Perspectives in Responsible Sourcing

NGO Accountability

As the corporate responsibility movement seeks greater transparency and commitments on the part of businesses, commentators have begun asking, if governments are accountable to the people who elect them, and companies are accountable to shareholders and perhaps to society to a growing degree, who are NGO’s accountable to? What do NGOs have to report on? If I give money, how do I know where it’s going?

Coming from an NGO background, I believe NGOs or civil society organisations, to be, on the whole, as accountable as other societal actors, if not more so, as their raison d’être is to fulfill a social mission or provide a public good where government has failed, or to protect minorities from the 'tyranny of the majority'. In addition, they rely on donors’ trust in them to obtain funding and for large grants, NGOs often have to submit lengthy reports on how the money was spent. However, NGOs and other non-profits, as organisations, inevitably suffer from some of the same maladies as businesses and governments (witness the recent UN scandals, for example). Companies often question NGO campaign strategies and targets. Naming and shaming works best on well-known brands, even if some lesser known companies are doing far more damage to the environment or more egregiously violating human rights. A representative from a large NGO once told me as much – they needed to pick on high profile companies so as to keep the funding coming in.

So NGO accountability has become somewhat of a buzzword of late, and it was even the topic of a BSR session this year at their annual conference in New York. In response, a group of international NGOs has drafted the “INGO Accountability Charter”, covering topics such as independence, responsible advocacy, good governance, and ethical fundraising. However, the Charter only calls for “progressive” application of the Principles and there is no enforcement mechanism. Furthermore, to date, only 11 organisations have signed on. And this is not the first NGO code of conduct to be created; there are several others in existence already.

But there is one NGO accountability initiative that involves a comprehensive set of standards enforced through third party verification within a multistakeholder certification process. The InterAction Child Sponsorship Certification was established in 2004 in partnership with Social Accountability International (SAI). InterAction is a US-based membership organisation for NGOs with around 160 members. The certification is based on InterAction’s membership standards for “private voluntary organisations” (the PVO Standards). Previously, members were just asked to sign a document saying they were in compliance with the standards. Now, all members must complete a self-assessment questionnaire and submit it, along with supporting evidence, to InterAction. In addition, members may seek formal certification against the Standards. The process involves a third-party headquarters audit and randomly selected audits in the field to assess the extent to which centralised governance, financial, and child protection controls exist and are being applied at the field level. In July, 2005, five child sponsorship organisations (World Vision, Christian Children’s Fund, Save the Children, Plan USA, and Children International) achieved certification.

CSCC, as one of the accredited certifying bodies for InterAction, deployed auditors to various countries in Latin America, sub-Saharan Africa, and South Asia to visit programme sites that provide benefits to sponsored children and their communities. Our auditors were able to evaluate how the donor money was spent, how the benefits were tracked, and how children were protected from inappropriate correspondence, among other things. The findings were presented to the Certification Review Panel with representatives from InterAction, donors, sponsors, subject matter experts and certification body (such as CSCC) representatives. The certification lasts for four years and random surveillance audits are conducted at field sites every six months.

While this certification programme does not address responsible advocacy, it does provide a model for a credible, multistakeholder process that can serve to enhance the confidence of donors that their money is making an impact.

For more information, see the InterAction website: www.interaction.org/newswire/detail.php?id=4197

Harmonize Your Codes... Internally

A couple of weeks ago, I attended a briefing by the UK-based Ethical Trading Initiative (ETI).  The ETI had commissioned a study to assess how effective the implementation of its code of conduct has been, and it shared the results with a number of members of the CSR community.  One of the study’s findings was that although the number of hours worked is decreasing in some areas, workers in these areas are often not happy about working fewer hours as their wages do not rise by a corresponding amount, so they are left out of  pocket.  As the report researchers pointed out, codes of conduct must account for the relationship between these two elements.

However, in drafting and implementing codes, shouldn’t companies have to look at how all code elements, not just two, work together (or fail to, as the case may be)?  Much has been made of the need to harmonize various company initiatives in order to reduce the number of codes suppliers are subject to.  The ETI code study also alludes to this need.  What I have not seen is a call to have code clauses harmonized – I’ll explain what I mean.

In my experience, companies approach the writing of codes one clause at a time.  What should the clause on child labor say? OK, done.  Next.  What should the clause on collective bargaining say?  And so on.  The effect of this approach is a number of free standing clauses that happen to be on the same sheet of paper but that can either fail to support each other or can conflict in what they require of suppliers.

Here’s an example… I audited at a factory in the UK last year where some workers were working in excess of the number of hours stipulated in the code to which I was auditing.  When I asked the workers about this, they were adamant that they were working the hours according to a collective bargaining agreement and wanted the hours to earn more money.  Let’s say that I had pushed the working hours clause as most important.  Not only would this decision have compromised employees’ earnings, but it would have directly conflicted with their right to collective bargaining, a fundamental right covered under the ILO core convention no. 98.

This example raises another issue.  Some clauses might need to have greater weight than others.  For example, workers have so little input in code drafting, I would advocate that freedom of association and collective bargaining take precedence over all other clauses.  Then, say, wage and hour clauses would be the second strongest clauses, followed by child labor and health and safety.

Of course, I can’t prescribe a weight system.  This type of approach would have to be hammered out in multi-stakeholder fora.  My point is this: codes must be seen as unified documents, not the sum of individual parts.  All of the clauses must fit with each other and support each other in order to ensure that the code can function.  So when people draft a code, they should remember to harmonize internally as well as externally.

Why Report on Corporate Responsibility?

I was surprised when I first started working at CSCC to learn how few of our clients report on corporate responsibility. Given that they are working with us, they are obviously committed to having a socially responsible supply chain so why wouldn’t they want to shout this from the rooftops? Our clients who do report are in many cases first or second-time reporters. This reflects a national trend that puts the US far behind in the UK and Europe, and even the Fortune Global 100 in terms of the number of companies producing a report.

We recently held a seminar at Columbia University on CSR reporting as a kind of ‘how-to’ workshop session that was designed to nudge participants in the direction of disclosure by developing the business case and aligning the goals of reporting with the mission, values, and strategic objectives of the company, as well as providing an overview of tools available for measuring ESG (environmental, social, and governance) data.

I believe there is a clear business case for companies to report on their ESG performance and the sooner companies start a dialogue internally about a progressive disclosure plan, the better. To help participants articulate the value of reporting internally, we started with the reasons a company would not want to report and developed our rebuttals along the way:

• It’s voluntary…at the moment
France, Norway, Japan, and other countries have laws requiring companies to disclose information on their ESG performance. Most recently, the UK came close to passing legislation that would have required companies of a certain size to report on sustainability. Some stock exchanges require listed companies to report on corporate responsibility, including the stock exchanges of France, Denmark, Holland, and South Africa. The Securities and Exchange Commission in the US requires reporting on environmental liabilities. In addition, the US Equal Employment Opportunity Act of 1972 requires companies to report their EEO statistics through an annual EEO-1 report, which some companies are choosing to make public (Wal-Mart, Citigroup, Coca-Cola, HP, Intel , IBM, and Merck).

• It’s risky…if we’re not truthful
The Nike v. Kasky case (where Nike was sued for making false statements in its CSR report), may have had a temporary chilling effect on companies in the US but in 2005, Nike came out with an award-winning CSR report that raised the bar for disclosure by providing a list of its suppliers. As long as companies are truthful in their reports and do not over-promise, legal risks should be mitigated.

• It’s costly…but it could be profitable
According to the ethical consumerism organization, Lifestyles of Health and Sustainability (LOHAS), there is a $230 billion marketplace for goods and services focused on health, the environment, social justice, personal development and sustainable living and approximately 30 percent of the adults in the US are considered LOHAS Consumers. Furthermore, the process of evaluating ESG performance necessarily involves identifying risks and opportunities, which can point to latent issues and potential new markets, and may also highlight new business opportunities and ideas for product and/or service innovations. 

• It’s only for big-brand companies…who may be our clients
As a small service provider with an unrecognizable name, CSCC had little incentive to produce a CSR report. However, as a member of the UN Global Compact and as a service provider to socially responsible companies, there was a clear business case for us to report. Furthermore, as a result of the Global Compact reporting requirement, many more small and medium-sized companies are beginning to disclose information on ESG performance, even if on a limited scale. With close to 3,000 member companies, the Global Compact is a major driver of corporate responsibility reporting, and it provides companies with the tools to help them develop their ‘Communication on Progress’.

• We haven’t had any negative publicity…yet
Producing a sustainability report before activists and media come knocking on your door can be a proactive approach to safeguarding your reputation. It gives you the opportunity to address issues before your critics have a chance to accuse you of being unresponsive and it can help to build trust among stakeholders. The report itself can be used as a tool for stakeholder engagement, to engage critics and solicit input, and to evaluate prospective long-term partnerships with other sectors. There is also the possibility that you will eventually come under scrutiny as the number of NGOs and the growth of campaigns targeting companies increases. According to a report from Social Technologies, ‘tech-enabled activism’ will mean that campaigns will have global reach, increased speed, and will enable more grassroots content.

• Our reputation speaks for itself…except when no one is listening
Corporate scandals and the crisis in trust has led to an erosion of public trust in companies over the last few years.  According to the World Economic Forum, trust in global companies is now at its lowest level since tracking began. Do you believe your company has a good reputation/is ethical/is values-driven/is socially responsible? Do you believe your business relationships are built on reputation and trust? If you answered yes, then you also have to ask yourself, how does your company communicate its values to employees, investors, consumers, and others? A CSR report can be used as a tool to set the record straight, provide employees with the information they need to talk to customers, or to promote investor confidence in your stocks. British Telecom estimates that corporate (social) responsibility accounts for over 25% of image and reputation impact on customer satisfaction. A good CSR report defines the company spirit, which can serve as the glue that holds a geographically dispersed company together under a common mission and values, and communicates to investors, employees, customers, and the public, the company’s commitment to operating responsibly.

• None of our competitors are doing it…so we can gain first-mover advantages
If your competitors are not publishing sustainability reports, then you can use the opportunity to differentiate your brand and gain a competitive advantage to attract ethical investors and consumers.

• We don’t have socially responsible investors…but we probably will
Socially responsible investment (SRI) assets grew faster than the entire universe of managed assets in the United States during the last 10 years, according to the Social Investment Forum. Total socially responsible investment assets rose more than 258 percent from $639 billion in 1995 to $2.3 trillion in 2005, representing almost 1 in 10 dollars of all assets under management. Proxy resolutions filed by socially responsible investors are garnering more shareholder support than ever before. Even if your company is not listed in an SRI index, activist shareholders can bring resolutions against any company in which they hold shares. One of the topics that shareholders are filing resolutions on this year is asking companies to produce sustainability reports.  In addition, the UN launched the Principles of Responsible Investment (PRI) earlier this year that seeks to mainstream the incorporation of social and environmental risks into investment analyses. Currently, investors representing over $4 trillion worth of assets or 10% of global capital are behind the initiative.  So even your non-SRI investors may soon be asking you more questions about your ESG performance.

• Nobody reads CSR reports…but the process has value
The process of developing a sustainability report provides an opportunity to explore areas for integration and internal efficiencies, it promotes inter-departmental communication and facilitates strategic linking of corporate functions (e.g. marketing, R&D, finance). Targets set out in the report drive continuous improvements and, if strategically aligned, can add value to internal benchmarking and measurements. And guess what? People do read CSR reports. According to a recent poll by GlobeScan, half of the general public in North America, Australia, and some parts of Europe say they have either read a CSR report themselves, briefly looked at one, or heard about one from someone else. In addition, prospective employees will surely look to CSR reports to get an idea of the type of company they are going to work for as more and more job-seekers, including MBA graduates, are looking to work for socially responsible companies.

Sources:
www.lohas.com/about
www.socialtechnologies.com/lifestyles/Tech-Enabled%20Activism.pdf
www2.weforum.org/site/homepublic.nsf/Content/Full+Survey_+Trust+in+Governments,+Corporations+and+Global+Institutions+Continues+to+Decline.html www.socialinvest.org
www.unpri.org
www.globescan.com/news_archives/csr04_gri_PR.html
www.csrwire.com/PressRelease.php?id=6046
www.netimpact.org/displaycommon.cfm?an=1&subarticlenbr=1179

Cloning Cambodia

I just spent an interesting week in New York, absorbing the myriad speakers, sessions, and workshops at the annual Business for Social Responsibility conference. While there were several highlights to the conference, one session in particular stands out in my mind.

The International Labor Organization (ILO) and the International Finance Corporation (IFC) spoke about their partnership in rolling out the ILO’s Better Factories program into three new countries after a successful pilot in Cambodia.  The Better Factories Cambodia program was an evolution of the ILO monitoring project mandated by the labor standards provision of the US-Cambodia bilateral trade agreement.  Given that, it should come as no surprise that Jordan is one of the new target countries, given its current struggle to demonstrate compliance with the labor standards clause of the US-Jordan trade agreement following a highly public expose on the maltreatment of foreign workers in the export processing zones.  Lesotho and Vietnam are the other two target countries.

When asked to describe the learnings from Cambodia, Ros Harvey, head of the Geneva-based ILO Better Factories program, responded with three: (1) place a bigger focus on remediation, starting from the time of recruitment and the skill levels of the monitors, to ensure greater facilitation; (2) talk about the sustainability of the program early on; and (3) champion the link between improved working conditions and productivity. What did they get right in Cambodia? The interface between the ILO’s tripartite constituents (workers, employers, government) and the international buyers.

Interestingly, a representative from the World Bank shared a few comments about an experience with El Salvador and how that country did not want to follow the Cambodia model during an industry crisis at the end of 2004. Factories were closing every week and the World Bank was looking for a way to help sustain some of the enterprises. Perhaps El Salvador had considered what Ms. Harvey ultimately told Cambodian officials, “Labor standards alone won’t save you. You must be competitive on price, delivery times, and quality as well.” The World Bank ended up using a factory-based model that focused on productivity indicators.

The Better Factories program will not remain limited to the apparel industry, according to Ms. Harvey. While Lesotho will be the first stop in Africa, there will a continued focus on that continent in the future, to include agribusiness and the supply chains of multi-national corporations, including processing plants and plantations. Ms. Harvey also emphasized that, despite the current trend to move beyond monitoring of suppliers, “monitoring is a valuable public education exercise” and an essential part of any program.

Food Safety in the Fruit and Vegetable Sector

At the end of August, 2006, spinach tainted with Escherichia coliform bacteria (E.coli) was shipped from California to locations across the US and Canada. Before the product was removed from the shelves, however, nearly 200 people became sick and three people died as a result of the contamination. Less than two weeks later, green leaf lettuce from the same growing area as the spinach was recalled when it was discovered that water used to irrigate the lettuce may have been contaminated with E.coli. Analysis afterwards indicated that no such contamination occurred. Nevertheless, these recent outbreaks and the rapidity in which the (potentially) infected produce spread throughout the supply chain suggest there are some major problems in our food system.

What is E.coli?
The suspected culprit in both situations was E.coli, a highly contagious bacterium that live in the intestines of warm blooded animals such as humans, cows and pigs. In the case of the spinach outbreak, officials at the Centers for Disease Control and Prevention (CDC) suspect that it originated from grazing dear or from irrigation water contaminated with cattle feces. The bacterium can also be transmitted via other vectors, including agricultural workers. This is perhaps the most easily prevented mode of transmission, remedied by improving field sanitation practices and providing restrooms and adequate hand washing facilities. In general, however, the majority of widespread outbreaks of E.coli tend to be associated with the consumption of contaminated drinking water and animal products such as ground beef.

Global sourcing and associated food safety risks
Far from being an anomaly, problems relating to food safety and foodborne illness are fairly common. In fact, the CDC estimates that 76 million Americans get sick, more than 300,000 are hospitalized, and 5,000 people die from foodborne illnesses each year. What is also emerging from these cases is that the centralized system of production and distribution is helping to spread potential contaminates throughout the chain rather quickly. This is because lettuce picked in California on Monday can be bagged and on the retail shelves as early as Tuesday and Wednesday throughout North America. Unlike the meat and poultry industry, there is no FDA or regulatory program in place to verify the safety of fruits and vegetables. Without the necessary safety checks and precautions, there is therefore no guarantee that this food is actually safe to eat or free from harmful materials or pathogens. Such risks are further compounded when considering the fact that the average food supply chain now includes product from a wide variety of farms and locations. If food safety cannot be guaranteed for domestically produced fruits and vegetables, what sort of claims can be made about imported produce?

To reduce the number of foodborne illnesses, as well as the severity of future outbreaks from fruits and vegetables, more systematic precautions need to be taken. These include improving field conditions, sampling and monitoring programs throughout the supply chain—not just for the biggest producers or those producing on domestic soil, but for international suppliers as well. Precautions must also consist of enhanced security measures at the field and packing level, which is particularly critical given the susceptibility of food supply chains to possible acts of bioterrorism and product tampering. Unless the appropriate regulatory these steps are taken, the health and safety of consumers continues to be at great risk.

SOURCES:
National Center for Infectious Diseases: Centers for Disease Control and Prevention. CDC. United States Department of Health. Retrieved October 20, 2006 from http://www.cdc.gov/ncidod/diseases/food/index.htm.

Pollan, M. (2006. October 15). The Way We Live Now: The Vegetable Industrial Complex. The New York Times. Retrieved October 20, 2006 from http://www.nytimes.com/

E. coli exposes weakness in the food chain. (2006, October 10). CTV News. Retrieved October 20, 2006 from http://www.ctv.ca

Poll Results for November 1st

Over the last couple of months, we've been asking blog visitors to give their opinion on who, within the supply chain, bears the responsibility for ensuring goods are made in a socially responsible manner.  The results were interesting...

• 25% of respondents felt that retailers and brands, who often have the power to demand compliance from their suppliers, should carry the brunt of the responsibility.
• None of the respondents put the responsibility solely on the factories that employ the workers, nor solely on the middlemen who partner with factories.
• A further 25% of respondents placed the responsibility on the shoulder of consumers, who can presumably drive the demand for socially responsible goods.
• The remaining 50% of respondents felt that all of the above entities within the supply chain have a role to play in ensuring goods are produced in a socially responsible manner.

What conclusions can we make from the results of this poll?  Perhaps nothing that we didn't already know or believe.  But perhaps we should also think about what stakeholders were missing from this survey...

Government.  Governments were not included in the poll options because they are not direct players in a supply chain.  However, what responsibility do governments have in ensuring that (a) there are adequate laws and regulations to protect workers from exploitation, (b) such laws have consequences enough to deter exploitative behavior, and (c) such laws are adequately enforced? 

Workers.  While this is most certainly a controversial viewpoint, there are some who would argue that workers have at least a modicum of responsibility to demand better working conditions.  Obviously their socio-economic situation, fear, feelings of hopelessness, and distrust often stand in the way of them reporting exploitative behavior to authorities.  But worker testimony regarding working conditions is often the best way to root out exploitation within the supply chain, since their testimony carries so much weight and legitimacy.

Investors.  Again, since investors are not direct players in the supply chain, this was not one of the poll options.  However, few can deny that in the end it is all a money game, and those who control the money (both institutions and individuals) often control much more than just the purse strings and can sometimes dictate the strategic direction of the companies in which they invest.

Are there other stakeholders we haven't considered?  Given these other stakeholders, would the poll results be similar?  Do all of these stakeholders bear equal amount of responsibility or do some carry more responsibility than the others?

Amidst all of these new questions, we invite you to participate in a new poll, featured on the right menu bar of the blog, the results of which will be presented at the beginning of December.  Happy voting!