Mallen Baker considers how unfortunate ethical outcomes are more an issue of systems and incentives than deliberate planning or cost-cutting

It used to be all about blame. Company X uses suppliers that have abusive working conditions, or child labour. They are cynically turning a blind eye to evil practices to benefit their bottom line.

The company executives probably never once had a discussion that said "just as well the world doesn't know that our suppliers exploit children. That will help us to deliver extra value to our shareholders".

Instead, they just didn't know – and they didn't know that they were supposed to know.

But the world changes – and in the internet age it has developed a consistent knack for letting you know what you are supposed to know.

As a result, plenty of companies began trying to control the ethics within their supply chain. Codes of conduct. Factory audits. All that.

After all, they didn't own those factories – now that they understood they couldn't cast off all responsibility for them, they had to find some way of controlling them.

And that was right – but it was only the next step on the journey.

Increasingly now many of those companies – and particularly those in the fashion industry – are coming to terms with the realisation that it is industry purchasing practices that create many of the problems.

Planning is all

Fashion is an exciting whirlwind of 'the latest thing'. But late decision making (in order to catch the very very latest trend), shorter time demands generally, and changes to orders or cancellations – all these factors make it far more difficult for supplier factories to stay in compliance with ethical codes.

Add to that unstable relationships and extreme downward pressure on prices and you have a set of circumstances where the unintended consequence of buying behaviour guarantees non compliance.

A recent guide to current best practice behaviours in this area has been produced by As You Sow – it highlights both the dilemmas and some of the ways that companies are dealing with them, and does so in a clear, concise and engaging way.

Time and again, it simply means putting the people that make decisions in touch with the consequences of those decisions. It has been too easy in the past for fashion designers and buyers to develop such a one–way focus on the fashion elements to miss the realities of how the clothes then actually get produced.

So, for instance, Phillips–Van Heusen train managers in the ripple effects of purchasing practices so they better understand the consequences of late decision making.

And Levi Strauss ensures that newly hired designers and merchants get training in product management, as well as sustainability.

The aim is that they should know from the start how the smallest decisions they make may affect a factory's ability to meet the company's Terms of Engagement.

The modern approach

Then there is the process of getting feedback. If you see your suppliers as partners, rather than scoundrels that will rip you off at the first opportunity and must therefore be played off against each other, then you can get better insights into how your own process works.

Because the people on the ground know where the problems are better than you do.

Levi Strauss again: "When we've asked for feedback from our suppliers, we've discovered that sometimes the best insights actually come from the people working in the factories."

This is why stakeholder engagement is important. It is often overcomplicated. But it is one mechanism for companies better understanding what are the consequences of their decisions.

Most people will insist on believing that irresponsible corporate behaviour comes from bad people at the top aiming to make a profit at any cost.

But the fashion companies have come to the realisation that many of the best practices help to improve quality and drive down costs, as well as achieving social benefit.

The fact is that nine times out of ten, irresponsible corporate behaviour comes from bad system design, where perverse incentives are created to do the wrong thing.

The As you Sow document is one of those useful contributions that helps to make the challenges visible, and shares some successful approaches that others can learn from

Ethical Corporation has recently published a four part briefing on how some of the better companies manage supply chain ethical risk. These include Nike, Levi's and Marks & Spencer. Go to: http://www.ethicalcorp.com/content_list.asp?m=ctl&ct=76 for more details, and for other in-depth Ethical Corporation briefings.

And on November 9-10 in London, leading companies will be discussing how they engage their suppliers in supply chain ethics and sustainability. Take a look at the conference website to see who will be delivering insight by clicking on this link: http://www.ethicalcorp.com/supplychain/index.asp



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