Supplier relations
KEY POINTS
Increasingly, goods produced in one part of the world are consumed in another, often more developed, country. The outcomes of global economic integration, or globalisation, along with environmental issues, have emerged as the main area of ethical concern in companies operating or sourcing on a global level. As a growing number of organisations source goods and services from companies based outside their own domestic marketplace, and others more rapidly extract the natural resources of developing nations, so the scope for unethical business activity increases. Examples from major UK companies show that as product lines expand to accommodate changing customer lifestyles and preferences, so companies source their products and services from the greater number of suppliers around the globe.
In the global marketplace, companies tend to use the cheapest suppliers or producers. There are substantial labour cost savings to be realised by outsourcing goods and services to an overseas supplier. British Airways' decision to use the Indian-based computer business World Network Services involved a $4.95 million (approx. £2.9 million) investment, but generated savings of $14.85 million (approx. £8.7 million) in labour costs.1 As competition becomes more intensive, so the pressure on companies to seek cheaper alternative suppliers multiplies. Marks & Spencer was recently criticised for the decision to encourage its UK clothes suppliers to source more manufacture in cheaper overseas locations.2 Very often, the customer business can exercise very little control over the supplier company. Consequently, when a subcontractor's unethical activities are disclosed, the contracting business can often be unaware of the situation. Italian clothes retailer Benetton attracted criticism following a story in the newspaper Corriere della Sera that a Turkish subcontractor, Bogazici Hazir Giym, was employing child labour (see Benetton response).3 Such circumstances are exacerbated in countries where trade is conducted via an intermediary. UK and US toy companies, for example, tend to contract Chinese producers through Hong Kong-based brokers, so the potential for suppliers to transgress ethical codes of conduct is greater.4
Typically, corporate governance has not transcended national boundaries. Behaviour that is considered unethical in a company's base country can often be viewed as acceptable elsewhere. Yet it is not as simple as applying the same standards throughout all supplier companies. This course of action itself raises numerous ethical dilemmas. One problem area, for example, concerns the issue of child labour. Families are often dependent on the income from child workers so that any policy to eradicate the use of such labour might prove counter-productive. Finding a practicable solution to ethical problems is therefore the aim of good corporate citizenship. Jeans manufacturer Levi Strauss resolved the child labour-family income conundrum in its Bangladesh and Turkish suppliers by agreeing to pay the contractors to keep already employed children at school until they are 14.5
As the Benetton example indicates, ethical transgressions, either knowingly or unknowingly, by corporations operating in countries where labour costs are lower and regulatory systems are less developed, are now more likely to be highlighted by the media. Non-governmental organisations (NGOs), such as human rights activists and trade unions, constantly expose working conditions that fail to meet acceptable international labour standards (see figure 6.1 for a summary of the International Labour Organisation's core human rights conventions). Governments are also responding to such concerns and in the UK, government support has been given to the Ethical Trading Initiative (see figure 6.2 ), a programme sponsored by B&Q, BT, C&A and Premier Brands (Typhoo tea), among others, designed to protect the basic rights of people who produce goods and see that they are applied throughout worldwide supply chains.6 Internationally, the Council for Economic Priorities (CEP) has developed the Social Accountability 8000 (SA 8000) standard for the ethical sourcing and production of goods based on the conventions of the ILO, the Universal Declaration of Human Rights and the United Nations Convention on the Rights of the Child (see figure 6.2 ).
Consumers, too, are increasingly concerned that the working conditions of people in distant supplier companies should compare favourably with the health and safety and minimum wage expectations, for example, that workers receive in the developed world.
Although much of the debate surrounding relations between suppliers and business customers focuses on the conditions of workers in the developing world, there are also important ethical considerations closer to home. As Julie Shrimpton, communications manager at J Sainsbury acknowledges, "there are difficulties with the way some agricultural labourers are treated in East Anglia" (see case study 5 ). Indeed, pilot SA 8000 audits by the New York-based CEP found the biggest problems in Manhattan, where illegal immigrant workers were frequently exploited.7 Subcontractors may present corporations with ethical concerns, but the obverse is also true. Small businesses which rely on their larger counterparts for work are often poorly treated. One area of concern which has prompted government action (Late Payment of Commercial Debt Act 1998) concerns the settling of business accounts. Research by Lloyds TSB found that 50% of small businesses complain that late payment is their biggest worry, with around 44% of all transactions paid 15 days or more in arrears.8
However, this section focuses on the corporate supply chain and how companies are dealing with calls for ethical trading with overseas suppliers.
THE SUPPLY CHAIN
The scope for poor employment practices among suppliers is immense, given, for example, the number and type of contractors with which food and clothing retailers tend to deal. It was noted in chapter one that Sainsbury's has 6,000 worldwide suppliers and Tesco sources from more than 60 countries.9 Dutch clothing retailer C&A has around 10,000 suppliers, while Toys'R'Us uses around 5,000 contractors.10 Moreover, the range of products continues to grow apace. Changing customer lifestyles, such as the preference for fresh produce all year round rather than on a seasonal basis, is forcing food retailers to increase their range of goods. Safeway launched 80 new ready meal lines in 16 weeks during 1997.11 Overall, a typical Sainsbury's supermarket stocks 23,000 product lines, while Tesco's non-food items in its largest stores total more than 20,000.12
Although over the past decade, there has been a tendency across industry, especially among car manufacturers, to reduce the numbers of suppliers, most companies use a myriad of different contractors to supply goods and services. The Body Shop International had 1,281 suppliers worldwide in February 1997.13 In the same year, the Co-operative Bank spent more than £100 million of goods and services from around 3,000 different suppliers.14
A growing band of customers is expressing a preference for goods which are produced in accordance with certain minimum standards in areas such as child protection, health and safety, and freedom of association. A report by the international consultancy, the Control Risk Group, found that the UK and American public are among the most sensitive consumers about human rights and environmental violations.15 J Sainsbury acknowledge this shift in customer expectations, and campaigns to raise awareness among both business and the consumer (see case study 5 . Oxfam's Clothes Code Campaign to get major retailers to adopt a code of practice and effective monitoring procedures with regard to the employment conditions for garment workers (both at home and overseas) included action by customers who, by April 1997, had handed in more than 6,000 special coupons and over 1,600 letters to the UK's top five clothing retailers.16 Anita Roddick, founder and chief executive of The Body Shop, has argued that:
"Vigilant consumers will increasingly question companies and may boycott products if they don't like what they see in terms of environmental protection, social responsibility and community involvement."17
Non-governmental organisations tend to target retailers and strong brands - as well as organisations involved in the extraction of natural resources and chemicals companies - because campaigns to publicise the exploitation of workers in the developing world will reach a larger audience where a well-known name is involved. The stakeholder approach places suppliers in the transactional environment (along with customers, employees, shareholders and creditors), which means that the relationship is governed by rules and formal contracts. As a result, business customers are in a strong position to encourage minimum standards of employment. This point is amplified in relation to food retailers by Christian Aid director Reverend Michael Taylor:
"Supermarkets have the power to improve the daily lives of people in poor countries who grow the food on which we depend."18
Church groups and trade unions have been instrumental in highlighting the failings of brands such as Disney, Levi Strauss and Nike to ensure that their respective codes of conduct on social responsibility are vigorously applied in practice. Publicity enables NGOs to mobilise customers to put pressure on businesses to ensure compliance with the companies' own standards and those of bodies such as the ILO.
Customer pressure is a more potent weapon than lobbying governments to regulate labour standards. A customer boycott, for example, sends business a powerful message about its activity or inactivity.19 One study of the performance of stock values in the aftermath of a call for a company's goods to be boycotted reported significant falls.20 Danish brewer Carlsberg and its Dutch counterpart Heineken were both forced to pull out of Burma in 1996 following the threat of a consumer boycott across Europe.21 In chapter one, the case of Nestlé's marketing of its powdered infant formula in developing countries was highlighted. The Swiss-based company became the subject of a well-organised campaign by church groups across the US that eventually led to a boycott of its products and services and had a detrimental effect on both the business and its profitability.22
Fear of consumer action and the activities of pressure groups can influence business strategy. The Control Risk Group study noted earlier found that one in five UK companies is discouraged from investing overseas because of lobbying by human rights activists, or because of fears that the investment might prove controversial.23
If only a small proportion of consumers in a highly competitive sector such as retail decide to base their purchasing decisions on ethical considerations, the impact can be significant. It was noted in chapter two that Nike's financial performance in the year to March 1998 had deteriorated, which, according to The Washington Post was in part due to "resistance by customers because of persistent allegations that the company mistreats its factory workers".24
CORPORATE RESPONSE
How have food and clothing retailers and sports goods companies responded to the growing clamour by both consumers and pressure groups to ensure ethical labour practices in their suppliers? In October 1997, Christian Aid published a list of the top 10 UK supermarket chains ranked by their progress towards establishing codes of conduct that guarantee minimum working conditions in suppliers of own-brand merchandise. Tesco was placed top, ahead of Safeway, with Sainsbury's in third place (see figure 6.3 ).25
According to statements in their annual reports, retailers recognise that the need for ethical trading is of growing importance. For example, Safeway states that:
"[Safeway] have accepted for some time now that we have a contribution to make to improving, where necessary, the social, environmental and employment conditions under which our own-brand products are grown or made. This particularly applies to developing countries. We are currently talking to our suppliers, particularly in sectors such as produce, toys and clothing, in order to make them aware of the standards we expect and help them achieve any improvements we require."26
In terms of actual practice, Tesco says that its approved suppliers must abide by the retailers' own employment standards and adhere to its animal welfare code of practice, which the company claims is one of the "toughest in the industry".27 Our case study of J Sainsbury demonstrates that the supermarket-to-DIY retailer is in the process of implementing its own code of conduct for suppliers. The company also participated in developing the SA 8000 global sourcing standard.
Other retailers are also striving to adopt a more ethical approach to the sourcing of goods and services. Kingfisher, owners of DIY business B&Q and retailer Woolworths, claims that its companies "source their products on a global scale and work closely with manufacturers and suppliers to achieve improved environmental performance and acceptable standards of employment and health and safety."28 The Body Shop's key company aims regarding suppliers are spelt out in its Trading Charter, including a "respect for human and civil rights" and the "creation and support of long-term, sustainable relationships with communities in need."29 The Body Shop has also developed agreements with a number of "Community Trade Suppliers" based on the company's perception of fair trade, the guidelines for which were first established in 1994. The basic principal underpinning the programme according to The Body Shop's 1997 Values Report, and echoing the position put forward by Christian Aid above, is that "trade can provide a vehicle for human and community development and social change."
Despite a number of high-profile examples of companies taking a more ethical approach to their relationships with suppliers, only a third of the organisations surveyed by Management Review encourage or require their contractors to commit themselves to ethical employment practices in their operations. Included in this grouping are document company Xerox and manufacturer Wilkinson Sword. Moreover, only 28% of organisations require suppliers to adopt similar employment practices to their own.
A 1996 Industrial Society study found that although 61% of managers surveyed believed that the principle: "Will not do business with suppliers/contractors/distributors whose behaviour is contrary to organisation's standards" is essential to ethical management, only 44% said that this was true of their organisation.30
Codes of conduct
Codes of conduct either recommend or stipulate what labour standards a company's suppliers should comply with. Commonly, codes outlaw the use of child, forced or bonded labour and specify that hours of work, wages, and health and safety should comply with local legislation. Occasionally the code will refer to freedom of association and the right to collective bargaining, as well as a commitment to pay wages that are sufficient to "meet the basic needs and provide some discretionary income".
One example of a code of conduct including both freedom of association and basic pay is that agreed between the world football federation, Fédération Internationale de Football Association (FIFA), and several trades union groups (ITGLWF, FIET and ICFTU) regarding the production of licensed goods, such as footballs.31
Levi Strauss' Global Sourcing Guidelines, established in 1992, were the first to be created by a multinational business for its suppliers. The guidelines cover environmental and health and safety issues, wages, discrimination, child labour and forced or bonded labour.32 Nike also first adopted a code of practice in 1992. The revised version, introduced in 1998 following damaging publicity surrounding poor labour conditions, especially those found in a Vietnamese subcontractor's factory, specifies standards of conduct in relation to: child and forced labour, wages and benefits, hours of work, health and safety, the environment, and documentation and inspection.33
Following disclosure in the Italian media that a Turkish garment manufacturer subcontracted to Benetton was employing child labour, the clothing company agreed a code of conduct with Turkish trade unions entitled Principles for Clean Production.34 The code includes the following: no child under the age of 15 should be employed in the manufacturing process; pay must be in keeping with local rates; working conditions must respect health and safety standards; equal opportunities and equal treatment should be assured to all employees irrespective of religion, ideology, language, race, sex and nationality; and all employees must have adequate health and social security cover.
It was noted in chapter two that several companies surveyed by Management Review have codes of practice which cover ethical trading issues. Of the 46% of employers with codes of practice, almost 39% include child labour in their policy; 28% include a reference to forced labour; a third mention human rights; and more than 44% specify responsible/fair trading (see figure 2.5, The importance of business ethics). J Sainsbury's code of practice can be found in figure 6.4 .
Verification the key
Alice Marlin, president of the Council for Economic Priorities (CEP), notes that several companies, including Levi Strauss, Toys'R'Us, Timberland, Liz Claiborne and Reebok, have adopted "first-rate codes of conduct", but that there are "major flaws to this approach."35 A CEP study of 71 US businesses found that few company codes of conduct were either comprehensive or binding. The one main weakness is that of verification.36 More than 56% of companies questioned make no attempt to monitor labour conditions and very few use external auditors to check compliance with codes of conduct.
Yet problems arise if codes of conduct are not continuously monitored to ensure compliance. Effective assessment requires third-party evaluation. Independent verification is the basis of the universal SA 8000 process. Conformance with the SA 8000 standard requires accredited certification companies, such as SGS-ICS, ACTS Testing Labs, KPMG and Deloitte & Touche, to visit factories to assess working conditions and management systems (see figure 6.2 ). SGS-ICS has audited two of J Sainsbury's pilot schemes under the retailer's Socially Responsible Trading Policy.
Independent verification, however, does not prevent potential difficulties. Nike's experience provides a salutary example. An independent US company, Goodworks, examined compliance by suppliers with Nike's code of conduct. Although this assessment gave the company "a clean bill of health", a leaked report from Nike's auditors contradicted the evaluation by highlighting the working conditions in one Vietnamese factory.37
Nonetheless, independent assessment of suppliers' compliance with company codes of conduct is becoming both more widespread and a necessary condition to gain consumer confidence. Research conducted by the New Economics Foundation and the Catholic Institute for International Relations found that consumers wanted reliable information to enable them to make ethical decisions, as well as "legitimate external verification of monitoring to back up [company's] promotions claims."38
In addition to agreeing the text of the Code of Labour Practice, FIFA commits to "effective independent monitoring to ensure that its principles are respected at all levels of the industry".39 The US clothing retailer Gap has established a verification process that involves NGOs in the locality monitoring standards.40
Although SA 8000 is seeking to establish a universal approach to standards in global sourcing, it has, as yet, had little impact, with only one in five of Management Review's survey respondents even aware of its existence. Of these, only three organisations, including Boots and Biffa, are actually committed to it, although J Sainsbury, which was involved in developing the standard, is currently evaluating it as the company negotiates its own code of social responsibility with its suppliers (see case study 5 ).
WHY DO IT?
The SA 8000 system is similar to the international quality standard, ISO 9000, and the environmental standard, ISO 14001. The quality movement made it clear that quality performance, especially continuous improvement, is largely dependent on an empowered workforce and a high degree of trust between managers and employees.41 The same is true of relations in supplier companies, wherever they are based. Companies supplying major businesses need to conform to ever more stringent quality standards and continually improve their performance. This is unlikely to occur where working and social conditions are poor. Quality performance demands better working conditions and employee welfare.
Variations in tea quality led in 1991 to Premier Brands, producer of Typhoo and many own-brand teas, to move away from purchasing on the London tea auctions to deal directly with the tea producers. As well as product quality, the company's quality assurance project includes workers' health and safety, among other features.42 Compliance with specified social conditions determines whether a tea estate receives preferred supplier status or not. Toys'R'Us requires its suppliers to conform to SA 8000 following fears about the quality of products made overseas, particularly the possibility of toxic emission from toys.43
Most companies possess the facilities and processes to ensure compliance with ethical standards in supplier businesses. Food retailers, for example, employ technologists and buyers to routinely visit suppliers to ensure product quality and monitor hygiene standards. Marks & Spencer employs around 70 food technologists to oversee quality and maintain standards.44 As J Sainsbury has recognised, such staff can provide front-line support to suppliers to ensure that the company's proposed ethical trading standards become a reality (see case study 5 ).
Aside from quality, there are a number of other possible business benefits to be derived from developing ethical standards in the supplier chain. Although scrutiny of corporate activity is likely to increase where a company commits itself to an ethical trading policy, so long as it continually monitors compliance and responds quickly to alleged difficulties, corporate image and reputation will be significantly enhanced.
Universal standards and verification, such as the SA 8000 system proposed by the CEP, establishes a level playing-field so that competitive advantage is not by exploiting workers in the developing world.
J Sainsbury is aware that some contractors supply goods and services to other companies, so that for a code of conduct to be effective, it requires the participation of all those involved.
The Co-operative Bank, which since 1995 has screened all new suppliers against its ethical policy, believes that there are mutual benefits to be gained from encouraging suppliers to meet its standards.45 Suppliers can realise long-term relationships and prompt payment, while the bank is able to minimise the risks involved with entrusting a critical function to a third party. In a similar vein, McIntosh et al list four potential business benefits that might be realised from adopting the SA 8000 approach:
Case
Study 5
Sainsbury's looks to an ethical future
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PROFILE |
J Sainsbury plc is one of the world's leading retail chains, serving more than 14 million customers a week. It boasts an annual turnover in excess of £1.5 billion. The business consists of five components: Sainsbury's Supermarkets, which employs 127,000 people in 391 outlets; Savacentre, a chain of 13 hypermarket-style stores with around 10,000 staff; and Homebase, the DIY group with 17,000 workers in 298 stores. In addition, J Sainsbury has a wholly-owned subsidiary, Shaw's Supermarkets, in the USA. It also has a 55% stake in Sainsbury's Bank, a joint venture with the Bank of Scotland. Only Sainsbury's Supermarkets, Savacentre and Homebase are covered by the Socially Responsible Trading Policy. |
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INTERVIEWEE |
Julie Shrimpton, communications manager, environmental management |
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FOCUS/ISSUE |
Introduction of an ethical trading policy |
How does a supermarket chain stocking more than 23,000 different products ensure that they are all sourced from suppliers who pay their employees a living wage? Is it possible for a DIY chain with more than 20,000 lines, many of which are sourced from the developing world, to sell goods that have not been produced by forced labour? These are the kind of questions that are currently being addressed by the high-profile retailer, J Sainsbury.
In March 1998, the company launched its Socially Responsible Trading Policy (SRTP) which clearly sets out what is expected of the farms and factories that supply the 40% of "own-brand" products sold in its supermarkets, and which account for almost a third of the sales achieved by the Homebase chain. While many of the workers that produce these goods are well-treated and are paid the proper rate for the job, many others may not be so fortunate.
According to Julie Shrimpton, J Sainsbury's communications manager, environmental management, there is a growing customer resistance to products based on exploitation. The company has not carried out any specific market research in this area, but it is aware of growing consumer concern, prompted by initiatives such as Christian Aid's "Change the Rules" campaign, which encouraged church members to raise awareness by petitioning supermarkets and lobbying store managers.
As a result, many shoppers now expect retailers to ensure that all their suppliers, at home and abroad, set certain minimum standards in areas such as child protection, health and safety, and freedom of association. The SRTP, reproduced in figure 6.4 is the company's response to these demands. It consists of a set of broad principles, covering issues such as child protection and health and safety, backed up by a more detailed code of practice, which will be monitored and assessed by an in-house team. Its provisions are based on internationally-agreed International Labour Organisation (ILO) standards.
J Sainsbury started developing its ethical trading stance early in 1996. "We had a fairly good idea about what we wanted to achieve, but we weren't too clear about how to go about it," says Shrimpton. The first tentative step towards its goal came in December 1997 with the company's involvement in the launch of the Ethical Trading Initiative (ETI, see figure 6.2 ), a programme bringing together private sector firms, aid agencies, campaigning organisations, trades unions and government to promote a consistent approach to socially responsible business practices.
At a May 1997 ETI seminar sponsored by J Sainsbury, the company was able to draw on the expertise of other firms, such as C&A, who already had policies in place. This gathering helped the company to develop its own ethical standpoint and launch the SRTP.
PUTTING POLICY INTO PRACTICE
The SRTP is overseen by in-house staff, led by Dr Petrina Fridd, a senior J Sainsbury food technologist who acts as project manager, and the head of the company's technical division, Dr Geoff Spriegel, who is also on the ETI's governing body.
At the start of 1998, the SRTP was posted to all 3,000 Sainsbury's Supermarkets, Homebase and Savacentre suppliers, both at home and abroad. The policy was circulated not only to firms supplying goods sold on the high street, but also to suppliers of products such as plastic packaging, computer equipment and office furniture. It was accompanied by a letter from the company's chief executive, asking contractors to read over the policy and then conduct a basic "mini self-assessment", evaluating to what extent, if any, they met the stated criteria.
By October 1998, around 1,000 responses had been received and of these, approximately 100 had completed the self-assessment. The idea, says Shrimpton, is to the use the information drawn from the exercise to build a computerised database on the ethical standards of all suppliers. She is not dismayed by the seemingly low response rate, saying that it is "early days". The objective, Shrimpton adds, is to get a 100% sign-up rate, "but we know we have to work hard to get our suppliers to understand what we want and the reason we are doing this. Clearly, there is a long way to go."
Suppliers not signing up to the code will be contacted and asked if they have read it. Those failing to agree its terms will not automatically be barred from remaining (or becoming) a supplier. But those seeking to enter a commercial relationship with the retail giant will be assessed according to the SRTP and if they were found to be, in Shrimpton's words, "essentially bad employers", they will be rejected out of hand. Although she cannot quote specific examples of this, Shrimpton says that technologists who visit factories can usually spot tell-tale signs of poor standards, such as an unhappy, cowed workforce or flagrant health and safety breaches.
EQUIPPING STAFF WITH ETHICAL SKILLS
The next stage of the process involves J Sainsbury employees making follow-up visits to suppliers' sites to assess progress. "This is not a question of our staff turning up with clip-boards and marking the companies we deal with. The people we employ who go out in the field are highly qualified, usually graduates, who are well aware of things like food production and hygiene standards, but they are not trained to carry out ethical audits." To improve on this situation, technologists and buyers, who routinely make site visits, are now being given awareness training so that they can work with suppliers to raise standards. This consists of a one-day seminar which includes:
Training sessions are conducted by the SRTP project manager, assisted by two representatives from the FairTrade Foundation and one from SGS-ICS, an independent ethical verification organisation. Senior technical division managers received their training in January and February 1998, and product technicians and procurement staff underwent awareness training in September and October. The last group, buyers, were scheduled to be trained from the end of 1998 onwards.
The company is about to embark on pilot projects to test the capabilities of various external ethical auditing companies, including SGS-ICS. It is also involved with two ETI-backed studies - one reviewing the production of South African wine and the other concerning flowers and fresh produce in Kenya. Reports on these reviews are due in the Spring of 1999.
TACKLING THE PROBLEM
"Once all our suppliers have signed up to the code and have completed their own mini-assessments, then we have to look at which part of the problem we are going to tackle first," Shrimpton says. "We can't go out and look at everyone, so we'll be concentrating on industries and countries where we think there are potential difficulties. Health and safety, together with child labour, are the areas we are expecting the most problems with, and we hope the pilot will identify the key issues." The company will also be able to draw upon the experiences of others involved in the ETI, Shrimpton adds. "They can help us define what is acceptable in certain countries, and what is not. We can then give this information to staff in the field so that they become fully aware of local issues when they make overseas visits. In this way, they can engage in a two-way dialogue with suppliers about the problems they are facing, rather than just lecturing them on what they should be doing."
It is a mistake to assume that only overseas suppliers have difficulty meeting basic employment and other social standards. Shrimpton says: "This started off as a project that was solely interested in achieving minimum standards in the developing world, but as we delved deeper, it became apparent that our UK suppliers also had to be scrutinised. It is not just a question of dealing with a grim factory in China, for example. There are difficulties with the way some agricultural labourers are treated in East Anglia, and their employers need to be aware that there are certain basic standards that have to be adhered to."
According to the company, the SRTP is designed to help suppliers meet minimum standards, not penalise them if they fall short. "We are not going to end a business relationship just because a supplier may fall short in some areas. Our job is to help suppliers meet these standards. Many of these firms, and their employees, rely on us for survival, so we can't just ditch them," Shrimpton points out. But, she adds, the company does not rule out terminating contracts in extremis. "It has to be a carrot and stick approach, not just stick, and we genuinely want to build a partnership with suppliers, so we won't be issuing threats. However, they have to know that we are serious about improving standards, and we will be setting a timescale within which we will expect changes to be made."
The company is as yet unsure what proportion of suppliers currently meet the requirements of the SRTP as they have not all been assessed, and it is unclear how they will react when their faults are pointed out. But, Shrimpton adds, when in the past J Sainsbury has highlighted suppliers' deficiencies, "they have worked hard to make the necessary improvements". For example, a visit to a factory in India revealed health and safety deficiencies. After discussing the necessary improvements with the supplier, and the timescale for their completion, working conditions were improved - machines were fitted with the appropriate safety guards; extraction systems were installed; and employees were issued with protective masks.
TRUMPETS MUTED
So far, the company has declined the opportunity to publicise the SRTP in-store by, for example, making leaflets available to shoppers. The reason, it says, is that despite issuing a code of practice and starting supplier visits, it has not achieved any practical results. Neither can it say that all of the products in the store have been sourced according to the ethical guidelines.
This is also the reason why the company has no plans to label individual products. Rather, Shrimpton says, the idea is to raise minimum standards to a general base level, and then raise them further from there. "It is not helpful to say some products are good and others are bad - this will only confuse customers.
Anyway, why should a shopper believe labels that are not externally verified? Now, some way down the line, when there is an effective and universal system of external verification, we may think again about issuing leaflets explaining our stance and labelling individual products. But we are still a long way from that point. Realistically, we are still at first base, struggling with the mechanics of assessing how a power drill factory in China is performing."
WHAT ARE THE PITFALLS?
This raises one of the main difficulties associated with promoting ethical trading policies - that of language and culture. As Shrimpton puts it: "We can't afford the luxury of turning up somewhere in Africa and looking at things through Western eyes. Our staff have to be culturally aware and be able to work with local non-governmental organisations who understand the issues and what is trying to be achieved. The last thing we want to do is go in a heavy-handed way and ruin someone's livelihood. A lot of people's jobs depend on how we handle things."
As part of the pilot, suppliers in China were visited by J Sainsbury staff. The factory owner was interviewed and, says Shrimpton, it was clear from the responses that his concept of human rights differed markedly from that of the visitors. At a more basic level, there are even differences in what constitutes a holiday. "For us, it means fours weeks' paid leave, but in a developing country, it could be a day trip on a coach with a crate of beer." The key to gaining cooperation, she adds, is getting someone on the ground who speaks the local language, understands local problems and knows about the prevailing political situation.
Figure 6.1: Fundamental human rights conventions of the International Labour Organisation
Source: Gibbons S (1998), International labour rights - new methods of enforcement (Institute of Employment Rights, London), p.3.
ETHICAL TRADING INITIATIVE
Launched by the International Development Secretary Clare Short in 1997, and backed by major companies, trade unions, aid agencies and campaigning groups, the ETI aims to promote standards designed to protect the basic human rights of workers worldwide.
The initiative's remit is to develop standards, methods and systems for monitoring and independently verifying the impact of company codes of conduct. The ETI's five-point plan will:
INVOLVEMENT
Companies - Asda Stores, Boots, B&Q, The Body Shop International, BT, C&A, Co-operative Wholesale Society, Grattan, Littlewoods, Monsoon, Premier Brands, Safeway Stores, J Sainsbury, Somerfield, Tesco and Waitrose.
NGOs - Action Aid, Amnesty Business Group, Anti-Slavery International, British Retail Consortium, CAFOD, Catholic Institute for International Relations, Christian Aid, Council on Economic Priorities, FairTrade Foundation, HomeNet, Institute of Social and Ethical AccountAbility, New Economics Foundation, Oxfam UK/I, Prince of Wales Business Leaders Forum, Save the Children Fund, Traidcraft Exchange, TWIN, Women Working Worldwide, World Development Movement.
Trade unions - TUC, International Confederation of Free Trade Unions (ICFTU), International Trade Secretariat.
SOCIAL ACCOUNTABILITY 8000
Developed in 1997 by the Council on Economic Priorities Accreditation Agency (CEPAA) - an affiliate of the New York-based non-governmental organisation, the Council on Economic Priorities - SA 8000 is a framework for ethical sourcing and the production of goods. It is based on the conventions of the ILO, the Universal Declaration of Human Rights and the United Nations Convention on the Rights of the Child and is designed for independent verification by an external auditor. Several companies including cosmetics business Avon Products, Body Shop, German mail order company OTTO-Versand GmbH, Toys 'R' Us and J Sainsbury were involved, along with campaign groups, in developing the standard. In June 1998, an Avon factory became the first to be certified as meeting SA 8000.
Content
Purpose and scope - SA 8000 is to apply to any company, regardless of location, size or industrial sector. It specifies requirements for participants to "develop, maintain and enforce policies and procedures in order to manage those issues which it can control or influence." It should enable participants to demonstrate that its procedures meet the standards.
Other standards - SA 8000 requires organisations to comply with national laws; the ILO Conventions on forced labour, freedom of association, collective bargaining, equal opportunities for men and women, workers' representation, minimum age, occupational health and safety, vocational rehabilitation, disability and home work; the Universal Declaration of Human Rights; and the United Nations Convention on the Rights of the Child.
Child labour - Under SA 8000 a participating company is prohibited from using child labour, except in accordance with ILO Recommendation 146. (The defined age of a "child" is not normally less than 15, but may be 14 in some developing countries excepted under ILO Convention 138.) Companies are also required to promote procedures to enable children to remain in school, and to ensure that children covered under ILO 146 are not employed during school time and that their total hours of school, work and transportation do not exceed 10 hours a day. Children or young workers must not be exposed to hazardous or unhealthy situations, in or outside work.
Forced labour - Participants are prohibited from using or supporting forced labour.
Health and safety and working hours - Organisations are required to minimise hazards to health and safety, "so far as is reasonably practicable". Participants are required to appoint a senior manager responsible for health and safety. The standard also requires a commitment to documented health and safety training and refresher training for all staff, systems for the detection of hazards, and the provision of adequate welfare facilities. Working hours shall generally be restricted to 48 hours per week, with no more than 12 hours overtime per week. Workers should be paid at a higher rate for overtime work.
Freedom of association - The standard requires that employees be given the freedom to form and/or join trade unions and have the right to collective bargaining.
Discrimination - SA 8000 requires participating organisation not to engage in or support unfair employment discrimination on the grounds of "race, caste, national origin, religion, disability, gender, sexual orientation, union membership, or political affiliation".
Wages - SA 8000 requires that wages for a standard working week (eg, excluding overtime) meet legal or industry minimum standards and "shall always be sufficient to meet the basic needs of personnel and to provide some discretionary income."
Discipline - Corporal punishment, mental or physical coercion and verbal abuse are outlawed. Companies should not make wage deductions for disciplinary purposes.
Management systems - The standard requires participating companies to have management systems in place to ensure a commitment to comply with the standard, with national laws and to continued improvement. The systems must be documented, implemented, reviewed, maintained and communicated, and be available to the public. SA 8000 also requires that the company appoints management representatives to ensure that the standard is complied with and to allow employees to elect a representative on matters relating to the standard. Resources must be committed to investigating and remedying areas of non-compliance. Information must be made available to "interested parties seeking to verify conformance to the requirements of the standard."
Suppliers - SA 8000 requires procedures to evaluate and select suppliers "based on their ability to meet the requirements of this standard". Companies are also required to maintain records of their suppliers' commitment to "social accountability" and keep evidence of their suppliers' compliance.
Source: Social Accountability 8000. Available from the Council on Economic Priorities Accreditation Agency, 7th Floor, Windsor House, 83 Kingsway, London WC2B 6SD, price £10. Tel: 0171 831 9420, e-mail: Leipzig123@aol.com
Figure 6.3: Supermarkets and ethical trading*
1. Tesco
2. Safeway
3. Sainsbury's
4. Co-op (Co-operative Wholesale Society)
5. Asda
6. Waitrose
7. Kwik Save
8. Somerfield
9. Morrisons
10. Marks & Spencer
* Ranked by the speed by which the company is moving towards establishing an ethical trading programme.
Source: Christian Aid (1997), Supermarkets' ethical progress (London).
Figure 6.4: J Sainsbury's position on socially responsible trading
SAINSBURY'S
The principles
These principles have been developed by Sainsbury's Supermarkets and Homebase to set out clearly our understanding of the responsibility we share with suppliers for certain social matters. Whilst they have general application, the principles have been drafted with particular reference to our trade with companies in developing countries. Supported by the Code of Practice, they are an expression of the social values we share with our partner companies and provide a basis for our trading relationship.
Fair trading
In the conduct of its business Sainsbury's Supermarkets and Homebase will deal openly and fairly with suppliers, adhere to contract terms and avoid the exercise of undue pressure.
Protection of children
Children may only be employed in circumstances which fully safeguard them from potential exploitation, which protect them from moral or physical hazard and long-term damage to health and which do not disrupt their education.
Health and safety
Policies and procedures for health and safety will be established which are appropriate to the industry. In the absence of legal requirements these will reflect a clear awareness of obvious hazards and a general regard for the well-being of employees. Such policies and procedures will apply also to any living accommodation provided in association with employment.
Equal opportunities
Whilst being sensitive to cultural differences we expect the development of equal opportunities in employment without discrimination on race, religion and gender or other arbitrary basis.
Freedom of association
Employees shall be free to join lawful associations; forced labour or coercion at work is unacceptable.
Remuneration
Pay will not be lower than that required by local law or, in the absence of law, that paid generally within the industry. It will also have regard to what is needed to maintain family life above subsistence level.
CODE OF PRACTICE
Application and monitoring
This Code of Practice sets out how the principles, which of necessity are described in general terms, are to be applied in the ordinary course of business by Sainsbury's Supermarkets, Homebase and their suppliers.
Sainsbury's representatives will be looking to work positively with suppliers towards a general compliance with the principles as amplified by the Code of Practice. Monitoring of performance will be incorporated into the normal monitoring and inspection process carried out by the staff of Sainsbury's Supermarkets and Homebase and their representatives. Availability of records and full access to premises and staff will be important in demonstrating compliance. Suppliers who employ agents or subcontractors will be expected to take responsibility for these aspects of performance as they do for any other aspect of contract compliance.
Specific lapses in performance will be taken up as part of the normal control arrangements. Where it becomes apparent that the principles and Code of Practice are not being achieved in substance, suppliers will be expected to work with Sainsbury's representatives to achieve an agreed standard. This will be done in a spirit of partnership but Sainsbury's would not expect to continue doing business with companies that are unwilling to work towards such improvements.
Fair trading
Protection of children
Special care is needed in the employment of children. Where children are employed due consideration must be given to their age, the hours worked, rates of pay, safety and impact on education. The ILO Conventions on child employment should be the standard.
Health and safety and working conditions
General
Employers are expected to provide a safe working place and ensure that the local laws relating to health and safety in the workplace are adhered to. If living accommodation and facilities are provided health and safety requirements apply equally to these. Furthermore, employee representatives should be involved in the development of standards appropriate to the workplace.
Factories, farms and plantations
Health
Accommodation (if applicable)
Equal opportunities
Freedom of association
Remuneration
Hours of work and wages
Overtime
It is accepted that overtime is often required in a variety of industry sectors. Overtime should not be excessive; where it is necessary the rate of pay or incentive rates must meet all legal requirements or higher local industry standard.
Time-off/holiday entitlements
Source: J Sainsbury
1 McIntosh M, Leipziger D, Jones K and Coleman G (1998), Corporate citizenship: successful strategies for responsible companies (Financial Times/Pitman Publishing, London), p12.2 The Daily Telegraph, 30 September 1998.
3 IRS (1998), "Benetton code of child labour", European Industrial Relations Review 298, November.
4 The Observer, 7 December 1997.
5 "Jeans genius", Management Today, November 1996, pp.56-60.
6 Ethical Trading Initiative press release, 19 December 1997.
7 Reported in The Guardian, 13 June 1998.
8 The Guardian, 27 October 1998.
9 Christian Aid (1997), Change at the check-out? Supermarkets and ethical business.
10 Reported in Personnel Today, 26 November 1996; IRS (1998), "Ethical trading standard", Occupational Health Review, March-April, pp.17-19.
11 Safeway plc annual report 1998.
12 Tesco plc annual review and summary financial statement 1998.
13 The Body Shop (1997) Values Report.
14 Co-operative Bank (1998), The partnership report: seven partners, a balanced view.
15 Reported in Financial Times, 14 January 1997.
16 It won't wash, Oxfam (1997).
17 The Times, 28 September 1996.
18 Quoted in The Grocer, 1 November 1997.
19 Winter M and Steger U (1998), Managing outside pressure: strategies for preventing corporate disasters (Wiley, Chichester), p.10.
20 Pruitt S W and Friedman M (1986), "Determining the effectiveness of consumer boycotts: a stock price analysis of their impact on corporate strategies", Journal of Consumer Policy, December, pp.375-387.
21 The Times, 13 January 1997.
22 Hartley R F (1993), Business ethics: violations of public trust (Wiley, Chichester), p.135.
23 Reported in Financial Times, 14 January 1997.
24 Reported in McIntosh et al, see note 1, above, p.xii.
25 Christian Aid (1997), Supermarkets' ethical progress (London).
26 Safeway plc annual report and accounts 1998, p.15.
27 Tesco plc annual review and summary financial statement 1998, p.12.
28 Kingfisher plc annual report and accounts 1998, p.29.
29 The Body Shop, see note 13, above, p.121.
30 Industrial Society (1996), Managing ethics, Managing Best Practice 26 (London).
31 FIFA code of labour practice.
32 Solomon Marmer C (1996), "Put your ethics to a global test", Personnel Journal, vol 75 (1), pp.66-74.
33 Gibbons S (1998), International labour rights - new methods of enforcement (Institute of Employment Rights, London).
34 IRS, see note 3, above.
35 Marlin A in introduction to McIntosh et al, see note 1, above, p.xii.
36 Reported in The Guardian, 13 June 1998.
37 Gibbons, see note 33, above.
38 Burns M, Forstater M, Mong A, Osgood D and Zadek S (1997), Open trading: options for effective monitoring of corporate codes of conduct (New Economics Foundation/Catholic Institute for International Relations).
39 FIFA press release.
40 Burns et al, see note 38, above.
41 IRS (1996), Quality through continuous improvement, IRS Management Review 1, April.
42 McIntosh et al, see note 1, above, pp.73-74.
43 Ibid., p.73.
44 Marks & Spencer plc annual report and financial statements 1998.
45 Co-operative Bank, see note 14, above.
46 McIntosh et al, see note 1, above, p.247.
