It’s a bird, it’s a plane, it’s…. Governance?

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By Sam Jenks

Last week’s Kodiak Community, we raised the question; what is the price of being a responsible consumer?

Our conclusion just scratched the surface of what it is to become a sustainable consumer as an individual, business or supply chain, but most importantly we arrived at the affirmation; sustainability is complex.

To quote;

“Sustainability is an ever-changing entity, transforming lifestyles, affecting economics, taking time and resources to be evaluated, shifting our every-days to our now-a-days, and pushing the boundaries of language we use to communicate.”

Our conclusions were deduced after interpreting credibly cited sources surrounding the topic.

In homage to the recent 2016 US presidential election results, I would like to reformulate our declarations about sustainable business practices in a manner “The Donald” would likely articulate our conclusions;

‘Sustainable business practices; and take this from a guy that knows business, let me tell you. Sustainability, this stuff, it’s good. It’s big, and its good. And we need stuff that’s big and good; am I right?’

Thanks for the infinitesimally coherent answer President-elect Trump of my realistic imagination.

Though, I’ve concocted that ‘answer’ as a passive aggressive denotation of my feelings about the election, imaginary Donald has a point; sustainable business is important and it’s good.

Sustainable business practices and the connotations represented from bearing that label can generate positive outcomes amongst various levels of your business.

Just this week Sustainable Brands posted an article with statistics of millennial workers when polled about working for a socially responsible company. Their findings concluded that, “75 percent (of millennials) said they would take a pay cut to work for a responsible company.” Considering, in the coming years, the milennial generation will make up the majority of the business workforce, their opinion is indisputably something to consider. In an article by Environmental Leader surrounding sustainable supply chains, and outcomes from implementing a sustainable initiative in the supply chain, it was stated, “In addition to mitigating risk, sustainable supply chains also provide cost benefits from lower raw material costs, energy and water bills and compliance fees…” These two quotations offer an idea that sustainable business, and sustainable supply chains, can offer benefits in personnel, costs and risk.

I apologize if I’ve in any way become redundant, but it’s always good to preface, “how to do it”, with “why we do it”. Besides, the mark of redundancy is the mark of readership, is it not?

Now that we’ve have established that sustainable business practices are an intelligent business choice, we must answer the question, how do we as businesses reduce risk and use governance to increase sustainable business practices?

Give me a G, give me an o, give me a vernance; what does that spell?

Governance in the supply chain is a focal point for the buyer to set on a supplier in supplier relationship management (SRM). Governance initiatives and processes are important to internal business functionality and departments, but also to stakeholders, as they are an important factor in implementing a sustainable corporate approach (Formentini and Taticchi 2016).

A vital first step towards good governance of suppliers is clarity and transparency with regards to how you think your suppliers should operate. Demanding that your suppliers live up to the tough demands and standards, your customers are requiring of you, is a good starting point. A supplier code of conduct is step one. This topic deserves attention and will be addressed in a different blog in a few weeks. No matter if you are expressing your supplier demands — through a supplier code of conduct or through your supplier agreements or RFPs — the scope and types of requirements have increased in the last couple of years. And this is all connected to consumers and customers demand on the goods and services they are buying.

Get in front of the problem; reduce risk of there being one.

Just this summer the Indian tea trade was under the microscope and took a large place in the discussion surrounding country-worker governance, and how it can affect the sustainability and functionality for large-scale corporations.

Tea plantations based in India are the second largest in the world, only second to China. A bulk of the workers in just one specific district of the Indian Tea production had, alone, 200,000 workers. Of those 200,000, nearly 50 percent were temporary workers who had migrated from other areas of India to work and live on the plantation in the Nilgiris district. Under the Indian Plantation Act of 1951, all of these part-time workers retain the same rights as permanent employees under their time of employment at the plantation. This includes expenses for housing, healthcare, emergencies, education and the list goes on. Individual interviews and focus group discussions with leaders and individuals from various Tea Plantation districts concluded that the temporary workers were inevitably never being offered these benefits they in fact had a right to, by way of governing law in India, but also within the criteria in accordance to the Rainforest Alliance and the Sustainable Agriculture Network of non-profit organizations. After discovering the unfit conditions given to a percentage of workers in the tea plantations, the Rainforest Alliance began investigations.

Claiming’s, of course, rippled out, the same as all stones cast in very still ponds.

Unilever a, massive, well recognized corporation was caught in the middle of the injustices brought on by the neglectful nature of other individuals in their tea plantation supply chain. Unilever, themselves, a buyer from two of the plantations who went under investigation later put out a statement saying they’re “fully engaged with their suppliers to improve labour, safety and housing standards,” after welcoming the re-auditing process planned to be carried out by Rainforest Alliance (Nagaraj 2016)

For a smaller company, with a less developed and less savvy PR/HR presence, those small ripples could have quickly turned tsunami.

Governance; its good stuff.

Governance strategies are important not only to stray away from negative headlines, but also to avoid corrupt business practices within your supply chain. In the case of Unilever, the help of a governance solution could have potentially ended the injustices in labor equalities before they began. Supplier governance diminishes opportunism and is a SRM functionality that is well defined with its intentionality. It should become the one of the groundings to your company’s sustainable performance. Holding suppliers to standards in fields such as human and worker rights, anti-corruption, civil and political rights, environmental impact and business ethics will certainly align your company on the right side of the discussion.

Don’t just take it from us.

In a study by Agan et al. (2016) Turkish manufacturing plants were surveyed to determine the impact of governance on environmental supplier development towards a firm’s performance. “Findings of the study revealed that the environmental supplier development had a positive influence on the financial performance and competitive advantage…” (Govidan et al. 2016)

Governance is, in many cases, the perfect starting point towards a more sustainable business, as is a sustainable supply chain. Governance mechanisms can aid a corporate sustainability approach or initiative, but cannot ensure your sustainable initiative to be a successful one. That can only be done with a close assessment and evaluation of internal business practices your company already has in place, and making the efforts (if needed) to better supplier governance in your supply chain.

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Source: Kodiak Rating

Until next week.

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Supplier Relationship Management: Comment, Challenge, Create

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