Multinationals have a hard time governing sustainability practices in their global supply chains – even more so during times of crisis. Professors Tanusree Jain, Trinity Business School, Vivek Soundararajan, University of Bath, Sreevas Sahasranamam,University of Strathclyde, and Zaheer Khan,University of Aberdeen, lay out the blueprint for agile and effective sustainability governance.
By Tom Gamble, Council on Business & Society and Tanusree Jain, Trinity Business School. Related research: Multinational enterprises and the governance of sustainability practices in emerging market supply chains: An agile governance perspective, Journal of World Business.
Chains can be good for everyone
From raw materials, spare parts, finished goods and masks to protect us from Covid, global supply chains are an essential link for modern economic development and trade. They not only offer multinationals in advanced economies low-cost products and services without the need to invest heavily in overseas jobs and infrastructure, they also provide the emerging economies in which they operate with value – creating more employment opportunities than the suppliers could hope for on their own domestic markets. The United Nations Conference on Trade and Development (UNCTAD) even goes so far as to promote global supply chains as a kingpin factor in reducing poverty and boosting growth in developing countries.
Managing a supply chain across continents and from afar can be a huge challenge. Differing local laws, large distances, skills gaps and shaky quality standards can even threaten a multinational’s competitiveness in the market. Added to that, the ever-increasing pressure applied to multinationals’ sustainability record and ethical footprint – if askew and plagued by inconsistency through the factors mentioned above – can potentially ruin a multinational’s reputation and cause irreversible damage to its financial performance.
Typically, multinationals attempt to reduce the risk of such things by implementing codes of ethics and conduct for its operational teams and suppliers. The contract is another way of ensuring that a legal framework covers the various dimensions of contractor-supplier partnerships – price, delivery time, quality, standards – as are social audits, often carried out by third-parties – auditing firms or even NGOs. But these are top-down ways of sustainability governance. And top-down carries with it a number of issues.
Heavy mettle and agile sustainability governance
One of these is how developed-country multinationals and NGOs dominate the process and mechanisms in a supply chain – something that handicaps both an emerging market supplier’s way of dealing with local-specific problems and their expertise. Rigid sustainability benchmarks, although suited to developed markets, can also clash with the complex, unpredictable specificities of a local market, not to mention lack of resources available to a local supplier, local culture and socio-economic conditions. All in all, research on top-down governance means and methods shows that they have little legitimacy for local markets and little ability to bring about positive change in global chains. It may even drive local suppliers to act opportunistically. Take the garment supply chain, where some Indian suppliers have been known to bribe government bodies for documents, operate unregistered factories, prep workers for audits and even terminate troublesome workers before inspections. Such actions are very likely to cause supply chain sustainability risks for multinationals.
So how to involve local mettle and give greater flexibility in how suppliers implement and adjust within a wider, multinational framework? And at the same time satisfy a multinational’s need for quality, good conduct and sustainability? Building on studies that suggest the shortcomings of top-down can be improved through evolving and adaptive alternatives in collaboration with local players, Professor Tanusree Jain and her fellow researchers took a look at what they call “agile sustainability governance” – or ASG – with an aim to build on existing research to develop a framework for multinationals and their suppliers alike.
Time to move along
Against the backdrop of the COVID-19 pandemic, decreasing international cooperation and unprecedented pressure to clean up business on an ethical and environmental dimension, the need for agile sustainability governance has never been more striking. In order to be effective, ASG has to satisfy a certain number of characteristics: it must have endorsement from the top, be adaptive to tackle the complexities and changeability of emerging markets, bring together and balance the interests of both the multinational and its diverse suppliers, and possess the capacity to develop open dialogue and facilitate sustainable solutions that are innovative and mutually beneficial. How can this happen? Jain and her fellow researchers propose a 4-stage, virtuous process that comprises the following:
- The definition of broad benchmarks between stakeholders – the multinational’s reps, auditing bodies and local suppliers
- Application of the benchmarks that gives suppliers autonomy in how they comply to them
- Assessment, evaluation and learning
- Re-adjustment or redefinition of the benchmarks to begin the cycle once again.
Let’s dig further.
1. Setting down the rules of the game: Collective definition
At the current period in time, suppliers in emerging markets are often excluded in talks defining sustainability benchmarks. Rather than keeping them away from the table with the risk of provoking the kind of misconduct mentioned above, agile sustainable governance calls for a collective approach.
Reaching benchmarks together calls for authentic dialogue to be used grounded on five conditions – sincerity, accuracy, comprehensibility, legitimacy and listening. Moreover, authentic-type dialogue has the effect of strengthening the idea that every stakeholder – whether multinational, NGO or local supplier – has the right to participate and have an equal say. The process effectively eliminates the issue of the multinational or NGO imposing rules and guidelines and paves the way for greater supplier relationship building, trust, and supplier commitment to fully abide by them.
2. Putting the rules into action: Autonomous execution
Professor Jain and her colleagues note that during the collective benchmarking stage, only the development of broad sustainability benchmarks should be carried out, giving suppliers the leeway to implement them in their own way. This leads us to the second stage in the ASG process: autonomous execution of the benchmarks. Why autonomous? Remember the major issue of contractors dominating the rules in the supply chain? Typically, a supplier receives a “one-size-fits-all” set of sustainability benchmarks, irrespective of the supplier’s size, skills and capacities.
Such a universal fit obviously overlooks the uniqueness and differentiating features of a supplier – perhaps its entrepreneurial ability, its motivation to take risks and develop innovative solutions, or even its soft power within the local community to get things moving. In an ASG approach, suppliers become empowered, perceiving the onus of control to be in their hands over how to best fulfill the benchmarks. To an extent, a degree of experimentation is allowed, where local suppliers naturally try to find ways and processes that suit their interests, resources, contexts and skills.
An example can be found in the Chiquita brand, an American producer and distributor of bananas and other produce. In order to meet a set benchmark of ensuring a safe and non-discriminatory working environment, its small-scale producers worked with unions and the World Banana Forum to create local-specific women’s committees and training modules.
In an ASG approach, the set benchmarks may not necessarily be completely reached. But from being penalised as in a top-down governance approach, local suppliers are encouraged to assess performance and learn in order to improve and maintain incentive.
3. Not a tick-box, but a virtuous loop: Evaluation and collective learning
Current top-down sustainability governance tends to restrict supplier freedom of action and even imposes sanctions or at least warnings if benchmarks aren’t ticked off ‘achieved’ in a box. Prof. Jain and her colleagues, on the other hand, recommend an evaluation system that promotes corrective measures based on authentic dialogue and peer-to-peer learning, while at the same time keeping to the notion of freedom to experiment (the whole process ensuring that supplier efforts remain in line with the set benchmark). Here again, Chiquita can be cited. It assesses its producers’ performance against the benchmark for women’s safety with the help of local unions and the workers themselves, encouraging peer-to-peer learning between producers via local forums and international forums.
4. Check, talk, redefine: Collective redefinition
Once evaluated, the emphasis is again put on a collective approach, this time in terms of redefining benchmarks. As such, and in a way mirroring a continuous improvement approach, ASG ensures that both actors and benchmarks evolve to meet environmental changes. The researchers stress the importance of the word “applicability” that carries with it the underlying notion of multi-stakeholder interaction – reps from the multinational, suppliers and others – in redefining benchmarks. And this interaction itself encourages the development of self-organised and spontaneous communities which contribute to the agility of the entire governance system. The periodic redefinition of sustainability benchmarks also helps to ramp up their legitimacy within the people working on them and as a positive by-product strengthening trust, bonds and relationships.
From lean and mean to agile and green
All in all, agile sustainability governance lies somewhere in-between top-down and bottom-up governance approaches. In an era of declining multilateralism and supply chain disruption through the likes of natural disasters or pandemics, the ability to act with agility to face these challenges will own much of its impact to focusing on the relational factors in governing supply chains. Giving local suppliers and actors a say in how benchmarks are defined, implemented and redefined, and empowering them with opportunities to use their local expertise, influence and knowledge can actually save time, lead to fast troubleshooting and lead to more effective sustainability solutions.
This is not to say that ASG is without its challenges – costs, risk of corruption, patch up solutions, skills and resources and potential conflict of interest among them. But fostering authentic dialogue and encouraging supplier inclusivity and co-construction of sustainability benchmarks within existing frameworks of codes of conduct, binding contracts and audits, spells good news for multinationals, suppliers and stakeholder communities alike – not to mention the planet.
- Link up with Professor Jain via LinkedIn
- Follow Tanusree Jain on Twitter @TanusreeJain
- Download Professor Jain’s article on purposeful business schools in Global Voice magazine #15
- Follow a degree at Trinity Business School, Trinity College Dublin.
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