The US Business Roundtable statement in favour of stakeholder rather than shareholder capitalism has opened the question of corporate responsibility—crucially, it extends to global supply chains.
Companies often talk about being on a human rights ‘journey’, a long and winding course with many stops along the way. On the other hand, they are never on a ‘journey’ to profit—this tends to happen as quickly as possible. Given that big business has long been accused of paying lip-service to its social responsibilities, the statement signed last month by virtually all the members of the US Business Roundtable has caused quite a stir.
Their statement on the purpose of a corporation talks about dealing fairly and ethically with suppliers, supporting the communities in which they work and respecting people and the environment by embracing sustainable practices. It also highlights that the signatory companies, including Amazon, Ford and JP Morgan, ‘are committed to transparency’.
But global supply chains are anything but transparent: today there are more than 21 million people around the world trapped in forced labour, most of whom produce goods for consumers around the globe.
If the August statement genuinely signals a renewed vigour for embracing labour and human-rights standards in the business operations and supply chains of some of the world’s biggest corporations, then it is most welcome. However, of the 181 CEOs who signed the statement, only 45 of their companies have signed up to the United Nations Global Compact, a voluntary initiative that asks companies to support ten principles relating to human rights, labour rights, the environment and anti-corruption. The UN Global Compact is a soft initiative that focuses on educating companies about their social responsibilities and is not an exacting standard which seeks to hold companies accountable for corporate irresponsibility on rights issues.
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It seems we have a long way to go. New laws focused on increasing transparency in global supply chains, including the UK’s and Australia’s Modern Slavery laws and the French Duty of Vigilance law, are starting to get the attention of business. But if these new laws are to work, governments need to enforce them, companies must incorporate human rights into their business-as-usual supply-chain operations and workers must have a seat at the table.
Generally, the prevalent business model—specifically, the purchasing practices of buyers at the top of the supply chain—has a significant impact on the conditions faced by workers at the bottom. Yet while many of the world’s leading brands have shown a readiness to impose occasional requirements on their suppliers through demands to open their factories, fields and mines to auditors, and to sporadically embrace meaningful corporate social responsibility, they have shown limited willingness to address holistically the effects of their own practices and innovate in the way in which they do business. One of the most obvious ways of doing this is to reassess their supply-chain practices.
Global impact of supply chains
It is hard to overstate the impact of global supply chains on the economy and on people’s lives. The Organisation for Economic Co-operation and Development estimates that more than half of the world’s manufactured imports are intermediate goods, which are used in the production of other goods. Trade, production, investment, employment relations and labour itself have drastically changed with the growth of supply chains.
The United Nations Conference on Trade and Development estimates that approximately 80 per cent of international trade can now be linked to the global production networks of multinational enterprises. The International Trade Union Confederation estimates that 60 per cent of global trade in the real economy depends on the supply chains of 50 corporations, which employ only 6 per cent of workers directly but rely on a hidden workforce of 116 million people.
Crucially, companies that source through supply chains do not have responsibilities to workers at suppliers and subcontractors in the same way as they do to their own employees. These facts demonstrate the growing influence of global supply chains, the international fragmentation of production, the changing nature of employment relations, the unprecedented power of a few large corporations and the potential for labour exploitation around the world.
A 2019 survey by the consulting firm Bain & Company found that 90 per cent of company representatives believe they need to change their core business model, at least partly, in order to operate in a truly sustainable economy, and 38 per cent believe their core business model will need to change radically. This survey sits alongside the fact that today there are estimated to be more people trapped in modern slavery, including those working in global supply chains, than ever before.
Too many corporate-social-responsibility or sustainability departments within large companies are siloed from their procurement colleagues, and decisions about where and when to purchase goods and services are isolated from human rights concerns. Companies that are committed to mitigating human-rights risks in their supply chains need to assess their own purchasing practices as a source of risk.
Companies need to look both outward and inward when pressing for reforms. Some companies have started to move from a transactional sourcing model, with fixed terms and conditions for suppliers, to a model based on a longer-term relationship with suppliers, in which some terms can be re-negotiated.
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At present, prominent initiatives to address forced labour in supply chains are likely to fall short of their claims and objectives. Most are not tackling the root causes of forced labour. What is needed is for all companies, large and small, to come to the table, and factor compliance and human-rights due diligence into their own practices and business models, including adjusting their pricing structure and lead times for orders.
Strategies to combat forced labour in supply chains should be holistic. There is no single solution to addressing this global problem but treating the root causes—one of which is the business model of production—may be more effective than taking a reactive approach akin to sticking one’s finger in a dyke.
This article first appeared on Equal Times.
Justine Nolan is associate professor in the faculty of law at the University of New South Wales, Australia. She specialises in business and human rights and supply-chain regulation. Martijn Boersma is a lecturer in the faculty of business at the University of Technology Sydney. They are joint authors of Addressing Modern Slavery (UNSW Press, 2019).