Ethical project procurement
‘Ken dumps Barbie because of links to deforestation’. That was the essence of an eye-catching article published in the trade publication Supply Management last year describing how, in 2011, charity Greenpeace linked Mattel, the producer of the Barbie doll, to the deforestation of orangutan habitats in parts of Indonesia. The link was in its supply chain: a company called Asia Pulp & Paper (APP) that had been producing paper used in Mattel’s packaging.
The longer-term effects of this reputational damage were that a number of APP’s global customers followed Mattel’s lead in dropping APP as a supplier, creating a significant effect on its profitability and, hence, stock value. What’s more, since then, Mattel’s global annual sales of Barbie dolls have fallen around by 25 per cent, from just over $1.2bn to around $900m.
The sourcing of raw materials for use in our businesses and projects is just one of many ethical matters that we should be aware of in our position of influence as project managers. A less than careful approach can lead to significant consequences, and there are many cases in the public domain where companies have faced censure for unethical practices.
Transparency International provides some startling statistics on the perception of corruption and the impact of fraud. For example, fraud is estimated to cost the UK more than £70bn per year. Perhaps most worryingly, a majority of respondents to one survey believe that corruption is on the rise. More positively, they estimate that, by reducing corrupt practices by just 10 per cent in a high-risk country, the country’s GDP will then rise by four per cent, because the money paid for the finished goods and services can filter down to those toiling at the grass roots, instead of being sucked out by those who may be up to no good.
Scrutinising sources of labour
The Walk Free Foundation estimates in its latest Global Slavery Index that 45.8 million people (up from an estimated 29 million in 2013) are the subject of modern-day slavery, fuelling a human-trafficking and cheap labour sector estimated to be worth $32bn. Risk consultancy Verisk Maplecroft found that modern slavery was ‘rife’ in 58 per cent of 198 countries.
The Ethical Trading Initiative has also concluded through industry research that 77 per cent of companies think there is a likelihood of modern slavery somewhere in their supply chains.
In the UK, health and safety initiatives have greatly improved the way that the final project workplace is managed, with behavioural safety initiatives becoming more widespread. But are these practices applied in the production of goods before they make it to your project? Bangladesh has been the setting of at least three serious disasters since 2012, including the infamous Rana Plaza building collapse, in which 1,129 people died and about 2,500 people were injured. Many of the UK’s high street retailers were not even aware that some of their produce came from factories in the building – which were many tiers down the supply chain. Do you really know which companies make up tiers two to seven of your supply chain?
What can project management do?
NGOs and other interested parties have identified several specific risk factors and industry sectors known to be linked to an increased likelihood of unethical labour practices occurring. Take a moment to consider if any (or all) of the following circumstances occur as part of projects that you are familiar with:
- Are there multinational supply chains?
- Are there any hidden tiers of the supply chain or a lack of direct contact with suppliers?
- Are any materials sourced by mining and extraction?
- Is there any use of electronics and high-tech components?
- Is there any use of steel?
- Are any materials brought to site by shipping/transport? (Of course they are)
- Is the supply chain or project work being done anywhere that has an informal economy or a culture of cash payments?
- Are products sourced from countries or regions with weak governments, areas of conflict or widespread poverty?
- Is there use of migrant workers or agency labour?
- Is there contact with raw material industries?
For a project of any complexity and significant value, the answer is almost certainly ‘yes’ to at least one of these questions. And we can add in some project-specific factors, such as time-driven projects where normal processes are cut to save time.
Therefore, your organisation is at potential risk of being linked to bribery and corruption, exploitation throughout the supply chain, human rights violations, modern-day slavery, health and safety failings, fraud, erroneous specification, and the supply chain not getting paid on time (or indeed at all).
This could lead to loss of reputation or profit, decreased share price, company fines and, in some cases, criminal charges against individuals. So, to understate the case, there is clearly a business rationale for managing these risks.
But there are also opportunities to grasp, and best practice to share. In many parts of the world, simply getting project funding (for example, funding from development banks to build roads and infrastructure), relies on being able to demonstrate that the money will be well spent and that controls are in place, so the very existence of the project depends on the ability to procure your project ethically.
There are other opportunities, too:
- Elimination of bribery and corruption reduces ‘expediting’ costs.
- Paying faster often reduces the price you pay.
- Procuring and contracting ethically can also have a very positive effect on the supply chain and wider society.
Doing the right thing improves your organisation’s reputation, which means other organisations – whether clients or suppliers – will want to work with you, giving you more favourable terms etc. In addition, anecdotal evidence suggests that businesses can often also attract brighter talent on the back of an ethical reputation, which is increasingly important in a ‘skills shortage’ world.
Delivering ethical projects
So, how do we go about making the projects we deliver more ethical? The answer is partly cultural and partly attitudinal, ie it involves reflecting on your moral compass and not knowingly encouraging or letting these practices occur in your project or organisation.
This starts with how we behave and conduct ourselves on a day-to-day basis as role models, and what we call people to task for. The higher up we are in an organisation or project’s hierarchy, the greater our influence. However, that is not enough either practically or legally.
It is far better to take a positive approach to considering ethical concerns and acting upon them at various times during the project’s life cycle.
For example, at project set-up: decide whether the project is ethical and the right thing to do in the first place; identify appropriate governance structures, policies and procedures; assess potential risks; and put together a suitable project team.
At the pre-contract stages, focus on: pre-qualification of suppliers; final supplier selection criteria; choice of procurement route and contracting strategy; and risk allocation throughout the supply chain.
At post-contract stages, carry out assurance activities, such as quality control, auditing, approval of invoices and variation control.
During the management of the supply chain, focus on relationships and day-to-day interactions, especially with less well-known suppliers or across borders.
Finally, make sure that you have policies and procedures in place for dealing with so-called associated persons, agents or any intermediaries.
Above all, as project managers, we must ensure the very highest standards of ethical procurement are adhered to in order to minimise business risk and promote better business practices around the world.
Philip Reese is an independent procurement consultant for Reese Procurement Ltd. Dr Jon Broome is the chair of the APM Contracts & Procurement SIG, and managing consultant of Leading Edge Project Consulting Ltd.
APM’s Contracts & Procurement Specific Interest Group (C&P SIG) is in the process of developing a seven-stage approach regarding ethical procurement governance that can be applied to identify structures, provide assurance, guard against any risks, and deliver benefits and value to a project.
The intent is to identify a framework that includes:
- how to undertake risk assessment of ethical issues;
- signposting project managers towards sources of information and resources;
- methods for the prioritisation of actions;
- guidance on developing appropriate policies, procedures and processes for aspects such as governance, transparency, accountability, anti-corruption, prevention and controls;
- how different contracting strategies are affected by and affect ethics;
- what forms of due diligence exist, when to use them and how effective they are;
- how we can develop trust, confidence, transparency and continuous improvement; and
- how to communicate your business or project’s stance on the issues that are relevant in your sector or for the project.
If the subject is of interest, we welcome you getting in touch. The C&P SIG is organising an event in March 2017 to expand upon these issues and develop the approach to managing ethical risks. For more information, email email@example.com or visit the SIG page.