A New Ethical Supply Chain Framework

Leading companies have responded to these various pressures by developing a new approach to supplier management that includes four important elements:

• A corporate ethical and risk management framework

• The adoption of internationally accepted labor and environmental process and performance standards

• A supplier monitoring and audit program

• Reporting on social and environmental performance

As powerful as the arguments in favor of this type of approach may be, however, both in terms of risk and reputation management and for the humanitarian good that it brings , most U.S. companies are still a long way from adopting this sort of comprehensive ethical supply chain program. In contrast, this type of approach is quickly becoming the expected norm among European companies as the combined Corporate Social Responsibility (CSR) and Social, Environmental, Accounting, Auditing, and Reporting (SEAAR) movements converge and grow in legitimacy among the European Union companies, governments , and academic institutions. In fact, so rapid is this framework of internationally accepted codes of conduct, supplier monitoring, and social and environmental reporting being adopted in Europe and Japan, that there is a growing risk that a CSR schism is beginning to develop between European and Japanese companies on one hand (who see the duties of CSR as being best fulfilled by establishing an ethical supply chain, adopting standards, and completing social and environmental reporting) and U.S. companies on the other, which are more likely to interpret CSR responsibilities in light of good corporate governance and philanthropy.

Will adoption of standards and nonfinancial reporting requirements in the European Union and Japan force U.S. companies to adopt similar programs? With litigation and legislation moving in the same direction at home, will U.S. companies resist this powerful movement and risk another potential World Trade Organization (WTO) standoff? In Chapter Five, The SEAAR Movement, we examine the rapid evolution of the nonfinancial, social, and environmental reporting movement in Europe and explore the likely repercussions of this growing gap in both perception and actions between the two major trading blocs.