: "I am proud to have a job and take care of my family." "I enjoy learning new skills." "I’m glad to work and earn a salary." Of course, with gross monthly wages around $100 USD, nearly all workers volunteered their desire to have a higher salary. At least these particular workers are affiliated with a local union that in January negotiated a pay increase on their behalf; local minimum wage rates for different garment jobs range from just 35-75 USD per month.

These workers in Kenya seem relatively fortunate. Arguably, Kenya hasn’t been as hard hit as other countries in the region following the end of quota in 2005. Even while AGOA is still an incentive for some foreign investors, many countries have seen exports drop as Africa struggles to compete with China, leaving many workers unemployed.

In Zimbabwe, workers have been coping with hyperinflation and ongoing fuel shortages that have driven up the cost of public transportation, leaving many workers no option but to walk 14 miles each day to get to work and back. The transportation subsidy negotiated by the nationwide industry union was so quickly outpaced by inflation that it was decided it should be raised two more times during the last 4 months of the year, which even then will cover just 60% of the estimated transport cost to workers.

Other countries have more challenges to overcome. Cote d’Ivoire is still hindered by the 2002 civil war, with the resulting internal instability creating challenges for export industries. When I visited Abidjan, I found factories operating at 25% of capacity. One place I visited was working primarily for the United Nations Development Program, producing t-shirts as part of an arms exchange program. I watched as t-shirts of all sizes passed on the drying belt, large, medium, small, and very, very small – small enough to fit the child soldiers known to have been conscripted to fight with the rebels.

With challenges like these, what does the future hold for sub-Saharan Africa? Is there good news for Africa? I think so, yes. Commitment to source from Africa seems to be on the rise, from companies like those affiliated with the MFA Forum, who see sourcing as an opportunity to act as responsible global citizens as much as getting good products at good prices. With sourcing commitments from major brands, Lesotho, one of those harder hit after 2005, is now seeking to develop a competitive advantage related to ethical workplace practices. The government is working with brands to advance HIV/AIDS programs and supervisor training to combat issues of abuse, historically problematic in southern Africa. Now the MFA Forum is looking to expand their projects to other African countries, as are USAID and the IFC.

A little responsible sourcing may just make a big difference for Africa. For more on this topic, see my article on responsible sourcing in Ethical Corp magazine. http://www.ethicalcorp.com/content.asp?ContentID=4499

Global Corporate Accountability

The recent debacle in Côte d’Ivoire highlights the need for global social and environmental standards for companies.

A ship carrying toxic waste dumped its contents around the capital city of Abidjan last week causing 6 deaths and prompting 9,000 people to seek treatment so far. In an unprecedented move, the fragile government resigned in response to widespread protests, putting in jeopardy the stability of a country that is already teetering on the precipice of a shaky 2003 peace agreement between the rebel-held north and the ruling party in the south.

While sharply bringing into focus the powerful impact that environmental disasters can have on fragile economies, failed states, and countries in transition, this incident also raises the issue of global corporate accountability.

According to news reports, various companies were involved from the Greek company, Prime Marine Management that owned the Panamanian-registered vessel sailed by a Russian crew to the Netherlands-based company, Trafigura, that chartered the ship through its wholly-owned subsidiary in Abidjan, Puma Energy, and the Ivorian company, Tommy, that had been entrusted with handling the toxic waste after it was unloaded.

So who is responsible for this mess? Trafigura claims to have operated “lawfully”, however, the laws on pollution in Africa as in many developing countries are notoriously weak, not enforced, or non-existent. In such situations it is not enough for a company to say, “we comply with the laws in all countries where we operate”. Corporations have an added responsibility, I believe, to operate according to the highest global standards where there is a regulatory void. The problem with this stance, of course, is that there are no universally agreed upon standards for companies. We have the Universal Declaration of Human Rights that has been widely agreed to by governments but this only loosely applies to ‘non-state actors’, i.e. companies and other non-governmental entities.

In the US, this kind of environmental negligence would no doubt lead to numerous lawsuits and victims would seek compensation for their losses. In Côte d’Ivoire, however, it is unclear what legal recourse Ivorian victims would have. Even if their case was justiciable under Ivorian law and assuming a functioning court system, the web of companies and ownership structures involved could restrict domestic prosecution to the Ivorian company and possibly the wholly-owned subsidiary.

Although locals have decried the contamination as a “crime against humanity”, as yet, courts in the US have not interpreted the Alien Tort Statute to encompass environmental crimes. Furthermore, unless the Netherlands has an extra-territorial law on pollution that applies to corporations, it would be impossible to bring a case in the company’s home country.

Meanwhile, Ivorians are left to suffer the short- and long-term effects of toxic waste in a place where the life expectancy is already barely reaching the mid-fourties and the average salary is $840 a year. And regulatory debates aside, is it ethical for Western companies to be dumping toxic waste in developing countries even if it is legal? I’ll leave that question for a future post…

Sources:

• ‘Ivory Coast PM to form new cabinet after toxic scandal’, Emmanuel Duparcq, Agence France-Presse (AFP), 07 Sep 2006
• ‘More die from Ivory Coast waste’, BBC News, 12 Sep 2006
• GNI Per Capita, 2005, World Bank
  http://siteresources.worldbank.org/DATASTATISTICS/Resources/GNIPC.pdf (accessed 9/18/06)

The Use of Pesticides in Agriculture

Many of the improvements made in modern food production over the years are due to the development of techniques such as: improved (and sometimes genetically modified) plant varieties, fertilizers, pesticides and mechanization. While the use of these methods has benefited humans with a global surplus of cheap food, at least for those with the access and the means to purchase it, industrialized production has also resulted in a number of social and environmental costs. The frequent use of pesticides, for instance, is among the more commonly cited problems of conventional production.

Pesticides
A pesticide is any substance or mixture of substances used to prevent, destroy, repel or mitigate pests. The type of pesticide required, be it an insecticide, fungicide, herbicide, nematicide etc. will depend on the type of pest to be destroyed, such as insects, plant diseases, fungi, weeds, or nematodes etc. Different pesticides also have different means of being effective; some need only touch the pest to be deadly while others must be swallowed to be effective. The intention is to produce high quality, pest and disease free products. In doing so, however, pesticides can unwittingly end up causing harm to organisms like humans and wildlife, as well as to the surrounding environment.

Risk to humans and animals
Pesticide exposure can have acute (or short-term) as well as chronic effects on human health. Acute effects tend to occur immediately after heavy exposure to pesticides. Examples of such cases include farmworkers being sprayed by pesticides applied aerially while working in the field or pesticide application operators being overcome by fumes due to inadequate personal protection equipment. Chronic effects of pesticide exposure include health problems such as cancer, birth defects and neurotoxic effects. However, such direct causal relationships are much more difficult to prove due to the longer time period and mitigating lifestyle factors, and therefore remain controversial in the scientific community. Nevertheless, the increasing volume of research describing the impact of pesticides on wildlife suggests that pesticides affect reproduction, growth, neurological development, behavior and the functioning of the immune and endocrine systems.

Humans could also be impacted by pesticides through consumption of food produced with pesticides. Some chemical residues remain on the food product after washing and preparation and end up being ingested. Although the impact of long-term consumption of these residues is unknown, many governments have established Maximum Residue Limits (MRLs) to help safeguard consumer health and to promote good agricultural practices. These limits vary by country, available pesticides, crop, and use. The US government has even created a database accessible to the public called the International Maximum Residue Limits Database (see http://www.fas.usda.gov/htp/MRL.htm accessed Sept. 6). Searchable by crop, pesticide active ingredient and pesticide type, there are currently over 300 fruit, vegetable and nut commodities covered in the database, as well as 272 pesticides and MRL data from 70 countries, the European Union and the Codex Alimentarius Commission (Codex).

How to minimize risk
For food to be sustainable, it should be produced in such a way that it has minimal negative impact on environmental and human health. Ideally, food production should actually contribute to and improve both the environment and human health. To help minimize risk, pesticides should only be of the lowest possible toxicity and be used and applied in the following manner:
- When/where necessary, after sufficient scientific analysis
- Only when able to be stored, transported, and handled according to safe chemical management practices
- When able to be applied correctly, by a trained professional with proper personal protection equipment
- In accordance with all possible health and safety measures and precautions taken
- As part of a broader pest management strategy that may also include biologically based pesticides (pheromones, microbial pesticides) and other integrated pest management strategies

For more information, please consult the following article sources:
Pest Control Canada. http://www.pestcontrolcanada.com/Pesticides/pesticides.htm. Accessed Sept.6

United States Environmental Protection Agency. http://www.epa.gov/pesticides/about/index.htm
Union of Concerned Scientists. http://www.ucsusa.org/food_and_environment/sustainable_food/costs-and-benefits-of-industrial-agriculture.html. Accessed Sept 7, 2006.

Parliament of Canada. “Pesticides: Making the Right Choice for the Protection of Health and the Environment.” Report of the Standing Committee on Environment and Sustainable Development. May 2000. Available http://www.parl.gc.ca/infocomdoc/36/2/ENVI/Studies/Reports/envi01/04-toc-e.html Accessed Sept 9.

Poll Results for September 8, 2006

The results for the first poll are in!  For the past month, we have been asking blog visitors the following question: "Do you make a conscious effort to buy from companies that are socially responsible?".  61.5% of respondents said that they did try to buy from socially responsible companies, while the remainder of the respondents said that they did not.

Currently, according to Lifestyles of Health and Sustainability (LOHAS), the oldest ethical consumerism organization in the US, approximately 30% of adults in the US identify themselves as ethical consumers.  So it seems that we have more than twice the US rate of ethical consumers among our blog audience, which is hardly surprising since our blog audience is comprised mainly of CSR professionals and those who have interest in the topic of CSR.  More interesting, perhaps, is the number of respondents who said they do not think about social responsibility when they shop - are these respondents CSR professionals?  what factors do they take into consideration when they shop, if not social responsibility?  why does social responsibility fall below these other factors in their decision making? 

We invite you to participate in a new poll, featured on the right menu bar of the blog.  For the month of September, we are asking blog respondents their opinion on who bears the responsibility for ensuring goods are made in a socially responsible manner.  The results of this poll will be shared at the beginning of October, along with an invitation to participate in a new poll.

And while we have you here, please note that the bloggers' bios and information about CSCC can be found by clicking the "About" button on the top right of the blog.

In (Grudging) Support of the Business Case

Recently, I read a provocative article in the Ethical Corp magazine that critised the ‘preoccupation’ with the business case for corporate responsibility.

My first reaction, before I had finished reading, was of immediate disagreement. While I had the luxury of being in the academic world before working at CSCC, I myself thought that we should not have to make the business case for complying with human rights and environmental standards. After all, not only is it morally the right thing to do, but the business case itself relies a lot on first mover advantages and brand differentiation. If all companies were ‘good’ corporate citizens, they would not be able to charge an ethical premium on their products and their stocks would not be listed in preferred indices based on their CR performance. Not to mention that in some situations, there is a strong business case (at least in the short term) against taking a socially or environmentally responsible course of action.

However, out in the ‘real world’, working on solutions-based approaches to sustainable compliance with basic labour standards at the factory level, the necessity of the business case came sharply into focus for me. For example, in many cases we are dealing with factories who are not paying minimum wage, enforcing overtime, and failing to provide personal protective equipment (by no means a definitive list of common violations). As we were developing training and consultation materials to build capacity in factories with recurring non-compliance issues, it became clear that, in order to motivate factory managers running their businesses on slim profit margins and tight deadlines, unless we could articulate the financial benefits of compliance (beyond just the threat of a client withdrawing their work – a difficult and costly decision in any case), it would be impossible to get management buy-in and ownership of CR.

The ‘client threat’ of potentially withdrawing orders is not a sustainable incentive since 1) it depends on the continual auditing of 100% of the supply chain and 2) there is no consensus on whether closing a factory down resulting in workers losing their jobs would actually be more detrimental to a community than keeping it open (see Nicholas Kristoff’s op-eds in the NY Times for more - although controversial, in my opinion - comments on the latter position).

Therefore, our intent is to make the business case for compliance at the factory level. One example is where we present data on the rate of accidents by hour of shift work (the number of workplace accidents and injuries shoots up in the 10th – 12th hours of work). While this may appear obvious to some, to others it may help to make the case for shorter work hours. The problem is, much of the data is western-focused. We really need region-specific data from factories on the implications of long work hours (more accidents, higher rate of quality defects?), low pay (higher turnover rate?), and shoddy health and safety practices (higher insurance premiums?). In addition, for the factories to truly see the results for themselves, they would need to track their accident rates by hour of shift work over time. In some cases, factories don’t even record workplace injuries because of the insurance liabilities.

Anyway, while I ended up agreeing with many of the points made in the Ethical Corp article, in my work at least, I cannot afford to abandon the business case just yet.

Sources:
‘So What is the Business Case for Corporate Social Responsibility?’, Mallen Baker, Ethical Corp Magazine, 15th August 2006