Chapter Six: Who Is in Charge Here? Organizational Responsibilities for an Ethical Supply Chain Program

Overview

Despite the combined effects of the supply chain revolution and the new levels of responsibility being forced on companies for monitoring the social and environmental behavior of their suppliers, most companies still have no formal program that ties together the various key activities required for maintaining an ethical supply chain: a strategic company ethical framework, environmental and social supplier sourcing programs, supplier inspection, and nonfinancial reporting regimes.

Despite globalization of the supply chain, even in large and sophisticated companies, ethical supply chain activities are often spread among many departments, at many different levels and locations in the company, with little coordination or strategic focus. In most companies, for example, the procurement department is still expected to take an entirely independent role in creating and developing supplier sourcing and management policies. Supplier selection criteria is still focused almost exclusively on price and quality issues, and many companies still do not attempt to screen suppliers ” particularly overseas suppliers ” for serious employment or environmental issues beyond what is the minimum required by U.S. law. What screening that does take place is usually completed by paper-based survey, with general questions and little or no verification or follow-up. Human Resources usually has responsibility for addressing hiring and domestic employment issues and enforcing EOE (Equal Opportunity Employment) guidelines, but will have very little influence over supplier employment policies. Few companies have created a coordinated and strategic framework for social or environmental sourcing, and only the most innovative of U.S. companies have a program in place to monitor use and disposal of company products by customers, or to ensure that they are purchasing nontoxic and environmentally friendly materials.

We are working with a couple of different clients now, says Stephanie Meyer, a Principal at Stratos, the Canadian CSR consultancy and research group based in Ottawa, who have a number of different CSR initiatives [ongoing]. They are managed by different parts in the organization, and have never really been seen as a cohesive whole before. ˜Yes, [they say] we are looking at workplace health and safety. ˜Yes we are looking at human resources policy and trying to make a good place to work. ˜Yes we ve got these different environmental programs internally and we ve got this external giving program, and one part of that goes toward environmental organizations.

They have a lot of pieces in place, she says, so we are helping their executives to understand how it might look if you pulled it together into more of a cohesive strategy where the parts are complementing each other. ^{[1 ]}

What is more, despite the enterprise information systems revolution, most U.S. companies have not yet attempted to apply advanced information technology platforms to coordinate the myriad information sources that make such a program possible: supplier employment and environmental performance information, product incident history, monitoring ever-changing environmental codes, energy use and emissions information, product wastage and disposal, coordinating incident reports from overseas suppliers, or monitoring the Web for early reputation warning signs. Yet these are exactly the types of applications that should be used to help corporate leaders understand and manage their ethical supply chain responsibilities.

Congress in this country in the 1970s, says Nicholas Eisenberg, CEO of Ecos Technologies, saw there was a broad societal reaction against pollution, and knew that there were a lot of technologies out there that could help us reduce pollution, and so they said to industry, ˜thou shall not pollute . . . thou shall adopt the best available technologies to curtail that pollution.

Companies spent the next several decades, he contends investing in people, systems, process, data bases and applications, to ensure that they were conforming with an increasingly complex set of regulations on a national and international basis.

Yet over the last decade , in particular, the drivers have changed from being strictly regulatory, government regulations, and have become more and more tied to business drivers ” risk, cost, productivity, efficiency, competition and reputation ” and so a lot of the . . . effort has changed from a focus on [conformance] to asking ˜how can we derive business value from this?

But the underlying infrastructure to do that, explains Eisenberg, to execute effectively against that is very poor, because it was designed for a different purpose. It was designed to ensure compliance with government regulations ” it wasn t designed to retain, create and avoid the loss of business value. And so what you have in most companies is a hodgepodge of hundreds of different applications that are uncoordinated, working on similar problems, similar issues, but with no ability to communicate with each other or to leverage the value that has been created . . . ^{[2 ]}

^{[1 ]} Interview, September 2, 2003.

^{[2 ]} Interview, August 25, 2003.