• Guest Blog Posted on 2015-03-17 16:07:13 UTC Posted by GreenGrade Staff Member

    by Richard Karmel, Partner, Mazars UK - Global Head of Business and Human Rights

    Richard Karmel explains how supply chain managers are integral for respect to business and human rights.

    Richard Karmel is a Partner at Mazars, the global audit, tax and advisory firm employing some 1,400 people in the UK and 14,000 across 73 countries.

    He heads up the business and human rights service line, and recently led Mazars participation in the drafting of the United Nations Guiding Principles Reporting Framework www.UNGPreporting.org.

    One of the keys to success for any company Board is to agree on a strategy that helps deliver its vision. More often than not, the agreement of the strategy is the relatively straightforward part; it’s the implementation and execution that is more complicated, which defines whether the strategy succeeds or not.

    Agreement of the strategy is the end of the beginning. Bringing all the variable components of the strategy together in practice requires skills and communication abilities of the leaders and managers alike.

    Michael Porter, a professor of management at Harvard Business Schools has noted that: “Strategy links choices on the demand side with the unique choices about the value chain (the supply side). You can't have competitive advantage without both.” However, he goes on to say that: “many companies undermine their own strategies. Nobody does it to them. They do it themselves. Their strategies fail from within.

    One of the key areas that many multi-national companies (MNCs) are trying to understand and build into their strategies is corporate social responsibility (CSR); paying particular respect for human rights.

    In the first of Porter’s aforementioned quotes, CSR and respect for human rights is very relevant on the “supply side”. It isn’t good enough for companies to just embrace CSR or pay respect to human rights without building them into their strategies. However, just because they are included in the strategic thinking doesn’t mean that their objectives are going to be achieved. As Porter went on: “many companies undermine their own strategies”.

    In the case of CSR and respect for human rights this undermining, albeit unintentional, currently appears to be the norm. In many cases, CSR is hived off to the marketing or communications department, whilst the specific area of respect for human rights may land on the desks of general counsel. Several of the largest MNCs do have separate sustainability departments, but even these on their known are no guarantee of success.

    In the case of respect for human rights there’s a good case for both a top down as well as a bottom up strategy. In respect of ‘top-down’ I refer to a strategy that can be achieved from solely within the confines of the MNCs legal boundaries. This starts with the top Board aligning its practices and ensuring that these are devolved down.

    By ‘bottom up’, I refer to a strategy that can be embraced by the MNCs supply chain and communities. For this to work however, there needs to be clear lines of communication between the MNC, its suppliers and the communities in which they operate.

    In 2013, in Bangladesh the Rana Plaza tragedy occurred killing some 1,130 people, most of whom were women. It transpired that many MNCs, whose brand names were found on clothing in the rubble, didn’t know that their garments were being manufactured by the companies’ residing at Rana Plaza.

    There’s of course the question that even if they did know would they have cared? Well, many of these companies did have public human rights policies so somewhere within the MNC, respect for human rights was being thought about. However, the piece that appears to have been missed by most of these MNCs is ensuring that their suppliers or intermediaries in Bangladesh understood what these policies meant in practice.

    According to clause 13 of the United Nations Guiding Principles on Business and Human Rights: “The responsibility to respect human rights requires that business enterprises: …  (s)eek to prevent or mitigate adverse human rights impacts that are directly linked to their operations, products or services by their business relationships, even if they have not contributed to those impacts.” This is the clause that very few businesses had, and largely still fail to put into practice.

    If they had identified and understood the property concerns and the health and safety infringements taking place, there is a possibility that the fatalities at Rana Plaza may not have happened. Would MNCs have authorised their garments to be manufactured there after considering the culture in place and the property and health and safety conditions?

    So, how do companies even begin the cultural change necessary to take control of suppliers outside of their legal sphere of influence, but well within their moral sphere? First and foremost, it must be through education of the suppliers. However, if the only factor attributed to deciding which supplier to use is price, any leverage on education is almost a non-starter.

    Let’s assume that we have an MNC that wants to be around for the long term. Price is not the only factor in deciding which supplier to use, they should be interested in building a relationship with that supplier. Below are some of the factors that the MNC is going to want to understand about the supplier:

    • The availability of its resources to deliver the product at sufficient quality and on time;
    • The identity of the key suppliers of that supplier and the ability to assess their respect for human rights;
    • The limiting factors that could impact on that supplier being able to deliver the products/services as contracted;
    • The health and safety record at that supplier and its suppliers;
    • The key human rights risks to potentially affected stakeholders (not the MNC or supplier);
    • The effectiveness of the suppliers grievance mechanisms; and
    • The education and training that the supplier provides to its managers and wider teams.

    Of course, there are many other issues, but an understanding of the above will enable the MNC to build a clearer picture of the quality of the supplier and the risks that exist.

    To achieve this picture a relationship will need to be formed with that supplier. This means that it can’t just be seen as the MNC dictating its wishes; there needs to be some tangible demonstration that this is a two-way process. Commercial incentives could be employed to manifest this commitment to building such a relationship.

    One of the most effective ways of doing this will be to help the supplier with the training of its key personnel. If this training is performed effectively, there will be cohorts of managers at suppliers, who not only understand the requirements of the MNC, but will also understand the playing field of respect for human rights on which the supplier has to operate.

    If these managers understand this and have been trained appropriately, these messages and performance expectations will have been passed onto the wider teams.

    Such training doesn’t have to be expensive, either. There exists e-learning platforms that make local managers aware of ethical issues. Such an example is Green Grade’s e-learning platform, funded by the UK government, and which aims to raise: “the awareness levels of compliance and labour standards with the core aim of encouraging factory mid-managers to gain thorough knowledge.” This form of training can be rolled out across a whole swathe of suppliers; the success of the training though, will be judged by whether managers have been able to effectively implement what they have learned.

    This is why the training and education of suppliers needs to be holistic. It’s very helpful for managers to be trained in what is ethical practice, such as Green Grade’s programme. However, most suppliers will have issues and risks pertinent to themselves. This is where implementation assistance is required.  Either the MNCs can help in the wider implementation or independent third parties with deep local understanding can be used.

    The key test for all will be the monitoring of the resulting culture change. This oversight shouldn’t be looked upon as a threat, but as a further learning mechanism. The monitoring, if undertaken appropriately, will identify lessons for improvement and should aim at preventing future breaches.

    This doesn’t have to be performed independently; many forms of effective monitoring can be performed internally provided that the unit undertaking that monitoring is part of an appropriate governance mechanism that provides for a certain degree of autonomy.

    In conclusion, the education and training of managers in supply chains is critical for improvement in wider ethical standards. If this is understood by global businesses, it will become more of the norm rather than exception. Suppliers that don’t adopt such standards will be avoided.

    However, such training isn’t to be undertaken in isolation. It needs to be part of a wider strategy for both MNCs and suppliers to interact. This is where both parties need to be clear about the basis of their relationship. It should no longer be one-way as many are currently; the MNC needs to demonstrate a deeper understanding of the supplier with the reverse being true for the supplier.

    This will not only result in improved ethical behaviours but, on account of this increased engagement and understanding, it’s highly likely that the MNC/supplier relationship will deliver increased cash returns for both parties. Quality and consistency will improve and less money spent on legal costs when breakdowns arise.

    Richard Karmel

    richard.karmel@mazars.co.uk

    Partner and Global Head of Human Rights at Mazars