Corporate Social Responsibility in Global Supply Chains - Essay Example

ANALYSIS OF CORPORATE SOCIAL RESPONSIBILITY IN GLOBAL SUPPLY CHAINS Name of Student Name of Institution Name of Professor Date of Submission Analysis of Corporate Social Responsibility in Global Supply Chains Introduction The first Industrial Revolution of the 19th century saw a remarkable change from using manual techniques, hands, in manufacturing and producing goods to the use of machines. It is during this era that the use of steel and coal gained prominence and it was considered as the pinnacle of human advancement in terms of technology then. However, the continued inventions have revolutionized all sectors of economy and have thus led to the second, third and probably forth industrial revolutions. Presently, human beings consider this era as the most advanced in their lifetime. This has primarily been as a result of the inventions and adoption of information technology, computers, in all sectors of the economy and spheres of life. This is the Third Industrial or Digital Revolution which was marked by the invention of the transistor in the late 1940s which paved for the use of computers in various sectors. However, presently computers have become a force to reckon with as more and more people are adopting the use of high technology in various processes and functionalities. Along with these developments come an increasingly social and ethical consumer who would go at a great length to ensure that the companies, whose numbers are swelling with each passing day, give something back to the society in which they operate. Moreover, the society including the government has continuously pushed the companies to take responsibility for the effects of their operations especially on the environment. This is what is known as corporate social responsibility. Corporate social responsibility is not only a requirement by the authorities and the society at large; it has over the years evolved in a competitive tool used by many companies to edge out their competitors from the market and gain the largest market share (Spekman, Werhane & Boyd, 2005). Depending on a company’s nature of operations, corporate social responsibility can entail anything; it has no specifically designed activities that can be used to define its parameters. The key word here is ‘social’ and ‘responsibility’ (Crane & Matten, 2004). The activities may range from hiring of the local population to participation in charity events to contributing in social services in the area. Other companies whose activities directly or indirectly impact the environment have adopted an approach aimed at conserving and preserving the environment. Corporate social responsibility and ethical operations hinged on integrity is a core business strategy that plays a key role in determining the success of any organization. Whether done as a mandatory requirement by the government and the authorities or voluntarily, it is a major determinant of how well a company can compete in the ever increasingly competitive corporate world (Spekman, Werhane & Boyd, 2005; Amaeshi, Osuji & Nnodim, 2008). Moreover, today’s economies are increasingly adopting global economic policies allowing business transactions that transcend geopolitical boundaries. In addition, there an emerging trend in business management which operations are centered on the customer. The primary objective of setting up businesses is profit maximization. However, the transformations that have taken place in the global society have transformed the responsibilities. The scope social responsibilities of businesses have broadened with the definition of business stakeholders also broadening. Stakeholder theory when viewed within the context of CSR further broadens these social responsibilities by widening the base of these stakeholders. That is, individuals who are affected either directly or indirectly by the activities and the existence of the business (Freeman, 1984 and 1994; Clarkson, 1995). With wide ranging interests some of which may conflict, these stakeholders include investors or shareholders, community and the environment, trade unions, employees, consumers, business associates, government, supply chain players such as suppliers and distributors and competitors by extension (Mullins, 2002). These stakeholders have a wide array of interests ranging from employment to profit maximization, policy and regulation adherence, tax and environmental conservation. When considered within these contexts, CSR therefore has a broad definition. It becomes a commitment to economic growth while conserving the environment through sustainable environmental use and interaction while also taking care of the unique interests of the various stakeholders. It is essentially a balancing act (Spekman, Werhane & Boyd, 2005). For multinationals operating a string of businesses across geopolitical regions and with several partners along their supply chains, the challenges are even greater. While the popularity and importance of CSR in the modern day business environment is unquestionable, multinational corporations find it increasingly difficult to account for the activities of their several partners spread across the world especially in capitalist markets where the need for profit maximization is the overriding business objective. With several associates such as consumers and distributors spread across several geopolitical regions with various governments, economic policies and other stakeholders with unique needs, these organizations must continually deal such problems which are inherent in using global supply chains. With such a global outreach, multinational corporations which usually rely on their brand image as the key to successful marketing, they are increasingly forced to take responsibilities for the successes and failures of their supply chain players such as suppliers and distributors. The needs of the employees, the consumers, the governments, the shareholders and the communities in the global business environment are unique. There is increased pressure from pressure groups (Crane & Matten, 2004). This paper will analyze the ethical and moral issues inherent in the global supply chains with the aim of deducing the level of accountability that the multinational corporations ought to take for the actions of their suppliers and distributors. This will be done with the view of deducing the importance of the use of power in apportioning responsibility for actions in a global supply chain. It will therefore highlight how the use of anti-pressure campaigns, codes of conduct, personnel training and corporate culture can cement ethical and moral values within global supply chains. Supply Chains and strategies Over the years, more and more companies are adopting effective supply chain management strategies in order to keep with the ever changing business environment and most importantly, to stay competitive in the global economy which fast moving towards globalization. Such a move has been partly aided by the invention and the consequent fall in the cost of information technologies which made communication easier and cheaper. Therefore, many companies, in order to stay competitive and reach the global customer pool, have adopted the strategy of collaborating with several over companies in order for their goods and services to reach the desired customers. These inter-organizational collaborations form a supply chain network or network which many companies have used as a competitive advantage. However, these new strategies of supply chain management are characteristics of a new business era; the 21st business era and would not have been possible a few decades ago (Spekman, Werhane & Boyd, 2005). Before globalization and invention of information technology and their subsequent fall in price, firms adopted a supply network strategy which was basically centered on the inputs and outputs only. Such issues as the organizational structure and strategies of the various individual key players were never considered as important factors for the success of the whole supply process (Blanchard, 2010). For goods and services to move from the point of origin of the raw materials through to manufacturing and distribution points until it reaches the final destination; the point consumption, there are a myriad of processes involved and networks it must go through (Wieland & Wallenburg, 2011). This is what is termed as the chain or network while the process of ensuring the smooth flow of goods and services through such chains or networks is what is known as supply chain management (Wiriadinata, 2011; Mentzer et al., 2001). From the supplier to the customer, the processes involved make supply chain management both a science and an art. Even though the true definition of supply chain management (SCM) has undergone some changes over the years, the current definition given by the Purchasing Management Association of Canada (PMAC) is widely accepted among the business community worldwide. The organization defines SCM as “the process of strategically managing flows of goods, services, finance and knowledge, along with relationships within and among organizations, to realize greater economic value…” (SCMP, n.d.p.). In the end, the company will be able to meet its strategic goals and objectives while ensuring that it remains as competitive as possible. Moreover, an effective and efficient supply chain strategy and structure ensure that the customer satisfaction is greatly enhanced and this also translates to competitive advantage (SCMP, n.d.p.). The transformations that have taken place in the fields of telecommunication, information technology and manufacturing have had a profound effect on the operations of multinational corporations. As more customers in both domestic and international market embrace technology and become technologically savvy, the logistics management of these companies has also transformed to meet the demands of their customers. Operating on the global markets comes with increasingly complex demands from customers. Therefore, they are forced to use global supply chains not only to supply the raw materials needed to manufacture goods that meet these unique demands but also as channels for logistic management including taking orders and delivering goods and services to the customers within their locations. Therefore, the key to sustainable business development are minimized cost of operation, maximization of customer satisfaction of customer demands and needs and minimized investment. Outsourcing has become one of the key strategies when it comes to minimizing cost and investment while as maximizing the benefits for key stakeholders such as customers and shareholders. Moreover, contract manufacturing is also a supply chain strategy that has increasingly been used by many multinationals to meet the global demand (Crane & Matten, 2004). The benefits of effective and efficient supply chain management are very profound and are not debatable. It is a tool for gaining the much needed competitive advantage in the globalized business environment. It also reduces risks while maximizing profits. It has been used as a tool for maximizing customer satisfaction. The acquisition of several subsidiaries which function as drop points, collection of orders and value addition centers bring the business closer to the global customers. This function is further enhanced by the use of warehouses some of which are run by distributors and suppliers. The close proximity of these subsidiaries and warehouses also reduces the cost incurred in shipping, sending or receiving orders on the part of the customers. However, supply chains have increasingly come under scrutiny both from the government, the increasingly well informed consumers, shareholders, potential investors and the pressure groups. The increased scrutiny is indicative of the increased emphasis that these key stakeholders in the business environment and the society at large have put on corporate social responsibility. That is, moral and ethical business operation (Amaeshi, Osuji & Nnodim, 2008). Problems inherent in a global supply chain Supply chains are essentially a web of business entities which have interlinked their activities with the aim of maximizing profits through cost reduction and maximization of customer satisfaction. Depending on the complexity of the business operation, nature of the goods and services the businesses deal in, legislations and policies and the size of the business, a supply chain can comprise of a small web of interlinked businesses operating within one geopolitical region or up to hundreds of businesses which have interlinked their operations. In globalized business environment marked by multinational corporations, integrated supply chain networks have proved to be effective. These businesses have outsourced some of their non-essential activities to other business partners. They continually coordinate and organize their activities with their partners to ensure that goods and services flow freely and efficiently to their customers while also ensuring that all production activities are synchronized as per the market demands (Amaeshi, Osuji & Nnodim, 2008). And with the advent of information communication technology, business partners within global supply chains are increasingly capable of synchronizing their operations based on common goals through data sharing and real time communication. However, such synchronization, dependence and sharing of sometimes sensitive data based shared as a result of common goals shared amongst partners pose ethical and moral challenges especially to the business at the center of the supply chain. The obligations and corporate social responsibilities are magnified many folds and hence the need to develop practical effective strategies to strike a balance between profit maximization and social responsibilities. Global supply chains are comprised of business entities from various geopolitical regions, backgrounds. Some of these businesses may have varying and almost conflicting core values and organizational cultures. They also operate in different environments and therefore face different challenges and have different opportunities (Amaeshi, Osuji & Nnodim, 2008). How they tackle their challenges and exploit their opportunities also vary despite working within the same supply chain. Therefore, they have different notions of moral responsibility (Collins, 1990). While suppliers and other key players within the supply chain may operate within the context of a Kantian and by extension deontological ethical perspectives where emphasis is laid on the morality and ethicality of business operations and decisions rather than their consequences, others may prefer a utilitarian approach. For such businesses, an action or decision is only morally right and ethical if the associated consequences maximize benefits for the common; mostly for the business. Therefore, rather apply moral principles on act or decision, utilitarian and other consequentialists hold that such application must be reserved on the ability of the action or decision to maximize utility for the business (Bowie & Dunfee, 2002). These entities will therefore have different sense of responsibility for their actions. Eshleman (2002) notes that “…to be morally [and legally] responsible for something, say an action, is to be worthy of a particular kind of reaction – praise, blame [punishment] or something akin to these – for having performed it” (Eshleman, 2002, p. 1). In defining responsibility, Craig (2000) opines that: To be responsible for something is to be answerable for it. We have prospective responsibilities, things it is up to us to attend to: these may attach to particular roles (the responsibilities of, for instance, parents or doctors), or the responsibilities we have as moral agents, or as human beings. We have retrospective responsibilities, for what we have done or failed to do, for the effects of our actions or omissions. Such responsibilities are often (but not always) moral or legal responsibilities (Craig, 2000 p. 768; Farnell, 2004). Therefore, the business partners in an integrated global supply chain are faced with one important challenge: how to be responsible for actions that, ideally, they did not commit. Is it possible to be held accountable for actions of business partners within a supply chain? This is one of the challenges for many businesses both locally and internationally. The issue of accountability, both in broad and narrow senses, can be viewed ethically, legally or both. Swift (2001) describes accountability as"... the requirement or duty to provide an account or justification for one's actions to whomever one is answerable" (Swift, 2001 p. 17). He further contends that accountability can also be viewed as "... being pertinent to contractual arrangements only... where accountability is not contractually bound there can be no act of accountability" (Swift, 2001 p. 17). However, it is in the attempt of defining accountability that the concept of vicarious liability; the principal-agent relationship. The business, the multinational corporation at the center of the global supply chain becomes the principal while the suppliers, subsidiaries, sub-manufacturers and other entities to which it has outsourced its non-core activities become agents. The principal is therefore bund to hurt or gain from the activities of its agents and therefore must be accountable for their actions including punishment in case of violations norms and regulations (Owen et al., 2000). Such a social contract theory view is not universal in the corporate sector while many multinationals find it difficult to accept responsibility for the actions of their perceived agents (Collins, 1990). Environmental pollution, discrimination and regulatory breaches such as child labor committed by the agents in various countries with or without proper regulations governing the punishment of such vices become the responsibility of the principal. This is because by virtue of indirectly operating in such territories indirectly, they are bound by the social contract theory to be accountable and responsible for the community affected indirectly or directly by their activities from which the company also draws benefits (Swift, 2001). It is therefore imperative that businesses within the supply chain share information including confidential ones to enable them navigate the murky waters of the modern day globalized business environment (Korten, 2004). Today’s corporate world and society demand that firms become accountable and responsible for the activities that take place within their supply while also ensuring that the demands of the other key stakeholders including profit maximization are met (Mamic, 2005). Moreover, the ability to navigate the complex world of supply chain management at a global level marred in conflicting business ideologies and strategies is a tool for gaining competitive edge in the overcrowded marketplace. Responsibility and accountability practice in global supply chains management Operating in the global market offers countless opportunities and challenges alike especially for multinational corporations and companies. The interests and the pressure groups increase many folds with the use of global supply chains. Responsibilities and accountability also increase significantly for such companies as they have numerous stakeholders with sometimes conflicting interests to contend with. However, global corporations wield great influence and power. They have a vast pool of human capital, financial and technological resources which they can use to effectively promote moral and responsible operations. They are capable of using their vast resources to influence the corporate social responsibility activities by its agents such as suppliers, distributors and subsidiaries. Such is morally justifiable and is a sign of accountability and responsibility on the part of the corporations considering the huge benefits they derive from their operations in the global business arena. Their corporate social responsibility activities will have a ripple effect that will be felt all across their global supply chains (Amaeshi, Osuji & Nnodim, 2008). However, the sense of moral justification, responsibility and accountability is not confined to these corporations exclusively; the suppliers also and other agents in the global supply chain have the power and the responsibility to act in a morally justifiable manner. a) Ethical codes/standards of conduct On the importance and purposes served by code of ethics, Ethics Resource Center (ERC) notes that: A code of conduct is intended to be a central guide and reference for users in support of day-to-day decision making. It is meant to clarify an organization's mission, values and principles, linking them with standards of professional conduct. As a reference, it can be used to locate relevant documents, services and other resources related to ethics within the organization. A code is an open disclosure of the way an organization operates. It provides visible guidelines for behavior (ERC, 2009). These are sentiments shared by Hoffman and Driscoll (1999) who observed in their book, Ethics Matters, that a code of ethics "reflects the covenant that an organization has made to uphold its most important values, dealing with such matters as its commitment to employees, its standards for doing business and its relationship with the community" (Hoffman & Driscoll, 1999). A code of conduct formed based on consultations amongst the stakeholders will clearly map out how the organization will effectively manage its supply chain including how it will relate with the suppliers and the expectations it has of its agents. Citing Deloitte Touche Tohmatsu (2002) Brown and Fraser (2004) note that ethical code of conduct whether signed as an agreement or not “… makes good business sense … (and)… helps companies to mitigate risk, protect corporate brand, and gain competitive advantage… (Deloitte Touche Tohmatsu, 2002 p.2 cited in Brown and Fraser, 2004). However, it must be devoid of the influence of the sometimes powerful stakeholders in the businesses including pressure groups and sometimes imperialistic governments, consumers and shareholders especially of the principal entity in the supply chain (Crane & Livesey, 2003). The terms must legally permissible within the confines of both local and international laws governing environment, labor and general business operations. And based on the principle responsible and accountable business practice and social contract theory, it is incumbent upon the agents including the suppliers to ensure that these codes of conduct are communicated effectively to the rest of agents beneath them. Ideally, the principal entity should also ask for corporate social responsibility audit report from the agents during designated periods (Powell, Shearer & Davies, 2009; Amaeshi, Osuji & Nnodim, 2008). The authorities and the companies can them act on the reports formally and informally such as naming and shaming the entities which have engaged in unethical practices or terminating their contract with them. Highlighting the importance and consequences of violating ethical norms, Graafland (2002) gives the example used by the brand C&A: The code requires that suppliers respect the ethical standards of C&A in the context of their particular culture. Suppliers should have fair and honest dealings with all others with whom they do business, including employees, sub-contractors and other third parties. In addition to this general requirement, the code specifies detailed requirements related to employment conditions. For example, the use of child labor is absolutely unacceptable. Workers must not be younger than the legal minimum age and not less than 14 years. Wages must be comparable with local norms and comply with local laws. Furthermore, the code requires that suppliers make full disclosure to C&A of all facts concerning production and the use of sub-contractors. The suppliers are obliged to authorize [the auditors] to make un-announced inspections of the manufacturing facility (Graafland, 2002 p. 283. b) Personnel training and assessment: foundation for organizational culture The concept of corporate personality is based on the ability of the companies to possess some of the human qualities such as the ability to act in a defined manner. This is because the qualities of human capital, the labor force, are attributable to the organization which employs them. Therefore, to stem out unethical practices such bribery and corruption within the global supply chain, it is imperative that the vices are stemmed out at the individual employee level through training on ethical values. The principal organization can extend training on virtues, ethics, morality and good values throughout its supply chain in order to minimize cases of clashing value ethics (Amaeshi, Osuji & Nnodim, 2008). It will create a uniformity and hence, a relatively peaceful environment suitable for the business to thrive. Such training will form a solid foundation for an organizational culture based on work styles, values and ethics. When introduced from the apex of the supply chain, such changes can be easily implemented across the supply chain because the principal company becomes a role model (Powell, Shearer & Davies, 2009). Powell and DiMaggio (1991) note that there is a high tendency of businesses to mimic cultures and policies of successful entities (Powell & DiMaggio, 1991). Conclusion The deregulation of the global economic space under the auspices of globalization that is being pursued actively across many geopolitical regions has created a huge marketplace. Many businesses have taken advantage of the numerous opportunities and expanded their operations and reaped great benefits. However, a globalized marketplace present significance challenges to multinationals which use integrated supply chains to run their operations. By outsourcing some of their non-core business activities and operations to these subsidiaries, suppliers and distributors, these businesses are faced with issues of accountability and responsibility for the actions of their agents. This is further compounded by the fact that operating in a globalized marketplace comes with a lot of scrutiny and pressures from the stakeholders. These issues of morality and ethical practice arise because of the different approaches to business operations. Therefore, they may have skewed and conflicting views on morality and ethicality of business actions and decisions. 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