A recent report by the Economist Intelligence Unit has revealed a significant shortfall in the ethical performance of major corporations in supply chain management. Fewer than a third looked to address corruption and bribery issues with their suppliers. This was despite respondents' high regard as to their company’s sustainability policies.
The research surveyed 800 supply chain executives, most of whom were based in the major industrial economies. It was a thorough report, eliciting the views of practitioners, academics and consultants.
Nearly four-fifths of respondents believed that "my company has a responsible supply chain." When explored closer, the performance of these organizations fell away: 23% addressed climate change and carbon footprints, and only 22% addressed child labor issues.
The precise meaning of "address" is unclear. Within Procurement Leaders’ own research, we find that there is a wide degree of variance on supply chain action. At its lightest level, companies may use only contracts. For example, the inclusion of a provision mandating suppliers signing up to ethical code of conducts may be seen as an advanced practice for some, but should be considered as the most rudimentary measure. Indeed, there is limited assurance that one can glean from a signed document. The most effective way to "address" supply chain ethics is direct enforcement, through clear and transparent measurement alongside routine verification.
Since the previous survey, five years ago, the EIU records a drop in concern in developing a responsible supply chain. Thirty percent of the sample reduced their focus on ethical issues.
It is shocking to see corruption drop to a back-ranker on the list of ethical items. The US Foreign Corrupt Practices Act and UK Bribery Act establish strict regimes for all companies. Those failing to police bribery within supply chains not only face moral opprobrium, but also significant financial penalties. Indeed, prosecuted managers may suffer imprisonment.
It seems as though companies are willing to take the risk in their supply chain operations. Bribery cases are very difficult to prove, and prosecutors have limited resources to engage in multi-year, cross-border investigations. Supply chain executives may be willing to take the gamble that they, or their suppliers, will not be detected.
This is not to say that the 70% are corrupt; rather, by ignoring the issue, they cannot make a judgement as to their exposure to bribery at all.
The report underlines an open secret within the procurement world: ethics, much like operational matters, have been outsourced to suppliers. Buyers assume that sustainability efforts are managed by suppliers. But given the highly fragmented nature of value chains, suppliers, in turn, apportion ethical responsibilities to their own suppliers.
Consequently, no one takes responsibility. As a result, examples of abuse, mismanagement and corporations turning a blind eye to dubious practices abound. The supply chain is rich pickings for investigative journalists, as the press can frequently recharge with new stories of companies behaving badly.
There have been only a few examples of corruption in the supply chain, and these have tended to relate to bribery of government officials. But in huge corrupt networks, such as the Unaoil scandal, we see that affected parties ripple out to smear reputations across the industry.
It seems as though 70% of companies are willing to take the gamble that they’ll escape unseen. Unfortunately, it seems as though supply chain executives are waiting for another major supply chain scandal to be more proactive in addressing corruption issues directly.