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Should HR have responsibility for supply chain workers' conditions?

Katie Jacobs , 18 Dec 2013

supplychain

As supply chains get longer and more global, should the onus be on HR to ensure that human rights are respected down the line?

The cracks in the walls had developed the day before. But the thousands of workers in the eight-storey garment factory just outside Dhaka, Bangladesh, largely ignored them. A few hours later, the building collapsed "like a deck of cards", according to witnesses, killing 1,129 people and injuring 2,515 more.

The Rana Plaza tragedy in April was one of the most lethal accidental structural failures in modern history, making headlines around the world. The staggering loss of human life aside, it made for uncomfortable reading in more developed countries. The workers who died that day were not only toiling in poor and deadly conditions, they were producing garments for high-street retailers, including Primark, Matalan and Mango. Anyone who has ever bought an item from a high-street retailer (and, really, who hasn't?) can feel partly complicit.

The Bangladesh disaster is just one of many examples in which supply chains and human rights risks have tragically collided for some of the world's biggest and best-known companies.

Sometimes, journalists struggle to find examples to illustrate their point. This is not one of those times.

For example, Apple are under the spotlight again for producing its new, cheaper iPhone in Chinese factories under conditions that were allegedly abusive and illegal. And, the US branch of Marriott Hotels inadvertently hired recovering drug addicts on less than half the minimum wage to refit its buildings. Then there is the free-range egg supplier to Sainsbury's, Happy Egg, which is accredited to the RSPCA Freedom Food scheme. Last year it was found to be paying rather more attention to the conditions of its hens than to the conditions of its workers.

Even the horsemeat scandal from earlier this year, although not directly related to human rights, is a stark example of what can go wrong when companies lose sight of exactly what's going on in their supply chain. And with supply chains getting longer and more unwieldy, the risks are only going to multiply.

The people supply chain

"Taking the approach of 'hear no evil, see no evil' doesn't cut it any longer," says Mark Robertson, head of communications at Sedex, a not-for-profit membership organisation focused on improving ethical practice in global supply chains. "Once you start looking, you will find risks all the way down your supply chain, but be prepared to tackle them. If as a company you are serious about demonstrating good leadership, you need to get your own house in order. Companies need to understand the risks, and then make sure they have the best policies and practices in place to make sure they are addressed."

Many of those risks are related to people - the phrase 'people supply chain' springs to mind. Does that suggest that HR should play an active role in ensuring good practice cascades through the supply chain, and scrutinise where the company might be exposed on human rights risk?

Mary Young, principal researcher of human capital, and Ellen Hexter, senior adviser of enterprise risk management at New York-based research association The Conference Board, believe so - but are frustrated by how long it is taking many HR and business leaders to realise this. They have recently begun exploring the issue of human rights risk in organisations.

"This is something that could happen to lots of organisations," says Young. "And it's not the name of the supplier we [as consumers] remember when something goes wrong, it's the name of the company being supplied. This is a risk issue, an HR issue, a compliance issue, a sustainability issue and a legal issue."

Hexter adds: "Many times companies think it's enough to have a policy or a compliance group. But we find a huge disconnect between those kind of activities and what is happening in terms of operations. To separate that activity from HR and from operations, to the point where a lot of senior executives aren't even aware that this activity is going on, is a real problem."

Whose workforce is it anyway?

HR magazine certainly got that impression when researching this piece. We approached many different HR directors and companies from many different sectors, and on the whole were met with silence. It's a risk to go on the record about such a sensitive topic. One person referred to it as "laying yourself open".

Two questions present a dilemma. If a person is not directly employed by a company but is making the products or providing the services, does the company have any responsibility to ensure they are fairly treated? Or is it enough to say 'they are not my workforce' and in effect shift responsibility, either to CSR, which often sits in a silo, or to procurement or supply chain, which may be more cost than people-focused? As one HR director at a global fashion chain that outsources its production to the Far East told HR magazine: "It's not our employees, so it's not an HR issue for us."

Neill Wilkins, from the Institute of Business and Human Rights, disagrees. "With global supply chains and outsourcing, many people are not directly employed, but we'd argue businesses still have responsibility," he says. "Just because you outsource doesn't mean you're dumping the risk on a supplier or agency."

Robertson says: "If you think about the social issues that come up in the supply chain - child labour, forced labour, health and safety - many of them are HR issues. The way in which companies recruit and manage in a supply chain is key. HR is an integral part of a responsible supply chain approach."

Norman Pickavance, ex-HR director of supermarket chain Morrisons, who is now part of the Blueprint for Better Business initiative working on ethics in modern organisations, thinks the disconnect between HR and the people practices of a business's supply chain is "sadly all part of a growing trend". "Some HR directors will say they only have time and resource to focus on their 'core' workforce," he says. "This is perhaps understandable from a time-pressure perspective, but also blinkered when thinking about the reputation and risks for any organisation which faces the public."

He points out that the nature of the organisation is changing. Core workforces are shrinking, with outsourcing and working with third-party suppliers becoming the norm. "It is, therefore, interesting to question which aspect of the workforce the HR function thinks it should have a responsibility for," Pickavance says.

"Just those who are on the payroll directly - or those involved in making the product or delivering the service? To say you only look after your permanent people, well, you've got fewer and fewer permanent people. You end up with a disposable workforce: valuing the people chain so lightly that it is treated as disposable."

He suggests it is time for HR directors to take an overview of the people chain. "HR should have a perspective of and be highlighting to their boards what the risks are across the people chain. On suppliers, HR should be saying: 'If they don't comply with our values, do we allow them to work with us?'" Of course, context is everything, but he adds that, although the hourly rate might be different in, say, Bangladesh, "the right to work in a safe environment surely isn't".

Mitigating human rights risk

So, where to start in mitigating human rights risk? This is something that has to come from the top. Young and Hexter advise first looking at high-level, strategic governance, working with the board to identify potential risks and develop procedures to report and remediate on them. It also means looking at business practices holistically to see how they could lead to unconsidered violations.

"Companies need to think through how their business practices might unintentionally contribute to practices that don't support human rights," Young says. She uses the example of changing orders rapidly or excessive cost-cutting. "Part of thinking about how to manage these issues or present them is thinking about how those operating practices might potentially contribute to practices you do not want to see."

That means more integrated thinking, not just thinking of human rights risk as part of a CSR-related silo. As Hexter alludes to, it is not enough to write a policy or set up a compliance group and leave it at that.

"The real challenge with human rights and supply chain management is that many companies are not sure where it lies," says Colleen Theron, lawyer and director of sustainability and CSR consultancy at CLT Envirolaw. "HR will say it's for procurement to deal with, and procurement will say it's all about costs. Unless you have a truly strategic procurement policy in place, it won't tackle these issues. We need to look at human rights in a more integrated and sustainable way."

Of the basic human rights risks HR departments should be thinking about, Young advises them to start by asking: "What are the locations, the functions, work streams or suppliers that potentially expose our organisation to human rights risk? Where might our workforce practices have the unintended consequence of incentivising human rights risk? Are you holding mangers to such high standards of cost that the only alternative open to them is something you might not approve of as a practice?"

Training your eyes and ears

Connecting human rights risk to the L&D agenda can be a powerful tool, she adds. "You can train every employee to be the eyes and ears of the company," she says. "That can protect you against exposure." One global engineering company with high-risk projects all over the world did just this. When an employee on a project in Saudi Arabia noticed a group of people not mixing or speaking the language, he raised the issue with management. "Sure enough," says Young, "they were illegal workers being housed in a cargo container." Thanks to the employee spotting the signs, the company was able to remediate swiftly.

At oil and gas company Total, HR has a key role to play in human rights, according to Philip Jordan, SVP ethics, chair of the ethics committee and former VP of recruitment and careers. And much of it comes down to training everyone in the company to take some responsibility for upholding ethical behaviour, bringing HR in from a learning and development angle.

"Our code of conduct explains our approach to human rights, but at some point you have to explain what that means," he says. "Our three big topics are 'human rights at work', 'human rights and communities' and 'human rights and security'. HR clearly has a key part to play in 'human rights at work', which involves our employees and our supply chain. It's important we lay out our expectations in our contracts with third parties."

He adds that HR is responsible for managing any processes where there could be human rights risk, such as recruitment, and for training and awareness, something Total emphasises. Ethics is included in training sessions for recruits and in management programmes, and integrated into all policies. "Everyone understands the importance of human rights in our business," he asserts.

Jordan has little truck with the view 'not our employees, not our problem' "There are many reasons that view is not acceptable," he says. "You don't want to be a company that has unacceptable conditions in the supply chain. You don't want to be that because it's wrong and can have serious consequences on your reputation and long-term sustainability. There's a definite business case for getting it right. It's linked to attracting the right kind of talent into the organisation and to having the right type of people choose you for a partner."

The business case

As Jordan says, there is a "definite business case" for tackling human rights risks across the supply chain - legal compliance, for one. Theron warns that listed companies increasingly need to do more to report on human rights. "It's not just about proving you have policies, it's about providing more information on how effective those policies are," she says. "[Governments] will start asking more questions." 

Then there's reputational damage: a very real risk in today's more transparent world, where social networks are prolific bearers of bad news. A recent report by the global law firm Freshfields Bruckhaus Deringer claimed that in 28% of crisis incidents, news spreads across national borders within an hour, and more than two-thirds spreads within 24 hours, potentially causing major brand damage. "Today, largely as a result of social media, the window to buy more time has virtually disappeared," the firm warned. Or, as IBHR's Wilkins succinctly puts it: "If you're going to be naked, you better be buff."

And not forgetting, as Jordan alluded to, the fact that "doing the right thing" can be a major bonus in attracting the best talent - another reason for HR to think about the issue. "People want to work for a 'goodie', not a 'baddie'. They think, 'am I working for a company that seeks to make the world a better place, or a company that endorses the use slavery in its supply chain?'," says David Camp, director of the Association of Labour Providers, who also sits on the board of the Gangmasters Licensing Authority (the agency that regulates the supply of workers to the agriculture, horticulture and shellfish industries, set up after the 2004 Morecambe Bay cockling disaster, in which 23 Chinese cockle pickers drowned).

Working in partnership

Avoiding bad practice across the supply chain means taking a collaborative approach in partnering with the suppliers, says Sedex's Robertson. "Companies have something they can share; it's not about berating suppliers," he says. Marks and Spencer (M&S), for example, engages with its suppliers to ensure best HR practice. It runs a quarterly forum for HR managers from its UK supply chain to talk about people issues in the chain and basic compliance. It also provides suppliers with the materials to improve their workplaces, such as tips on wellbeing or engagement surveys.

"We encourage our suppliers to go beyond compliance and create great places to work," says ethical trade manager Helen McTaggart. "As a large employer, we can help bring scale."

She adds the focus is less on compliance than having "great HR all year round". "Pushing for compliance doesn't drive the right behaviour," she says. "It can lead to suppliers being reactive. We want our suppliers to give us the best business, and good HR builds strong, resilient businesses."

A two-tiered workforce

Engaging with the UK supply chain, as M&S is doing, is just as important as with partners in countries more associated with human rights violations. A report published recently by Queen's University Belfast's School of Law and commissioned by the Joseph Rowntree Foundation claimed the UK is "highly susceptible" to exploitation and forced labour. According to the report, "light touch" regulation of business and a heavy hand on immigration have resulted in a segment of the UK workforce that is easily exploited by unscrupulous businesses.

"Exploitation can be hidden and difficult to uncover," says Camp. "In our sector [food and agriculture], we see the growth of new illegal labour models. You might have a supply chain that thinks it's doing the right thing, but is using workers 'fed in' by gangs."

The problem is, says Wilkins, the people doing the "crappy jobs no-one else wants to do" are more at risk than anyone else. "In industries like hospitality, care or construction, there's no regulation whatsoever," he explains. "It becomes like the Wild West. Companies squeeze agencies, and agencies squeeze workers. An agency that plays by the rules and treats people fairly will be undercut by one that doesn't."

This almost classist division of the workforce is not just a passing fad, believes Pickavance. "This isn't just about long-term business sustainability, it's related to our basic morals and humanity," he says. "How do we view people who are in these kinds of jobs? Do they have the same values as us? Or do we see them as second-class citizens who don't deserve the same rights?"

Now, HR magazine isn't suggesting HR directors can totally reverse this trend, stop consumers choosing cheap goods over more expensive ones and quash criminals exploiting desperate workers around the world. But wouldn't human rights in businesses be all the more effective if HR was more involved? If HR is the conscience of an organisation, isn't it about time its voice is heard on this issue? After all, as the Rana Plaza disaster proved, work can sometimes be a matter of life or death - literally.

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Always check the workers toilets

Keith Appleyard 18 Dec 2013

When I used to visit potential suppliers, I always used to make an excuse to visit the toilet, not in the executive suite but out on the factory/shop floor. The filthiest toilet I've ever seen in Europe was in a retail outlet for Dixons (admittedly some 15 years ago, but I'll never forget it). If the Management can't be bothered to keep the premises clean & healthy for the workforce, then what are their true standards like elsewhere?

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