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firms post ‘poor’ results on supply chain efforts

June 2004

Only a fifth of large UK companies with a significant reputational risk from supply chains in developing countries have a manager whose main job is monitoring labour standards.

A benchmarking exercise has shown that of the 35 listed companies deemed most at risk from rogue behaviour in their chains, only seven had a dedicated manager whose primary responsibility includes suppliers’ labour standards.

In six of the companies the manager was relatively junior, and only one business – Marks & Spencer – had placed the manager within two reporting levels of the board.

The Institute of Social and Ethical Accountability, which carried out the research with Insight Investment using a supply chain management scoring system called Gradient, says the figures indicate the slow progress companies are making.

Isea is concerned at the ‘poor’ results of most firms under its scoring system and concludes that ‘the vast majority of UK companies that source from the developing world still seem not to accept that they share a degree of responsibility for their impacts’.

Isea’s comments mirror those of two other organizations – the World Bank (EP5, issue 7, p3) and the Nordic Partnership (EP5, issue 5, p7), which have both recently suggested that business is failing to get to grips with ethics in the supply chain.

The Gradient study looked at companies in six sectors with ‘extensive’ supply chains in developing countries that presented significant risks and involved suppliers over which there was direct control. Apart from the relative lack of dedicated ethical trading managers, only eight of the businesses were offering staff and suppliers regular or occasional training on ethical trading, a figure Isea describes as ‘low’.

Just one company – M&S again – offered staff incentives related to labour standards in its supply chain, and none provided them for senior managers.

Isea says this suggests a ‘significant disjoint’ between board-level policy commitments and their integration ‘into standard management practices’.

It assessed the companies’ performance on issues such as whether they had a code of conduct, the extent of their engagement with stakeholders and how they managed their audits and reporting. Thirty-one of the 35 companies scored less than 50 out of a possible 100 points, and 16 were given less than 25. Isea said this meant the majority were ‘a long way from achieving best practice’.

M&S, which scored 84 per cent, was declared the ‘clear leader’ and an example for others to follow. It has two senior managers with primary responsibility for sourcing standards. M&S also considers supply chain issues in its risk assessment process and has a board subcommittee with explicit responsibility for supply chain labour standards.

The Gradient system was developed by Isea to rate a company’s management of labour standards. Insight Investment, HBOS bank’s asset management arm, will use the data collected as a basis for engaging with companies.




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