Ethics make excellent sense

After sweatshop scandals hit the likes of Gap and Nike, many companies went a
long way to protect their reputations by ensuring that their suppliers in the
developing world offered decent conditions. It came as a surprise to learn that
these conditions could also be found in the UK. The deaths of the Morecambe Bay
cocklepickers in 2004 made clear that companies cannot assume that their UK
suppliers behave ethically.

Large companies can wield great power over suppliers, especially small and
medium-sized businesses. The pressure to make a profit means that large
companies push suppliers to cut their prices. And small suppliers do so because
they are dependent on their large customers; some may even cut ethical corners
in order to keep the contract.

Large organisations must be mindful of their power. But they can also use
that clout to provide expertise in helping smaller companies to reach high
ethical standards.

With customers demanding that businesses ethics should be more than
skin-deep, it is not enough for HQ to have a charity drive if people are
unfairly treated somewhere along the supply chain. Larger organisations can
realise their ‘extended responsibility’ by promoting ethical values. This can
help raise social and environmental standards throughout the supply chain,
although it must be done sensitively.

Large companies need to take time to understand the needs of smaller
organisations. Paying on time is a crucial issue. Small businesses should not
have to bear the brunt of large organisations’ cashflows. A big company’s 90-day
invoice payment terms can turn profit into bankruptcy for a small supplier.

Large companies’ demand for cost cuts can also hurt suppliers badly. The
supermarkets have had an especially bad press on this issue but they are not the
only ones that do it.

Large organisations can mitigate these problems by adopting a spirit of
partnership with suppliers, replacing pressure and bullying with communication
and engagement.

It is not just about ‘doing the right thing’. In today’s outsourced world,
suppliers offer R&D and innovative products. Far better for a large company
to reap the long-term benefits of a successful supplier’s growth than enjoy a
short-term price cut but have to search for a new supplier later.

The bitter irony is that large organisations can have the most laudable of
corporate responsibility programmes but still treat their suppliers unethically.

It is time for organisations to look at the ethical issues in supply chains
and procurement practices closer to home and respond accordingly.

Philippa Foster Back is director of the Institute of Business Ethics

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