Cut-price ethics

Surely no organisation in these days of increased transparency, emphasis on corporate social responsibility and knowledge of the dangers of reputational risk, has any excuse for getting caught out on an ethical issue?

Well, cut-price fashion chain Primark, which sells in Ireland, Spain (under the Penneys brand) and the UK managed just that this summer, when news emerged that Indian suppliers were sub-contracting work out to businesses that used child labour. Primark was unaware of this situation until it was uncovered by a TV investigative team.

The news inevitably led to adverse media comment. And Primark’s decision to drop the suppliers involved rather than work with them to improve working conditions did little to soften the reputational blow.

Often companies now demand – and receive – assurances from their suppliers as to compliance with corporate policies and standards. Primark itself publishes its code of conduct for its suppliers on its website and is a member of the Ethical Trading Initiative. So what went wrong?

Companies whose main competitive edge rests in offering cut-price products achieve this by buying cheap, sometimes too cheap.

 

It seems obvious that the company did not operate any effective form of checks to ensure that its suppliers were actually complying with the code. And this is surprising as, by virtue of its own trading policy, Primark is particularly vulnerable to breaches. Companies whose main competitive edge rests in offering cut-price products achieve this by buying cheap – sometimes too cheap. It is inevitable that if you squeeze your suppliers too hard, they in turn are going to cut corners. And the areas where they may first look to make savings are in quality, working conditions, safety standards, employee wages, and so on.

In global terms, Primark is a relatively small organisation. Behind Primark is a far larger group – its owner, Associated British Foods, which has global sales of £6.8bn, and 85,000 employees in 43 countries.

In ABF chief executive’s own words, the parent was ‘appalled’ at the revelations. But perhaps what is almost as appalling is the failure in effective supplier monitoring. In today’s climate, supply chain integrity is key. It is easy for suppliers to sign a piece of paper confirming that they will adhere to the customer’s code of conduct. Surely companies like Primark should be a little less naive, and large groups like ABF should ensure that their subsidiaries have the right checks and controls in place?