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Supplier abuse

Tesco has been roundly criticised by the Grocery Code Adjudicator over its treatment of suppliers. The adjudicator investigated “the length of time taken to pay money due to suppliers, unilateral deductions from suppliers and an intentional delay in paying suppliers”. The findings leave no doubt that Tesco was engaged in substantial supplier abuse. In fairness it has to be said that, miraculously, Tesco is now ‘a very different company’ from the one described by the adjudicator, according to its CEO.

Yet the real issue is not just Tesco’s practices, but those of all the supermarkets.  I doubt that Tesco is unusual, it is just that since its wider financial malpractices were exposed, it became an easy target. The problem is that there are so few supermarkets that it is no wonder that they exploit their suppliers. And given the opportunities for suppliers to find new customers is so limited, it is understandable that they make few complaints.

But the problem goes even wider than this. While supermarkets may be repeat offenders in terms of supplier abuse, many large companies also work hard to maximise cashflow at the expense of suppliers. Very lengthy payment periods built into contracts are commonplace.

Who is going to bite the hand that feeds them when there are so few hands to go round?

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Can you audit your way out of slavery, or do you have to pay the price?

Channel 4’s report on conditions for fruit packers reveals regular, awful treatment of the workers supplying the supermarkets.

No doubt all the supermarkets’ suppliers are regularly audited to guard against just this sort of exploitation. So what has gone wrong? The immediate answer is that the ‘unannounced, random audits’ were not nearly random or unannounced enough. In these circumstances, the only audit that will work is the one that the company does not know is happening. Channel 4 is really providing just this sort of ‘mystery audit’ service for the supermarkets.

But all auditing is operating after the fact. To prevent exploitation happening in the first place, the causes have to be addressed. And the deeper cause here is the relentless downward pressure on prices that the supermarkets exert on their suppliers. Saying each year ‘next year we will pay you 5% less for the same product’ will lead to slavery. If the supermarkets really want lower costs, they should work with their suppliers to figure out how it can be done without exploiting anyone.

Or just pay what decent work costs.

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announcements commentary

SROI – at the awkward adolescent stage?

The SROI methodology for valuing impacts is coming of age. But it is a difficult age which begs important questions. The biggest question is perhaps the presumption that a valuation can be achieved through assigning quantitative financial values to any kind of impact.

After that, perhaps the next most important is: what should it be used for? The current choice is to help mission-driven organisations produce a fairly quick evaluation of the difference they make in the world. It does that well, even if there remain a number of questions about how it goes about that task.

However there are two other huge areas to which SROI could make a difference, although that would require a modification of its methods. One such area is the social impact of mainstream companies. Where ordinary commercial interests and value flows are a large part of the impact, an SROI-like methodology must confront the question of what the total impact of an organisation is, rather than only what difference it makes. The technical reasons for that I have spelt out in an blog on the Social Value International website.

The other big area is public policy-making. As Daniel Fujiwara has pointed out with some care, the adoption of an SROI-like methodology in policy-making circles would require SROI to adopt the kind of rigour that underlies current cost-benefit analyses.

So, a bit like an adolescent, SROI needs to decide exactly what it wants to do in the world.

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announcements commentary

Is reporting child's play?

The ACCA has recently published a report on the reporting of child rights issues, in which I was involved.

The abuse of child rights is one of the most serious issues that a company can face. More than any other it has the potential to bring down any organisation associated with it. That is because the issue is so serious and the children concerned so vulnerable.

The reporting of child rights issues is perhaps one step removed, but nevertheless a crucial piece of the corporate accountability puzzle. ACCA’s paper starts from the relatively poor state of child rights reporting, acknowledging that few companies report much more than on the policy they have adopted on the issue.

The next step was to look at the role that reporting standards play in supporting child rights reporting. Overall the findings were that, with the exception of the GRI, the support that the main reporting standards provide is quite limited. While all the main standards (IIRC, Shift, GRI) are obviously consistent with transparent reporting on the issue, there is little explicit support. However the GRI is different since it has published more detailed guidelines in association with UNICEF.

ACCA also convened a roundtable to discuss what the reporting of child rights should look like. The main body of the report constitutes a set of guidelines, based on the structure of the UN Guiding Principles. It also provides examples of good practice from those companies that do demonstrate good practice in this area. This includes Lego’s guidelines on marketing and also H&M’s work with UNICEF and in piloting the Children’s Rights and Business Principles.

The ACCA report deserves credit for highlighting the issue – as there is a real need for companies to disclose more than their policies on the matter. But child rights reporting does present even more of a challenge than human rights reporting. Most human rights reporting (as indeed most corporate non-financial reporting in general) is directed at opinion formers. Yet the real people to whom accountability is owed are those whose rights are at stake. When it comes to child rights reporting, this implies a need is to communicate directly to children. That is not easy, although it can be done. This is a challenge that the ACCA paper identifies, but for which it does not offer significant guidance.

Which companies should take note? It is not only those that rely on extensive supply chains in which children may be exploited. It is also those that through the credit card products they deliver, can supply the finance for child abuse to take place. And of course it is also those that sell products designed to appeal to children. The test will be whether the coming months see more reporting of child rights issues.

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commentary

The price of a cup of tea

The BBC’s investigation of workers’ conditions on tea plantations in Assam makes depressing reading. The squalor and poverty behind one of the world’s favourite drinks is appalling.

It is striking that the response of Unilever, a company often held up as a beacon of responsibility and sustainability, is so weak. According to the BBC, Unilever knows there is more to do, but that ‘progress has been made’. Presumably that means that conditions were even worse in the past. And does Unilever measure the impact of its operations on tea workers at the bottom of the supply chain?

Also, the Rainforest Alliance that operates one of the more widely used certification processes admits that its audit process, which is based on annual inspections, is inadequate. Moreover many supply chain inspection processes are based on less than annual inspections. So the BBC investigation has the potential to undermine confidence in a number of  well-known certification processes.

The response to the Rana Plaza disaster was a legally binding commitment involving the unions. Is it time for something similar for the tea industry?

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commentary

The advantages of second sight

We all love a good Post Office,  I’m sure – but what happens when the Post Office goes bad?

A few days ago we learned that the continuing rumbles about the training for and the functioning of the Post Office’s key operational Horizon computer system, introduced in 2000, did have some foundation. Or at least I think so, but the Post Office will not release the report that it commissioned Second Sight to produce on the issue. That report apparently found failings with the Post Office and its handling of the affair. However while their report remains confidential, they are said to have issued a press release rebutting its findings. But at the time of writing at least one Post Office computer system did indeed seem to have failed: their website for press releases.

The issue is not mentioned on their social responsibility website. And there seems to be no mention of a whistleblower function there either. This all leaves those aggrieved by the affair in the cold. And overall it represents very poor social responsibility.

The Post Office seems to be painting itself into an ever-tighter corner from which there will be no escape without a little humility and a good dose of transparency. Failing that, having had a first look into the future, I predict there will be legal battles over cover-ups in years to come.

 

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commentary

The disappointment of mergers and acquisitions

Do mergers and acquisitions make sense?

Kraft and Heinz are to merge. Is that good or bad? The answer depends on who you are. But mergers and acquisitions rarely create shareholder value, according to received wisdom. Of course some (some shareholders, the advisers) are going to benefit otherwise they wouldn’t happen. But the businesses as a whole usually suffer.

And so do other stakeholders. Staff will typically suffer as one of the rationales for such deals is usually staff savings. Suppliers are similarly likely to suffer because the rationalisation of procurement is another driver. But such stakeholders are never consulted in advance of an agreement.

And the environment is rarely mentioned – when was the last time you heard about a big deal that was justified as necessary to preserve the environment?

Beyond the particular companies involved in any deal, through the consolidation of organisations of such scale the economic system as a whole loses diversity and resilience. With fewer participants and fewer, more controlled connections between them, the economy becomes more fragile and less responsive.

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What's wrong with finance?

Why are there so many scandals within the finance sector? From the many news reports the banking, finance and insurance sector across the world seems rife with malpractice.

Insurance seems to be commonly mis-sold – to those who don’t need it and to those who don’t care enough to shop around at the end of the year. Banking often provides poor service and finds it hard to justify its charges. (But it can help you avoid tax.) And then there’s finance. Apart from crashing the world economy, a surprising number of markets seem to have been rigged and operated for the benefit of the industry rather than the market participants.

It doesn’t look as though it’s a matter of a few rotten apples spoiling things. The entire barrel looks badly decomposed. It is tempting to think of the sector as a zombie – still out to get you even though it is clearly dead. But that would be wrong.

It is true that there are so many separate companies involved in all these scandals that it must be a systemic problem. And because finance is the life-blood of the economy, an infection in one part of a bank can spread everywhere.

Also, the typical reaction of the management of financial companies rarely helps. The response to a scandal is almost invariably a variation on this theme: “we’re sorry that [something] has gone wrong. This behaviour does not represent the ethics of the bank as a whole, it is the result of a few rogue individuals. However we have already put in place far stricter controls that will prevent this sort of thing ever happening again.” With a few changes, that could also have come from the mouth of the regulator.

But a few weeks later, it happens again…

Which matters because we have little choice in where to put our money. True, crowd-sourced finance, local money schemes and friendly societies are beginning to push the mainstream finance sector out of the way. But can this disintermediation spread beyond smaller ventures? As a result, trust in a fundamental institution of our economy is falling away. The final result may be increasingly ‘irrational’ behaviour by all of us that will make the smooth functioning of the economy – and of our lives – increasingly difficult.

The question remains, however – why is the finance sector in particular in this state?

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commentary

What are corporate citizens to do when there's an election?

The answer isn’t to vote – unless of course you are based in the City of London when the number of voters you can appoint for local elections is proportional to the number of your staff.

But there’s a general election coming up, so what can a corporate citizen do?

Businesses have a great interest in the way the country is run, so they care about the results. Some – like media companies – can influence the electorate directly. (This is lobbying more or less hiding in the plain light of day.) But others have two main routes to influence the democratic process: consultations and lobbying. Consultations require arguments to persuade civil servants. While a lot of this goes on behind the scenes, at least there is also an official audit trail of the process.

Lobbying is a lot murkier and includes politicians as targets. This will also be the first UK general election since the Transparency of Lobbying Act became law, almost exactly a year ago. One part of the Act sets up a register of lobbyists. The mechanics of this is very weak – and still out to consultation. The other part limits campaigning within 7 1/2 months of an election, if it could conceivably be seen as influencing an election result. That might seem sensible – but the sting in the tail is that campaigning by all organisations, including charities and unions as well as for-profit companies, is affected.

It will be interesting to see what difference the new Act makes to this year’s election.

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commentary

Why is it so taxing?

Starbucks was recently accused of paying almost no tax in the UK. In fact it claims it won’t be doing so for several more years. The fact that this has gone on for about 16 years is surely not a testament to the incompetence of its management but to the commitment Starbucks has to the UK, where it can make a lot of money without paying much tax.

At any rate it is no doubt currently entirely legal. But the Chancellor’s statement promises a tax on such ‘diverted profits’ (the ‘Google tax’), so that it could be less worthwhile. At the moment the details of the proposals are not at all clear. But it will have to rest on far more transparency over where profits are made and tax is actually paid. At the moment this information is very hard to come by.

Yet that does not mean it is hard to produce. Vodafone has done this. So whether the tax on diverted profits flies or fails, it will be down to the relative strength of two forces: political will versus commercial won’t.