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Narration:

Over the past 50 years, increasing levels of globalisation have created a bewildering and complex system of supply chains that manage the production and distribution of everything from seedless apples to Apple iPhones.

And while this has given us access to products, we didn’t even know we needed, this vast system makes poor ethical practices hard to track and address. But things are changing fast.

For organisations the list of reasons not to meaningfully track suppliers and prove commitment to ethical practices is rapidly dwindling, with fresh regulations and incentives being introduced every year.

Today on AGSM’s Business of Leadership podcast, we are looking at ethical supply chains. What role do new modern slavery laws, ESG reporting, and regulatory systems have to play in them? How can businesses leaders work together to raise the bar collectively on high supplier standards? And what is at risk if they fail to do so?

AGSM podcast host Associate Professor Michele Roberts speaks with Frances Atkins. An AGSM MBA alumna, entrepreneur and Co-Founder and Director of technology platform Givvable, Frances gives unique insight into the role technology has to play in making it easier to create more ethical supply chains, while retaining profitability.

Frances and Michele are also joined by Associate Professor Tracy Wilcox of »Ê¹Ú²ÊƱ Business School, whose research focuses on socially responsible management practice that equips managers to create opportunities for ethical agency amid complexity.

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Michele Roberts:

Thank you for joining us for this episode of the AGSM Business of Leadership Podcast where we're taking a deep dive into the business of supply chains. My name is Dr. Michele Roberts. I'm an associate professor and the academic director of AGSM, and Associate Dean of Post Experience Programmes at »Ê¹Ú²ÊƱ Business School. I'll be taking the reins from Nick Wales for a few episodes of The AGSM Business of Leadership Podcast.

In this episode, we'll be discussing ethical issues in supply chains. We'll talk about what ethical issues there are hidden within our supply chains, look at green-washing and why it's such a problem and how we can eliminate it. We'll look at the rise of the conscious consumer and the steps that you can take as a leader to ensure that your supply chains are ethical.

I'm joined by two experts. Firstly, I'm thrilled to have with us associate professor Tracy Wilcox from »Ê¹Ú²ÊƱ Business School.

Tracy's one of the absolute trailblazers of business ethics in Australia, and she's been our academic director of post-graduate programmes at the business school. And her research in teaching focuses on socially responsible management practices as well as how managers can create opportunities for ethical agency in often difficult contexts.

I'm also joined by Frances Atkins. We're delighted to have Frances with us. She is a graduate from our AGSM MBA class of 2019, and co-founder and director of Givvable, a leading platform for tracking supplier sustainability and ESG credentials.

Frances Atkins:

Thanks for that intro, Michele. So as Michele mentioned, I'm one of the co-founders of Givvable and we are a supplier sustainability tracking platform. And the background to this is back in 2019, I think it was, we actually participated in an entrepreneurship programme, »Ê¹Ú²ÊƱ Founders, at the University of New South Wales.

Myself and my co-founder had spent a number of years in corporate and government and we wanted to see how this concept of corporate social responsibility could be transformed into a more sort of operational application of it. And we thought that there was a big opportunity for businesses to activate their spend for better outcomes.

So that was really the seed of the idea and we spent quite a bit of time working with large companies to understand the complexities of the problem, both from a practical perspective, but also from an outcome and impact perspective as well. That led us ultimately to develop what is known as Givvable today.

Tracy Wilcox:

Thanks very much Michele. I initially trained as a chemist and I worked in the manufacturing industry as a quality manager where I was involved in all aspects of the value chain. So from getting the raw materials to producing products, to actually selling that to the consumers.

And that really piqued my interest in both ethics and sustainability, coming to it from first that science side, but also looking at the human factor and really starting to see issues around workplace conditions for workers in the industry, environmental impacts of the work that's done.

So that really kindled this passion that I have. And I went on to do a master's and a PhD in that area and have been working in ethics and sustainability, both teaching and research for 20 years now.

Michele Roberts:

So what are the problems in supply chains and how significant are these?

Tracy Wilcox:

I think the whole question of supply chains is so important nowadays because value chains nowadays are really global in scale. We've become so much more globalised and they're highly complex with many, many tiers and layers. And this has really been an outcome of increasing globalisation over the last 50 years. And unfortunately, what that's meant is that now the social side, the human side of supply chains and the environmental side are largely invisible to consumers.

So consumers, the people that buy the products really don't have visibility over what's going on. And yet we have seen some really important issues and some bad things happen in recent times. I guess the ones that probably the listeners are most familiar with would be the Rana Plaza factory and the thousands of people that died there. And that really cast a light on the fast fashion industry.

We've seen slave labour in the Thai seafood industry. We've seen deforestation and the issue around sustainable palm oil in Malaysia and Indonesia. And more recently, we are looking at sort of bonded labour with the Uighurs. So there is a whole lot of issues that continue to emerge and come to the public attention.

And I think that really does put the spotlight on these issues. And what we are seeing is that activist groups and civil society organisations are now putting pressure both on companies and on governments to do something about these issues. So, in Australia we've had the Modern Slavery Act. In the UK, something similar. There is the 2017 Duty of Vigilance Act in France that's emerged, which would be really best practice in terms of their regulatory situation there.

So we are looking to governments to, I guess, take more steps to do something to really require businesses to start thinking about their supply chains from a human rights perspective. Whether you're talking about safe workplaces, whether you're talking about a fair wage or a living wage, whether you're talking about energy footprint, whether you're talking about the environmental impact with pollution and whether you're talking about the downstream waste of an organisation as well.

So yeah, I think it's really in the public's mind nowadays because we're seeing these complex interrelationships between the various elements of the value chain.

Michele Roberts:

And Frances, anything you would add about the extent and nature of the ethical challenges in our supply chains?

Frances Atkins:

Yeah, I mean Tracy raises some very great points there around the visibility of supply chain, which is something that we seek to assist our clients with as best we can. But it is a very complex and difficult issue. I think mean we take a lens of looking at it from a corporate or government buyer perspective and the interaction of those large purchasing entities with their suppliers. And they do struggle with visibility of clearly they know who their tier one supplier is, but throughout the chain it is more difficult to get that visibility.

And often even getting that information coming up back up through to the ultimate end buyer is difficult because a lot of the suppliers don't want to disclose who their suppliers are for competitive reasons.

So visibility is a challenge. Layer on top of that, the complexity of sustainability and ESG as a concept. And Tracy mentioned a number of different aspects of ESG and that creates, again, challenges. You may have a strong performer in one area but not so strong in other areas. And how do you deal with those challenges?

I think a lot of companies are still trying to figure out how to solve this. For companies that are taking steps to do this. A lot of them have been issuing what are known as supplier SAQs or supplier assessment questionnaires.

In sustainability in ESG this is a challenge because of the issues we mentioned before, but also, we're starting to see low response rates, low quality of responses. We're starting to see affirmation in the responses, and you've got an inherent conflict as well in the supplier buyer relationship, which is lending itself to that affirmation.

And so it's just causing a distrust in those responses, but also it's a very time consuming process to go through for both the supplier and the buyer, to undertake those surveys and questionnaires. So, we're sort of entering into this new phase of, "Well, how do we deal with these challenges in a really efficient way?" Because the way that we've tried to get this visibility on our suppliers in the past hasn't really shown to be working in the context of supply chains at scale.

Michele Roberts:

What are the key steps that businesses should be taking in terms of the priorities for boards and leadership teams to investigate and safeguard the ethics of their supply chains?

Frances Atkins:

I think the very first thing is that we need a mandate from the board and the C-suite on this. Because it just will not work throughout an organisation unless you've got that strong mandate. And more than that, we need targets. We need specific metrics that the organisation, the people that tasks we're actually executing on this, that they've got metrics that they can track against.

And this is incredibly important because if you don't have those things, if people aren't accountable, you just won't get things done. You won't get the budget allocated and will just end up not making progress. So that is the very first thing from at least my perspective, that I think organisations need to do.

The next part of that is the actual how do you actually implement that? But I'll let Tracy comment on that because I'm sure from a high-level perspective there, she's got some comments there.

Tracy Wilcox:

I couldn't agree more, Frances, about that need for accountability and the fact that there has to be measurable targets and KPIs because it's a culture change as well as a change of mindset as well as a change of priorities. So if you've always been thinking of supply chains in terms of a race to the bottom to try and get the best price and maybe the best technology and you're not thinking about the people on the planet side of things, then it is a mindset change and it is a change in culture.

So I think that, that's really important. And the way to change cultures and mindsets, of course, as you say Frances, is to have those targets and metrics and KPIs and accountabilities. That's really key.

I think if we leave it to individual organisations to do the hard work, I think we're going to end up with a kind of imbalance. And that's where I think we need regulatory systems to raise the bar collectively.

And so I would say that that regulations that are about expecting large organisations, and we're talking large organisations here, so the French Act only applies to large organisations. The Australian Modern Slavery Act only applies to large organisations.

So these large organisations have the power and actually have the bottom line to be able to be working a little bit more in this area than they may have in the past. And I guess if you get down to the operational level, and you touched on this, Frances, about getting those procurement offices, those buyers onboard. There's some research that was done out of Harvard that showed that whilst there was a lot of senior leadership discussion and commitment to more sustainable and ethical supply chain practices, that hadn't filtered down to the procurement officers.ÌýAnd it hadn't filtered down to even the tier one procurement officers.

So let's, at the operational level, start getting our procurement officers onboard and start getting our suppliers' procurement officers on board. Because in these complex supply chains, as Frances mentioned earlier, we have several tiers. So they should be at least getting, offering training and incentives for their first tier suppliers for their own procurement offices. So metrics and targets really trickle down to where things are done. So I would say that, that's a really important thing.

I think using technology a bit better to better understand your supply chain. It's really interesting how few organisations have a really good handle on the complexity of their own supply chains when you go down to those lower tiers. So having that visibility and some of the large companies are doing that really well, Patagonia map it out quite well.

And then getting data on how things are going. So I think that's information technology has a lot of capabilities in, but it needs to have that culture, that mindset behind it, otherwise it may just become sort of green-washing and not something that's actually working in practice.

Michele Roberts:

You've both talked about the importance of hard targets and commitments and that tone from the top, but even in the case of the Modern Slavery Act, we just saw that report from the Australian Human Rights Institute based at »Ê¹Ú²ÊƱ suggesting that even where there is excellent legislation, we're still not seeing the outcomes that we need. Can you talk to us a bit more about that, Tracy?

Tracy Wilcox:

That report you’re talking about, Michele, that was undertaken by »Ê¹Ú²ÊƱ’s Australian Human Rights Institute and Justine Nolan and her team. They found that 68% of companies are still failing to comply with the basic reporting requirements of this Act. Now these are large companies. These are companies with a hundred million plus turnover. So we're not talking about requiring unsustainable reporting from small businesses. So let's just get that point now. And there's no action, but that's probably because there is no consequence.

So if you want regulation to have teeth, then there has to be some kind of sanctioning. And we saw this with gender equity legislation for years and years and years. If you want something to change, there has to be consequences for not complying with it. And I think that's really where we need to go if we are serious in Australia about the modern slavery issue and trying to eliminate that in our supply chains.

Michele Roberts:

To what extent is this now a technology and a data problem? Frances, this is an area of your expertise. Is it really just going to come down to that transparency and visibility driven by technology and data?

Frances Atkins:

Supply chains is one of those areas where it lends itself to leveraging the technology that's available to us, whether it be artificial intelligence, statistical analysis, big data, advanced analytics, all that kind of thing to be able to enhance their understanding of their own supply chain.

I often say that sustainability is critically linked to an organisation. They can't be making sustainability claims about their performance unless they have an understanding of how their suppliers are performing.

When you start to look at the supply chain given the complexity, the breadth of ESG issues, and then typically large organisations have thousands of suppliers, that lends itself to a technology solution. To get that sort of data, to get that insight at that scale requires organisations to take advantage of what's out there today.

Michele Roberts:

And Tracy, in terms of solutions for tech and data, what are you seeing?

Tracy Wilcox:

Look, I mean, I think what Frances is saying is absolutely right. It is these newer forms of organisations like Givvable that actually enable that kind of transparency to be more easily attained by companies. I think technology is always going to be part of the solution. And we've seen some really interesting examples of how blockchain's used to gather data. But the data is the other question. And I think the people is really, having that mindset is going to be always important because it doesn't matter if... You can talk about technology and hand the responsibility over to technology when really it's the leadership team that needs to take responsibility and technology's the tool to get you there.

Frances was talking about the fact that organisations have thousands of suppliers, and I mean, for example, Unilever have 58,000 suppliers. So that complexity's there, but there was some interesting work done by WWF that showed that in the supply chain around three to 500 companies control 70% of the choices that organisations can make.

So there really is a leverage point there where, if you look at those companies and then look at who's funding those companies. So look at those financial services organisations that are funding the companies. And we've seen how civil society groups have put pressure on financial services institutions, whether it's about coal mines or whether it's about sustainable palm oil financing or unsustainable palm oil and deforestation financing. We've seen how using those financial services companies as a lever for change has been a really interesting development, I think in the last 15 years or so.

Michele Roberts:

Are we seeing new, interesting collaborations emerge and companies becoming more thoughtful about the ecosystems they build to achieve sustainable supply chains?

Tracy Wilcox:

You've got the standout companies that everybody knows, like Patagonia, who have been a real leader in sustainable supply chain in terms of the environmental impact, in terms of their energy footprint, in terms of their work practices. And they were rated very highly. There's a report that's put out every year called the Sustainable Fashion Guide and the Ethical Fashion Guide, and they're always rated up the top in that.

So I mean, they know exactly what their suppliers are doing, they can drill down into details, they can have a look at what's happening in terms of paying a living wage to the workforce of their suppliers. So I think that's a standout organisation. Even big organisations like Intel, which is the world's largest manufacturer of semiconductors, they've been looking at conflict minerals and particularly in the Congo and making sure that they're not using conflict minerals in their manufacturing.

So I think that's really interesting to see how they have really taken those steps to look at that complexity of the supply chain and to use the information that they have available to try and work with that.

And then you've got information technology companies like IBM and SAP that are also working in this space and working with companies as well.

Michele Roberts:

Yep. There's some great work being done by the digital sustainability research hub at »Ê¹Ú²ÊƱÌýon this.

Tracy Wilcox:

Absolutely, yes, yes.

Michele Roberts:

I guess one area that we should just touch on is the role of government and policy. We are seeing new policy instruments being introduced around the world. And Tracy, you referred to policy that we're seeing in new regulation in Europe. What are you seeing emerge and how is it going to impact Australian leaders if they haven't built the right supply chains that they need?

Tracy Wilcox:

I actually think that this is something that is inevitable is that we'll start to get more regulations around this, as we start to learn more about what actually is going on in supply chains. And thi