Are There Human Rights Risks in Your Business Model?

Your company depends on a business model that is based on offering the lowest price in the marketplace to consumers for products that are sourced from suppliers working on narrow profit margins.  Or perhaps your company relies on short lead times for delivery of products from suppliers due to seasonal factors or the requirements of your customers.  In those situations, the company will be subject to several significant potential human rights risks related to conditions in its supply chain: suppliers may be incentivized to pay their workers below a living wage and demand excessive overtime in order to reach sufficient scale of production to achieve profitability or meet your company’s tight delivery requirements; suppliers may not pay wages or overtime, or delay in making required payments, due to cash flow issues; and suppliers may forego investments to improve the quality and safety of working conditions in order to save cash and not slow down production.  A related problem may be the failure of public officials and governmental agencies in the countries where the suppliers are operating to adopt and/or enforce laws that will protect workers, but increase costs for local companies (which often bribe governmental officials to prevent enforcement of workers’ protections).

Your company has a duty to respect the human rights of the workers of parties with which it has business relationships, particularly when your company is a major customer of a supplier and your decisions regarding volume and timing of orders will predictably have a significant impact on the supplier’s ability to continuously operate.  As such, your company needs to pay attention to how its suppliers manage the pressures created by its chosen business model or face reputational damage from news of human rights abuses in the supply chain and/or delays in the flow of products from suppliers who are subjected to work stoppages in protest of their labor practices and working conditions.

The first step that should be taken is educating and training managers and other personnel directly involved in purchasing activities, particularly choices about delivery time requirements, about the impact that their strategies and decisions can have on working lives of workers in the supply chain and hold them accountable for human rights problems that may arise from their decisions.  For example, managers need to balance savings in inventory costs from “just-in-time” seasonal production strategies against increased risks to suppliers’ workers when they are operating under challenging high-speed fulfillment requirements.  Other things that should be done include:

• Formally integrate human rights assessment into the processes for vetting new suppliers and monitoring their performance after they have been selected and delegate authority to compliance staff to block selection of any potential supplier that raises human rights “red flags” or terminate a relationship with any supplier that fails to meet the company’s human rights compliance requirements (regardless of any positive economic aspects of the relationship).
• Establishing tracking and audit systems that identify human rights risks in the supply chain and focus surveillance resources on those suppliers that create the highest risks.
• Engaging with suppliers to provide support for the creation of grievance mechanisms for their workers and promote suppliers’ own engagement with their workers to strengthen freedom of association and collective bargaining.   

The supply chain management issues that your company is facing are likely not unique and are typically shared by other companies in your industry that work with many of the same suppliers.  As such, your company should look for ways to work with other companies, trade unions, NGOs, civil society and government agencies in the countries where suppliers are located to increase workers’ protections and thus reduce overall systematic risks of adverse human rights impacts.  In appropriate cases, companies that share common suppliers can work together with those suppliers to improve their operational skills in areas such as capacity planning, safety, training and procurement.