Responsible business conduct requires a responsible business ecosystem

By March 26, 2018News

Kevin Thomas, Director of Shareholder Engagement

Ensuring responsible business conduct and decent work in global operations requires more than just a law, a factory audit, a certification, or any single act. It requires a whole ecosystem approach, a systemic approach, in which we all contribute to the outcome.

This point was made abundantly clear to me as I discussed the enforcement of worker rights with a range of local and global businesses, associations and international organizations in Vietnam and Singapore last week.

I had been asked to come speak about investor due diligence on human rights and the global push for transparency at special events organized by the Canadian Chambers of Commerce and Canadian Consulates in the two countries. I was joined by a Government of Canada official who was helping businesses understand the government’s new approach to responsible business practices and, in Vietnam, we were joined by the Manager of the country’s Better Work program, Hong Ha.

Better Work is a joint project of the International Labour Organization and the International Finance Corporation, with programs in place in half a dozen countries including Cambodia, Jordan, and Bangladesh. It is not just another social auditing program, but an ongoing partner and coach for workers and management in its participating factories.

Ha explained the diligent work her organization does to help factories develop the necessary systems to not just “quick fix” a particular problem, but to create a permanent structure for social dialogue and problem solving between workers, their representatives, and factory management. The role of workers and unions in negotiating solutions at the local level is an essential part of developing sustainable improvements in factories. Workers and unions have a critical role to play.

But just as improvements at the factory level depend on developing ongoing supportive systems for worker rights, we need supportive systems all along the supply chain to see sustainable change.

For example, a concern I heard expressed repeatedly in Vietnam is the problem of corruption, which can stymie development, investment and, indeed, worker protections. I heard of a fire safety inspector willing to look the other way on very real safety risks for the right price – a price lower than the cost of making the safety improvement. It’s not hard to see how that story usually ends.

The need for strong local legal systems to prevent corruption and to enforce worker protections, therefore, is a necessary part of the ecosystem without which sustainable factory-level improvements will not be made. Governments in supplier countries have a critical role to play.

Similarly, I talked with one manager about how expectations on price and delivery times from buyers further up the chain can influence the decisions management makes about investments in the workforce.

So, international buyers also have a critical role to play.

But if those buyers themselves believe their shareholders expect them to chase ever lower production costs, they will be less likely to develop the systems and incentives that reward decent work practices by their suppliers. Investment decision-makers, therefore, can play a role in either supporting or discouraging responsible business conduct both by choosing which companies to hold, and by sending a message to those companies through their proxy voting and engagement practices.

As SHARE clients have proven, we are ready and willing to take up that role. SHARE’s clients have a long history of engagement with companies in their portfolio to promote decent work and responsible business practices both within their own operations and throughout global supply chains, and we’re pleased to say we’ve seen some successes in that work.

But if we’re going to build the kind of ecosystem for responsible business that truly incentivizes decent work, we need one more party at the table.

Governments in the buyers’ host countries also have a role to play.

In Canada, we’ve been pleased to see the federal government’s recent announcement of an independent ombudsperson that will be able to investigate complaints related to Canadian companies operating abroad, including in the garment sector.

However there is still a missing piece. In order to create the kind of preventative culture along the whole chain that Better Work is trying to do at the factory level, we need to empower private-sector actors within this ecosystem to play their role. One way for the Canadian government to help us do that is to enact legislation that requires comprehensive disclosure by companies of the due diligence systems they must have in place to identify and address human rights issues within their supply chains. That will empower shareholders to assist in rewarding better practices amongst the leaders, and promoting improvements amongst the laggards.

SHARE is already collaborating with UK investors to engage laggards identified under that country’s Modern Slavery Act legislation, which requires such disclosure. If the Canadian government joins its peers in promoting similar legislation, we can take up that same mission here at home.

That’s how we’ll help create an ecosystem that supports sustainable change, together, all the way from the desk of a pension trustee here in Canada down to the shop floor of a factory in Vietnam.