companies need to manage risk in the good times and the badMarch 2003
When one of the founder members of a club leaves unexpectedly, people are bound to start asking questions. So it is with Littlewoods, whose unheralded announcement that it is to leave the UK’s flagship ethical trading programme in April has got a lot of NGO directors’ backs up. Much the same response came from the NGO community when the US food company Dole said it was shrinking its CSR department in 2001, and Iceland similarly disappointed with its decision to concentrate on retailing rather than worthy causes.
In each case, the company had bigger and more immediately pressing problems on its plate. Littlewoods is no different. The company has just been given a hefty fine for price fixing by the Office of Fair Trading and profits are weak – £53million last year on turnover of £1.93billion. One of the reasons given by the founding family for the sale to the Barclay brothers last October was the feeling that the business had lost its way.
But a business in trouble still needs to manage risk, perhaps more so. Littlewoods says it thinks the best way to handle the social and environmental risks in its supply chain is to make department directors and buyers responsible for them, rather than a single department as in the past. It may be right. But its risk management record in this area under new ownership has so far been weak. Scrapping the ethical trading department, leaving the Ethical Trading Initiative and the Institute of Social and Ethical Accountability, and ending charitable donations is thought to have saved around £1.5m, but could end up costing the company a lot more. The news has leaked out clumsily and all at once, causing maximum embarrassment. Worse, Littlewoods has succeeded in antagonizing the very sector from where a future reputational challenge may originate. It has also effectively written off much of its investment, made over a long period, in managing risk in its supply chain.
At present it rather looks as though the new owners, for whatever reason, have decided to ditch key elements of the company’s CSR programme as an unnecessary expense. If this is so, it will be an interesting test of the business case for CSR.
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