27 March 2003
Ken Livingstone's aim to persuade purchasers to buy Fairtrade products is ambitious. David Arminas looks at how they can balance doing the right thing with getting the best value for money
London mayor Ken Livingstone wants the city to become a Fairtrade one to improve its reputation for being socially responsible in the way that it buys goods and services.
As head of the Greater London Authority (GLA), he will be talking with purchasers throughout local government in the 33 boroughs that make up London, as well as with retailers, community groups and businesses.
Importantly, he acknowledges it will be a major exercise in persuasion because the GLA cannot order purchasers to buy products such as tea, coffee and confectionery with the Fairtrade stamp instead of more well-known international brands. These items are bought under the scheme to promote ethical buying and help communities in underdeveloped countries.
Corporate social responsibility (CSR) is increasingly important, as noted by our other news story on Business in the Community's first responsibility index. The index shows one of the most difficult areas for improving CSR is a company's supply chain activities. The challenge for purchasers should not be underestimated.
Information about employment conditions under subcontractors for Nike or any other shoe maker in a far-flung corner of the world is now just an e-mail away. Public and business consumers of goods and services do not differentiate between the brand owner and a subcontractor three tiers down.
They may not buy the products if they are concerned about the ethics involved in the supply chain, whether it be child labour, low pay or denial of trade union rights. This can lead to collapsing sales, damaged brand value and a loss of stock market confidence.
But while a good CSR policy sounds beneficial, it means purchasers must perform a balancing act. At what point does a CSR policy have a negative impact on best-value strategies? CSR may give their company a better image but its competitiveness suffers because they pay more for socially acceptable raw material, finished goods and services and transportation. Because of this, purchasers face two important issues.
First, measuring the cost to their clients of CSR decisions will have to be addressed if purchasers are to remain faithful to the principle of attaining best value for money.
Currently, buying goods and services that are seen as adding to their corporate image often - but not always - entails higher prices and operating costs. Commendably, purchasers can improve the lot of farmers in Africa, but their local taxpayers will pay higher prices for their coffee.
To better measure CSR decisions, a revised definition of best value will be needed. But to do this revision, purchasers will have to work closely with other departments. For instance, if purchasers pay more for raw products because they come from more socially acceptable sources, marketing must show that consumers are willing to pay more for the product to maintain sales and profits.
The second issue is more political. Purchasers will be drawn into decisions about which CSR route to follow. There is a danger that the highest senior managers have a knee-jerk reaction to CSR. They could believe that their competitors are gaining shareholder value with a stated CSR policy, even though there is little evidence to support it. By tackling the measurement issue, purchasers can best present the evidence in black and white about the true costs of using more socially acceptable producers of raw materials or services.
In general, everyone wants to help other people in need. However, purchasers will have to make some unpleasant decisions about who to help and who not to help based on the cold, hard evidence about shareholder value.
It is still early as far as measuring the advantages of CSR decisions. At present it remains more an art than a science, as Business in the Community's first index on CSR demonstrates. We have yet to see a National Audit Office or an Audit Commission report on it.
Nonetheless, purchasers will be involved in or affected by CSR decisions. They must start managing the debate now because charities, relief agencies and other groups are preparing their marketing based on CSR interest. Purchasers should demand - and expect to get - the same information from these organisations as they get from their normal suppliers when asking the basic question: "What's in it for me?"