Chapter Ten: Choosing Performance and Process Standards

Overview

As we have seen, the need to create easily compared, objective, and verifiable standards of social and environmental conduct have prompted the international community to begin developing corporate integrity guidelines. Supportive groups ” and there are several ” have attempted to develop guidelines for nonfinancial, ethical accounting principles and measurements that corporations can adopt, and for which certifiable compliance will provide a company with an objective stamp of approval that will be available to consumers and shareholders.

Whether you sell clothing, chocolate, garden furniture or diamonds, says Sarah Roberts from the National Center for Business and Sustainability, the chances are that your company will have received requests to commit to one of the codes offered by third parties. With outsourcing the norm, all major companies are going to have to find ways to influence the sustainability of their supply networks . . . ^{[1 ]}

Mick Blowfield, from the Natural Resources Institute (NRI) agrees. Establishing standards along the value chain, he says and the monitoring and verification of these standards is an increasingly important part of supply chain management. ^{[2 ]}

As we have seen, beyond the level of aspirational codes, a new set of detailed social and environmental standards have emerged over the past several years . These new standards promise to revolutionize the way companies manage their (and their suppliers ) social and environmental practices. These standards ” SA 8000, ISO 14001, the Ethical Trading Initiative, AA 1000 ” are rapidly becoming integral to the ethical supply chain framework of progressive companies worldwide.

But the development of these standards has had its teething problems. As with other quality certification movements ” ISO 9000, Six Sigma, Baldrige ” there has been a good deal of early chaos as groups have attempted to come to agreement on both the procedures and the measurements that constitute international social and environmental process and performance norms. Accordingly, as pressure on companies to support the standards and reporting movement has grown, there have emerged various options for companies ” ranging from simple, unenforceable pledges of good behavior (the aspirational codes we examined in Chapter Eight), to more stringent, and specific, performance standards. It has been confusing, particularly in the past two years, as multiple standards and forums jockeyed for position, and it is only recently that it has become more obvious how to begin to sort the wheat from the chaff.

These more detailed standards emerged in the late 1990s as NGOs, investors, and the public began to demand higher levels of accountability and transparency from multinationals with regard to their social and environmental policies in their extended supply chain. Progressive companies quickly began to supplement their aspirational codes with these more detailed process and performance standards.

Just as with ISO 9000 and other quality and performance standards, several-bodies, including the International Standards Organization itself, have developed more robust sets of environmental and social standards that allow companies, after being inspected and qualifying, to be certified at a higher level of performance in these areas. Some, such as SA 8000 or the ISO 14000 series, are focused broadly on either labor or environmental issues. Others, such as the Forest Stewardship Council or the Worldwide Responsible Apparel Production Principles, deal specifically with unique vertical industries.

In fact, many multinational companies had already begun to create these types of performance standards well before any recognized international standards emerged, in response to the call from pressure groups and investors for greater transparency, standardization, and comparability . But the obvious conflict of interest made self-styled performance standards suspect from the start. It was soon obvious that performance standards that were written by individual companies tended to be inconsistent in their application, and to vary widely, providing cover for policies companies would prefer not to expose. Too often the performance standards would be devised in a way that portrayed the companies in the best possible light, focusing on easily achievable aspects of labor or environmental policy that would appeal to NGOs or investors, while at the same time ignoring the more egregious violations. As we have seen, these self-initiated and selfadministered standards provided little dependable information on the company working conditions or environmental policies, and failed to create the trust or reassurance that the companies were hoping for.

Performance Standards

The first important group within this new standards framework is what has become known as performance standards, because they take the guiding principles for social and environmental performance that are common to the aspirational codes of conduct, and create a level of detail that allows companies to monitor, assess, and report on their performance in these areas much more effectively.

 

As a result, over the past five years, a number of third-party organizations have scrambled to create performance standards that can be applied to companies more universally , and that will allow outsiders ” investors, pressure groups, consumers ” to compare activities and performance between companies. There are three key themes at the heart of this performance standards development: transparency, comparability, and quality improvement.

• Transparency and Comparability. Adopting recognized performance standards provides the outside world with a verifiable assessment of the company s social and environmental policies. If those policies are superlative, these can serve as a strong sales and marketing tool, providing a favorable comparison with the competition and assuring investors and consumers that there is a strong link between the company s stated values and their actions.

• Quality Improvement. Not only do they demonstrate to investors and consumers the company s progressive policies toward labor and environmental policies, but, just as with the ISO 9000 or Baldrige certification processes, these social and environmental performance standards can also be invaluable in helping a company identify and correct the faults within their extended supply chain ” product wastage, inefficient disposal or reuse polices, unsafe or unhealthy working conditions ” that once corrected, can bring significant quality and productivity savings to the supplier, and therefore to the company itself.

If the social or environmental practices within the supply chain are weak, of course, applying standards, just as with applying the Baldrige process, means that a company risks exposure for poor performance. Even so, it also means that problem areas are discovered and can be corrected, and in the long term , as we have seen, all evidence indicates that investors and NGOs are more forgiving of a company that is trying to formally and openly improve on poor policies than of a company that is obfuscating and avoiding exposure or improvement.

These performance standards are usually focused either horizontally on broad areas such as environmental policy or labor and employment issues, or focused more vertically on industries such as bananas, toys, apparel, and footwear, or forest and lumber. And although there have been many standards and codes to appear in the past five years, consolidation is taking place in which a few well-structured and effective standards have emerged as permanent and preferred leaders .

^{[1 ]} Sarah Roberts, Analysis: Ethical Sourcing Codes ” The Answer to Supply Chain Sustainability Concerns? Ethical Corporation, August 1, 2002.

^{[2 ]} Mick Blowfield, Fundamentals of Ethical Trading/Sourcing in Poorer Countries, The World Bank Group at http://wbln0018.worldbank.org/ESSD/essdext.nsf/26ByDocName/FundamentalsofEthicalTradingSourcinginPoorerCountries .