12 May 2014 | Toby Duthie
Once upon a time, corporates managed their supply chain for value and efficient delivery. Today things aren’t so simple, as the challenges include factors as varied as human rights, economic sanctions, export controls, corruption and local content laws.
Increasingly this focus on ethics means regulators and enforcement agencies can increasingly count on the corporate community to help tackle complex crimes such as fraud and corruption. While this may represent the leading edge of corporate compliance, market-leading corporations are promoting sustainable, ethical practice by integrating it into supply chain evaluation and selection processes and by pushing obligations, certification and transparency on their supply chains.
Of particular interest is Apple’s decision to publish a list of smelters and refineries that is uses, indicating which of them may be using conflict minerals. This follows calls from a number of NGOs for companies to be more transparent about their suppliers’ business practices but also responds to a recent US law that obligates companies to disclose the origins of certain minerals used in their production processes.
Apple’s report contains a list split into three sections according to smelters’ compliance with the Conflict-Free Smelter Program (CFSP).
Companies are placed in one of the following lists:
• CFSP Compliant Smelters
• CFSP Participating Smelters (those that have agreed to participate in the CFSP audit); or
• No known or public CFSP participation (Apple has reached out but no participation is yet acknowledged).
This move ultimately casts doubt on the ethics of those with no known participation, pressuring many of the smelters to sign up to the CFSP or to ensure the minerals they use are not sourced from conflict mines. Yet it also demonstrates the importance that Apple has placed on promoting transparency in its wider business operations.
Following the release of Apple’s report, Greenpeace published a statement praising Apple’s transparency, urging its competitors to follow suit. Such endorsement from an activist NGO provides an added benefit for taking a proactive approach to its supply chain.
It is clear companies at all levels of the product supply chain must think beyond compliance with the national laws they are subject to. With 70 per cent of global trade estimated to involve the world’s 500 largest companies, multinationals are crucial to the financial health of smaller corporates worldwide. They are also the primary targets of prosecutors, NGOs and consumers owing to their high profile. NGOs and the media pressure companies to address issues throughout their supply chains, from the mining of raw materials to the sale of finished products.
In the face of such scrutiny, multinationals are increasingly widening their compliance programmes to require business partners to comply with best practices, and to monitor performance. Corporations which recognise this and incorporate these features into their businesses and into their customer management will become market leaders. The repercussions of breaching such standards can be devastating, with companies risking the loss of their most valuable and high profile customers. This means even companies outside the jurisdiction of laws such as the Foreign and Corrupt Practices Act and the Bribery Act face the commercial imperative of ensuring they implement their own best practice compliance programmes to minimise ethical risks.
All corporates should take an interest in their supply chains, undertake appropriate due diligence of new business partners and implement robust compliance programmes which meet international best practice norms. Should they fail to do so, they risk losing out on lucrative contracts and suffering reputational damage in the increasingly public sphere of business ethics.
☛ Toby Duthie is a partner at Forensic Risk Alliance