+ All Categories
Home > Documents > Hess^LJ Macaluso^LJ ^L0 Vorobets - Exploratory Research^LJ Importance of Communicating Code of...

Hess^LJ Macaluso^LJ ^L0 Vorobets - Exploratory Research^LJ Importance of Communicating Code of...

Date post: 11-Apr-2017
Category:
Upload: alexander-hess
View: 34 times
Download: 7 times
Share this document with a friend
29
2015 Fall – Section 01 Professor Martha Wilson 2015, October 28 EXPLORATORY RESEARCH: IMPORTANCE OF COMMUNICATING CODE OF ETHICS THROUGHOUT THE SUPPLY CHAIN Researchers: Alexander L. Hess Coby Macaluso Sergey Vorobets
Transcript
Page 1: Hess^LJ Macaluso^LJ ^L0 Vorobets - Exploratory Research^LJ Importance of Communicating Code of Ethics Throughout the Supply Chain_2

2015 Fall – Section 01

Professor Martha Wilson

2015, October 28

EXPLORATORY RESEARCH: IMPORTANCE OF

COMMUNICATING CODE OF ETHICS THROUGHOUT

THE SUPPLY CHAIN

Researchers:

Alexander L. Hess

Coby Macaluso

Sergey Vorobets

Page 2: Hess^LJ Macaluso^LJ ^L0 Vorobets - Exploratory Research^LJ Importance of Communicating Code of Ethics Throughout the Supply Chain_2
Page 3: Hess^LJ Macaluso^LJ ^L0 Vorobets - Exploratory Research^LJ Importance of Communicating Code of Ethics Throughout the Supply Chain_2

TABLE OF CONTENTS

Abstract .......................................................................................................................................... 3

1. Purpose of Our Research ......................................................................................................... 4

2. Methodology .............................................................................................................................. 5

3. Analysis ...................................................................................................................................... 6

3.1. Financial Impact of a Strong Code of Ethics ....................................................................... 6

3.1.1. Case Studies ................................................................................................................. 6

3.2. CSR Effects on Modern Trends ......................................................................................... 10

3.2.1. Millenials Care about CSR ........................................................................................ 10

3.2.2. Globalization.............................................................................................................. 12

3.2.3. Internet and Transparency ......................................................................................... 13

3.2.4. Modern Trends Wrap-Up ........................................................................................... 14

4. Interpretation .......................................................................................................................... 15

4.1. Effects of CSR .................................................................................................................... 15

4.1.1. Stakeholder Theory .................................................................................................... 15

4.1.2. Michael Porter’s Social Prgress Index ...................................................................... 15

4.2. GRI & Auditing Implementation into the Supply Chain ................................................... 16

4.2.1. Importance of GRI ..................................................................................................... 16

4.2.2. GRI’s International Results ....................................................................................... 17

4.2.3. Overview of GRI’s Evaluation Process ..................................................................... 18

4.2.4. GRI & Intigrated Systems Management: Key Benefits .............................................. 20

5. Conclusion ............................................................................................................................... 23

References .................................................................................................................................... 24

Page 4: Hess^LJ Macaluso^LJ ^L0 Vorobets - Exploratory Research^LJ Importance of Communicating Code of Ethics Throughout the Supply Chain_2

ABSTRACT

This project explores the effects of communicating a company’s code of ethics throughout the

supply chain. We analyze the effects of Corporate Social Responsibility (CSR) on a traditional

financial bottom line, as well as the triple bottom line to review sustainability efforts. Global

trend analysis provides this research preemptive suggestions for companies who are skeptical of

CSR. We repeatedly divulge the superiority of a Socially Responsible Supply Chain Orientation

(SRSCO) based on scholarly reviews of financial gains. We also characterize the financial loss

that is applicable to companies who have an inferior code of ethics through a review of case

studies. Ethics scholars posit that social capital is becoming increasingly important, due to the

relevance of CSR for Millennials, and the transparency of internal corporate information

following the Internet revolution. This project recommends that a firm utilize International ethics

auditing standards to harmonize communications across the various channels in the supply chain.

We hypothesize, by implanting a consistent auditing standard, a firm may expose their

weaknesses, and implement problem resolutions. As we conclude, a firm’s ethical standards, and

ethical auditing standards should emulate the transparency of yearly financial auditing.

Page 5: Hess^LJ Macaluso^LJ ^L0 Vorobets - Exploratory Research^LJ Importance of Communicating Code of Ethics Throughout the Supply Chain_2

1. PURPOSE OF OUR RESEARCH

Drawing on growing global concern for businesses to operate in socially, and ecologically

sustainable methods, we have devised our research to investigate how a company can yield

greater returns through an integrated supply chain that adheres to Global Reporting Initiative

(GRI) standards. The goal of this research is to discover how companies can create a competitive

advantage through a socially responsible supply chain orientation (SRSCO), and how to maintain

that advantage through consistent communication, and ethics auditing. If our research is

successful, we may create a model for firms to operate in a way that creates greater social

capital, yielding higher profit margins. The purpose of business is to create positive value for

society through providing a positive exchange in value. To optimize business value, we have

embarked on investigating practical application of moral theory in business operations. With

backgrounds in philosophy, and business, our research team wants to save lives while

bequeathing firms enhanced control over their supply chain. We hope that our model can be

implemented into modern businesses who are skeptical of investing in international partnerships:

due to an absence of universal ethics criterions. If we can successfully define how companies can

foster a “mutual understanding of the code of ethics” through harmonization of the supply chain

communication, and auditing standards, we will achieve our goal of providing solutions to

corporate sustainability; as well, we will posit solutions for multinational business to harmonize

ethical standards (Park-Poaps, & Rees, 2010, p.307).

Page 6: Hess^LJ Macaluso^LJ ^L0 Vorobets - Exploratory Research^LJ Importance of Communicating Code of Ethics Throughout the Supply Chain_2

2. METHODOLOGY

Our research team conducted extensive research into mediating factors that explained the

tendency for corporations with strong codes of ethics to be profitable. Due to the nonexistence

of funding for our research, and time pressures, we were incapable of conducting primary

research. Our exploratory suppositions were derived from numerous secondary sources: literary

reviews, Internet sources, scholarly journals, Google scholar, and business textbooks. The

predominant amount of our sources emanated from One Search: a library source engine through

California State University, Sacramento’s digital archive. The minority of our sources within the

archive reviewed CSR trends in business, as well as documented the proliferation of ethics as a

subject in Supply Chain Management (SCM). However, the majority of sources that we utilized

from the College search engine emphasized the benefits of adopting a Socially Responsible

Supply Chain Orientation, as well as how to audit a firm’s code of ethics. Library, and scholarly

resources also identified the financial impact of company’s who did not incorporate CSR. The

authors in the scholarly journals, and Google scholar quantified the impact of ethics on corporate

sustainability, company image, and a functional supply chain. We stressed the contribution of

scholarly articles because they presented more efficacious theories, such as Michael Porter’s

value chain. To supplement missing data in scholarly sources concerning formal theories, we

used course textbooks. The Internet provided missing data in communications, and financial

impacts of poor communication; Macaluso used this data in the case study section. In addition,

the Internet provided information unavailable elsewhere, such as the Global Reporting Initiative

Council’s chronicled data. After compiling evidence from 31 sources, we were able to

sufficiently review academic theories that corroborated our initial hypothesis.

Page 7: Hess^LJ Macaluso^LJ ^L0 Vorobets - Exploratory Research^LJ Importance of Communicating Code of Ethics Throughout the Supply Chain_2

3. ANALYSIS

3.1. Financial Impact of a Strong Code of Ethics

The original view of business responsibility, as coined by Milton Friedman, was to maximize

returns for shareholders through optimization of a company’s resources. In Friedman’s view,

ethics was stipulated to be a waste of resources, and not essential to the functionality of business.

Then in 1991, Archie B. Carroll's contrasted the tradition view of business responsibility with a

platform referred to as Corporate Social Responsibility (CSR): A pyramid model that segmented

primary, and secondary business activities. Carroll’s model emphasized secondary activities,

such as ethical business conduct, and corporate philanthropy, provide a strategic advantage. Our

team found secondary evidence which supported Carroll’s theory. Haesun Park-Poaps, and

Kathleen Rees found that companies who did not utilize a Socially Responsible Supply Chain

Orientation (SRSCO) suffered harsher regulations, and fines. Additional resources demonstrated

financial bottom line benefits of CSR, with sources citing that adopting a code of ethics increase

a company’s earnings per share by a factor of 3.9 times. In context with this section, we review

corporations that improved their brand's value in the mind of the consumer by implementing

their ethics throughout the supply chain. We also show the devastating financial impact of poor

ethical management. Companies often look toward certainty and cost containment: the supply

chain can be the catalyst for achieving these desired results. In this section, our team illustrates

the fiscal importance of sustaining a company’s values throughout the supply chain.

3.3.1. Case Studies

During the 1980s and 1990s, companies began to outsource their supply chain to gain cost

efficiencies from lower cost labor, and form a beneficial currency exchange. Reduction in

global tariffs made it easier to accomplish outsourcing, and turn a higher profit. Companies

Page 8: Hess^LJ Macaluso^LJ ^L0 Vorobets - Exploratory Research^LJ Importance of Communicating Code of Ethics Throughout the Supply Chain_2

who took their supply chain overseas were more complacent on following Friedman’s tradition

view of business responsibility than ethics. During this period, companies began to forgo their

values in hope of substantiating larger profits. However, modern trends have pushed

companies to focus on a positive brand image, following a slew of poor business impressions

reducing many major companies industry share. In trying to get ahead, businesses are

establishing better relationships with their customers by communicating ethics in the heart of a

business's supply chain. There are lessons to be learned with unethical activities by companies

such as Nike, Apple, and Walmart. While there has been a big focus on the finances of these

companies, it must be known that profits, and ethics are positively correlated.

Nike – Nike is a primary example from the 90s, of poor communication of a firm’s code of

ethics throughout the supply chain. During their multinational supply chain expansion, Nike

was scrutinized for their workplace practices. Most of the bad press highlighted child labor

involved in hazardous product manufacturing; which lead the Firm to fall under international

aversion, and proposed fines by the UN. Their reputation crumbled, and in the fiscal year of

1998, demand became weak. In 1998, demand dropped by 69 % for Nike brand products,

which was positively correlated with international press for that year. Instead of

communicating ethics throughout the supply chain, Nike pushed back with a public statement

to writer, Debora L. Spar: “Without an in-house manufacturing plant the company simply

could not be held responsible for the actions of independent contractors.” Not until the mid-

2000s did Nike admitted their product had become synonymous with slave wages, forced

overtime, and arbitrary abuse. Communicating these ethical mishaps concerning their supply

chain operations was the first step for the firm to recover their tarnished image. After facing

the significant losses due to poor supply chain ethics communication, Nike now stands by

Page 9: Hess^LJ Macaluso^LJ ^L0 Vorobets - Exploratory Research^LJ Importance of Communicating Code of Ethics Throughout the Supply Chain_2

policies encouraging the monitoring of factories, and takes a more collaborative approach to

reforms, sharing workspace, and best in-industry practices. The Firm has seen annual

financial gains since altering their ethical oversight.

Walmart - Walmart is the example of unethical practices. With a total revenue of $421.8

billion in 2011 Walmart has a large supply chain to manage. The company has been known

for practicing unethical behavior, trying to manipulate their supply chain through coercion.

Walmart is connected to many cases involving deaths, and injury during supply chain

Page 10: Hess^LJ Macaluso^LJ ^L0 Vorobets - Exploratory Research^LJ Importance of Communicating Code of Ethics Throughout the Supply Chain_2

operations, mainly in countries where low-skill, low-wage manufacturing predominates.

During an incident in Bangladesh, harsh working conditions lead to a factory fire, killing 111

people and injuring 150 more. Poor fire prevention systems, and unmapped exits greatly

contributed to these deaths. Following the incident, the press reviewed the internal finances

of Walmart, which revealed the corporate CEO, Mike Duke, received a wage raise to $20.7

million while workers in Bangladesh complained of low-wages totaling just $37 a month.

There were many other unethical behaviors that affected various Walmart, most of which are

correlated with poor supplier communication. As analysists predict, Walmart would increase

their deteriorating brand reputation by ensuring their suppliers comply with their corporate

values through an ethical auditing process.

Walmart incident to stock price chart

Apple example – Another conglomerate which suffered image devastation form poor

communication of ethics in the Supply Chain was Apple. From 2010-2012, Apple was

Page 11: Hess^LJ Macaluso^LJ ^L0 Vorobets - Exploratory Research^LJ Importance of Communicating Code of Ethics Throughout the Supply Chain_2

charged with poor workplace safety, underage staff, and unfair wages at their Foxconn plant

in China. Foxconn manufactured Apple’s IPhone, and IPad; thus, the third party company

was substantially responsible for the fabrication of Apple’s most successful merchandise.

When distraught factory workers began launching themselves from the roof of Foxconn,

news station around the globe began picking up the story. Protests began amongst

consumers, and during this period, Apple’s saw the largest portion of brand switching

internationally. Apple prompted action by adding greater oversight programs into Foxconn’s

management staff. Throughout the period, Apple’s bottom line was only minimally affected

because of their quick actions.

3.2. CSR Effects on Modern Trends

Three large trends have developed over the past decades that have greatly impacted the

landscape in which businesses operate. Millennials are maturing and entering the workforce, the

internet is making communications more transparent, and globalization has made the world more

interconnected. In this section we review the three predominating trends.

3.2.1. Millennials Care more about CSR

Generation Y or, as their known, “Millennials” constitute the largest portion of America’s

population: Individuals born 1982-2002. As Millennials are coming of age, they are impacting

workplace standards, and consumer spending trends. They are the most group oriented

generation since the GIs, noted for valuing philanthropy, and a firm’s social reputation.

Behavioral researchers acknowledge that the key attributes of Millennials include optimism,

confidence, sensitivity, and truly caring about the world and their place in it — as noted, these

traits can be powerful tools towards improving altruistic performance. When these individuals

reach managerial positions, they have the capacity to reform the outlook of business’ place in

Page 12: Hess^LJ Macaluso^LJ ^L0 Vorobets - Exploratory Research^LJ Importance of Communicating Code of Ethics Throughout the Supply Chain_2

society. For current employers to retain a competitive workforce, employers will have to

modify their view of social responsibility to retain Gen Y workers. Human resource theorists

posit that multinational corporations will have to augment current employee benefits, extend

company values beyond the workplace through philanthropic programs, and ensure that

international partners uphold similar corporate values. Dissention from these recommendations

can result in ramifications, such as employee turnover, or a repudiated brand image.

As consumers, Millennials, are instigating businesses to align with their values regarding

civic global responsibility. The now global Occupy Wall Street movement was largely fueled

by Generation Y. Members of these protests viewed their campaign as a fight for their future;

which consequently aligns with over 70% of millennials sentiments. However, the majority of

Millennials push social change through the workforce, avoiding public outrage. These

individuals are part of a less dramatic but, perhaps, equally powerful movement.

Forbes Magazine highlighted statistics from Bentley University concerning Generation Y:

85% of millennials want to work for a socially responsible or ethical company.

95% of millennials say that a company’s reputation matters to them.

91% say that a company’s social impact efforts are important when they are considering

which companies to work for.

A majority of millennials (51%) have concerns and doubts about whether most businesses do

the right thing.

In addition, Forbes notes that work ethic is a key definer of Gen Y’s psychographic values; in

observed instances of strong work ethic, Corporate Social Responsibility (CSR) was posed as a

hedonic motive. As the article notes, retaining employees relies on communicating a clear code

of ethics within a brand’s image, employment meetings, and throughout the value creation

Page 13: Hess^LJ Macaluso^LJ ^L0 Vorobets - Exploratory Research^LJ Importance of Communicating Code of Ethics Throughout the Supply Chain_2

process. Firms with consistent values throughout the supply chain are predicted to have the

highest employee output ratios, due to obtaining the most desirable youth.

3.2.2. Globalization

Globalization has flattened the World, making it possible to maximize profits through

offshoring inexpensive labor resources. Traditionally, a move towards a global market was

viewed as fundamentally imperative by capitalist economics. Dating back to Adam Smith’s

Wealth of Nations, offshoring was posited as beneficial for all parties, as countries would

maximize their benefits through specializing in resources to which the nation had an absolute

advantage. With this view in mind, large corporations embraced the idea of spreading their

operations to other countries in hopes of augmenting returns. However, criticism has since

ensued, with the growing acknowledgement of economic inequality: stagnation in wealth

where the middle class shrinks as wealth shifts to those who already hold the largest share of

capital. Multinationals are now being accused of social injustice, unfair working conditions

(including slave labor, non-livable wages, and hazardous working quarters), as well as

environmental depredation. There is a plethora of NGOs fighting against this trend — unions

worried about competition from cheaper labor, environmentalists worried about the

outsourcing of polluting activities, consumer protection groups worried about unsafe imports,

labor rights groups worried about bad working conditions in other countries, and social groups

calling for regulation. Many of their concerns are warranted, as the derivation of many of these

issues stems from interorganizational secrecy. When companies alter their structure to become

multinationals, they often outsource manufacturing, and procurement to third party firms.

Many multinationals make this alteration to avoid the negative image associated with direct

involvement in human rights violations. However, as the globalization trend becomes

Page 14: Hess^LJ Macaluso^LJ ^L0 Vorobets - Exploratory Research^LJ Importance of Communicating Code of Ethics Throughout the Supply Chain_2

permanent, the consumer class has become more aware of NGOs’ trepidations. This trend has

forced companies to adhere to the concerns of their stakeholders, and in the case of Zappos,

internalize international operations. Like Zappos, many firms have become transparent about

their international connections, which has garnered greater brand identity.

3.2.3. Internet and Transparency

An additional criteria of a completely flattened world is the rise of global transparency; which

has been spurred by international digital interconnection (i.e. the Internet highway). The

Internet has largely been the arbiter of making tradition company secrets completely open for

scrutiny. Contrary to open internet is “E-Government”: ‘electronic governance.’ E-Governance

is a form of electronic oversight where information, and communication technologies (ICTs)

within the public sector are moderated by governments (Bedi, Singh and Srivastava, 2001;

Holmes, 2001; Okot-Uma, 2000). E-Governance spreads digitized information from citizens,

businesses, and other arms of government signals over Wide Area Networks (WAN), the

Internet, and mobile computing. These technologies can serve a variety of different ends: better

delivery of government services to citizens, improved interactions in business to business

markets, citizen empowerment through access to information, and more efficient government

management. Despite the government oversite, resulting benefits are less corruption, increased

transparency, greater convenience, revenue growth, and cost reductions. E-Governance

According to Keohane and Nye (2000),

“Governance implies the processes and institutions, both formal and informal, that guide

and restrain the collective activities of a group. Government is the subset that acts with

authority and creates formal obligations. Governance need not necessarily be conducted

exclusively by governments. Private firms, associations of firms, nongovernmental

Page 15: Hess^LJ Macaluso^LJ ^L0 Vorobets - Exploratory Research^LJ Importance of Communicating Code of Ethics Throughout the Supply Chain_2

organizations (NGOs), and associations of NGOs all engage in it, often in association with

governmental bodies, to create governance; sometimes without governmental authority.”

The internet, social media, and other technology have enabled an expedited process for

communication, and transparency on various different levels. The abundance of information

and the speed that it is disseminated enables formal governing institutions, such as government

agencies, to be more effective. The spread of the Internet, and openness to government

information allows consumers to self-regulate buying from a firm. If negative buzz increases to

tipping-point, then a brand can lose its respect in a matter of minutes through viral social

media, and blog posts. Corporations are now dealing with a new generation that holds CSR,

and ethics to a high standard. Additionally the Internet generation is highly informed, and will

communicate their distaste, and react within seconds of a negative visceral response.

3.2.4. Modern Trends Wrap-Up

Applying these trends to the supply chain exemplifies the concerns of NGOs. With the

proliferation of cheap labor in the name of profit, moral abomination begin to persist, relative

to the repugnancy of the Industrial Revolution. Factory fires killing hundreds, a Bangladesh

factory collapse killing 1200, unrealistic wages, subpar living conditions, and a lack of supplier

accountability, are far too parallel the devastation of the Industrial Revolution. These abhorrent

situations can now be seen instantaneously from a smartphone. The new generations are

holding the blame for all internal stakeholders involved in the product creation. This requisites

acting ethically to retain brand equity while deflecting an average of $1 million in litigation. As

the Fortune article mentioned formerly concedes, the only Firm’s with an optimistic future are

those who lead in Corporate Social Responsibility.

Page 16: Hess^LJ Macaluso^LJ ^L0 Vorobets - Exploratory Research^LJ Importance of Communicating Code of Ethics Throughout the Supply Chain_2

4. INTERPRETATION

4.1. Effects of CSR

4.1.1. Stakeholder Theory

The stakeholder theory, postulated by R. Edward Freeman, determines how an organization

can manage their ethical conduct to appease stakeholder desires. The stakeholder theory

addressed morals and values in managing an organization. Stakeholders are anyone who is

involved with a particular company. According to stakeholder theory, business are responsible

for their stakeholder’s perception of the firm because they demarcate the purpose for the

corporation's existence. Due to the proliferation of technology, and globalization, stakeholders

have more access to a company's internal processes, and external relationships. The more

socially conscious consumer population is forcing businesses to be more responsible, as

environmental data shows consumers will avoid companies with unethical internal or external

business practices. Companies who wish to admonish a strategic advantage will include

primary stakeholders from employees to the consumer into their decision making process, as

well as reputable NGOs. These partners can provide a firm with insight concerning a firm’s

brand image, and recommend actions that will augment their image.

4.1.2. Michael Porter’s Social Progress Index

Michael Porter, a respected Harvard graduate, speaks on the matter of social growth. He

stresses the importance of social growth because of its affect GDP of a nation down to

individual company. The Social Progress Index (SPI) measures how society is progressing

each year. Apart of the social progress index is a level of ethics and the way citizens are

treated. Porter notes when there are high levels of GDP for a country, but a low SPI rating,

countries are unbalanced and often in duress. This same principle can be applied with

Page 17: Hess^LJ Macaluso^LJ ^L0 Vorobets - Exploratory Research^LJ Importance of Communicating Code of Ethics Throughout the Supply Chain_2

individual business. The SPI shows how topics like communicating ethics in the work

environment can have a lasting impact. Companies who ensure that their primary actives

within the supply chain (inbound logistics, manufacturing, outbound logistics, marketing, and

services) meet high SPI standards increase social capital, and brand reputation.

4.2. GRI & Auditing Implementation into the Supply Chain

Our research into corporate sustainability uncovered universal auditing standards that are

successful at improving a company's bottom line. The two most commonly adopted

auditing methods are SA8000, which is supported under the United Nations Council for

Human Rights, and the Global Reporting Initiative (GRI), which has been incorporated in

the European Union’s (EU) sustainability disclosure regulations. SA 8000 was originally

created in 1997 by the Social Accountability International (SAI), as a means to monitor

the social impact of businesses. During the same year, the GRI was established, but this

reporting method went further to encompass all aspects of the triple bottom line. Our

research uncovered that businesses that were certified with SA8000 were also capable of

receiving moderate rankings under the GRI. Consequently, companies that scored a top

rating of A+ saw larger leaps in ROI than their lower ranking counterparts. For the extent

of this essay we recommend that a company be certified under SA8000, while also using

the GRI as a means to audit the efficacy of their supply chain.

4.2.1 Importance of GRI

Companies attempt to reduce operating overhead through outsourcing labor to third parties.

These companies provide employees non-livable wages, while working in harsh conditions.

Simultaneously, they try to maintain corporate image by allowing their supplier more

autonomy; which fosters a fermented partnership, and licenses a company to defer blame away

Page 18: Hess^LJ Macaluso^LJ ^L0 Vorobets - Exploratory Research^LJ Importance of Communicating Code of Ethics Throughout the Supply Chain_2

from corporate leadership. Consequently, a study by Mamic correlated lower transparency into

supplier labor conditions with worse lead time demand forecasts. His study also correlated

higher profit yields with greater labor monitoring reports (Mamic, 2014, p. 308). Operations

are most efficient when consumer demand matches product supplied. This requisites firms

initiate an interdependent relationship with oversight through a shared monitoring system. A

linked monitoring system would make operations more opaque, and offer real-time production

data. Companies could then benefit from increased flexibility, and could alter output in real-

time. Cost metrics would also be more accurate as new metrics could be observed; for example

employee idle time. The GRI system would also be useful to provide consistent values between

all parts, and would circumvent negative public image by allowing the immediate termination

of contracts for noncompliant parties.

4.2.2. GRI’s International Results

A 2012 Study by Alfred D. Massis, and Giovanna Campopiano recovered a report

from the GRI commission which stated 70% of non-family firms, and 38% of family

firms within the EU were compliant with reporting standards. The two researchers

concluded that the success of the GRI is undermined by the lack of adoption by North

American, and Continental Asian firms. A goal of the GRI is allowing more

transparency throughout a firm, and stronger protections for business, and society at

large through an integrated auditing standard. According to Stakeholder theory, if all of

the businesses in the world balanced the needs of the social, and ecological environment,

the overall median earnings of the world would be increased, as well as total GDP. In

fact, the average companies loses 5% of their Revenues to fraud regulation or litigation

each year. Even worse, certified CFA Robert T. Biskuit reports a lack of social

Page 19: Hess^LJ Macaluso^LJ ^L0 Vorobets - Exploratory Research^LJ Importance of Communicating Code of Ethics Throughout the Supply Chain_2

accountability standards results in an annual loss of $3.5 trillion in Gross World Product.

Economists from Ponemon institute found that companies with noncompliance

programs cost multinational corporations 2.65 times the cost of internal compliance

programs. In response, NGOs, and the GRI boards are trying to influence the adoption

of the G4 to combat global waste, and create a more humane supply chain. The GRI

commission has pointed to the findings that companies involved in the TPP will have

stronger oversight of the procurement, manufacturing, and logistics practices if they

adopt a form of compliance standards. Current regulations under the TPP set a lower

regulatory oversight of the practices involved in international trade than is necessary for

an international responsibility standard. International trade deals have prompted scholars

to suggest using the SA8000 or GRI as a universal taxonomy for sustainability policies.

The countries with the highest multinational sustainability compliance, Norway,

Sweden, Finland, Switzerland, and Denmark have also seen lower economic volatility,

and higher profit margins per capita. For companies in the US who have simply adopted

a code of ethics have seen 3.9 times more earnings per share due to increased employee

engagement. The culmination of compliance benefits both within the organization and

throughout the supply chain suggest that a company can create a competitive advantage

through harmonizing their code of ethics throughout the supply chain. Internationally,

Companies with higher employment of workers 35, and under tend to score higher on

the G4, and have a more clear code of ethics.

4.2.3. Overview of GRI’s Evaluation Process

As can be seen in Graph 2.G., an organization that follows the compliant standards of

G4, the most current standards of the GRI, will be graded on categories affecting

Page 20: Hess^LJ Macaluso^LJ ^L0 Vorobets - Exploratory Research^LJ Importance of Communicating Code of Ethics Throughout the Supply Chain_2

Economic, Environmental, and Social performance. Companies who commit to G4 will

have to submit annual reports, and will be graded on three criteria: level of effectiveness

in each category, the level of compliance between the company’s partners, and the

transparency in supplying information relevant to category grading. To receive a C to

C+ rating, a company must disclose 10 of the company’s methods for achieving

performance measures, but is precluded from mentioning supplier details. In order to

receive a B to B+ rating, a company must disclose managerial codes of ethics, and

indicate how they ranked intraorganizational affairs, and interorganizational affairs on at

Page 21: Hess^LJ Macaluso^LJ ^L0 Vorobets - Exploratory Research^LJ Importance of Communicating Code of Ethics Throughout the Supply Chain_2

least 20 performance indicators. In order to receive an A rating, a company must have

follow the same procedure of a B rating, as well as adopting best in industry practices,

and utilize more than 20 performance indicators.

4.2.4. GRI & Integrated Systems Management: Key Benefits

Through our research we found that companies who used the GRI standards to

audit their entire supply chain were able to increase their ROI, while reducing their total

costs. Adopting the GRI monitoring system into the supply chain garners five key

benefits: more market flexibility, volume flexibility, resource optimization, harmonized

communications, and improved brand reputation. In this section we will mention the

benefits of a Socially Responsible Supply Chain Orientation (SRSCO). All of the

benefits previously mentioned requisite the adoption of an Integrated Systems

Management (ISM) approach: an interorganizational software system that allows for the

collection, and exchange of information pertinent to all members within the supply

chain. With this system, a firm, and their partners can reliably ensure every member of

the business is working responsibly, with the added benefits of gathering real-time data

from all members. An ISM approach opens all resource management data for every

partner in the value creation process, and documents a company’s practices. Integrating

this form of technology is the best current method for companies to guarantee GRI

compliance, and monitor CSR management.

Market Flexibility - With greater oversight over the supply chain, a firm can alter the

production output more quickly as information is passed between every stakeholder

involved in product creation. This can reduce the inventory-on-hand ratio; thus

reducing waste cost by matching forecast volatility. This can also alert the supply

Page 22: Hess^LJ Macaluso^LJ ^L0 Vorobets - Exploratory Research^LJ Importance of Communicating Code of Ethics Throughout the Supply Chain_2

chain to either increase logistics spending to meet demand or reduce logistics

spending. A benefit to opening data to all partners is improved market data

aggregation, which can provide more statistically significant information. Companies

with transparent systems on average have more precise data mining techniques.

Volume Flexibility - Along with the capacity to alter supply to match demand, a firm

that can reach a manufacturing, and warehousing areas of the chain more readily can

alter production, and storage volume. The original supplier, or manufacturer cannot

suppress worker practices to avoid tarnishing a receiving Firm’s reputation with an

IMS; the ancillary benefit being a reduction in excess stock to meet receiver’s demand.

Instead, companies with transparent systems management can forecast better

employee hour requirements to variate production volumes. Firms can make greater

predictions about volume forecast trends by sharing all available data, which can help

reduce stock-out percentage, as well as reduce inventory cost. More accurate data

ultimately reduces total cost for all parties involved in value creation. By stressing the

importance of ecological data as well, firms using an IMS in conjunction with GRI

auditing can avoid natural disasters by adjusting more quickly.

Resource Optimization - With greater oversight into real time employee output data,

a firm can ensure that it is getting the highest efficiency value from employees. If

employees are provided the assurance they are treated in an ethically permissible way,

they will become more compliant with the mission of the company according to

Michael nastanski and Daniel tschopp. Companies within the value creation process

will be required to view employee management data to ensure that employees are

being provided the tools to produce products most efficiently. Management data also

Page 23: Hess^LJ Macaluso^LJ ^L0 Vorobets - Exploratory Research^LJ Importance of Communicating Code of Ethics Throughout the Supply Chain_2

provides the capacity to alter working hours to optimize employee output; for example

employees may produce manufacture a product more quickly if they work a 7 hour

shift from 7:00 a.m. – 2:30 p.m. (assuming a half hour lunch), as opposed to a 9 hour

shift from 9:00 a.m. – 6:30 p.m. In addition, GRI auditing documents financial

sustainability as well, which can document how efficiently space was utilized by

logistics; for instance, a firm using train as their logistics means can review the use of

space, which can help several member of the value chain reduce cost.

Harmonized Communication – An integrated systems management adoption within

the supply chain allows for a transparent flow of information. To meet top rating by

the GRI council, a firm’s communication must be transparent between suppliers,

distributors, and resellers. A firm with ascertainable evidence by every member of the

supply chain also permits more employee empowerment. Employees can verify that

their company is acting responsibility, which studies show increases employee

engagement. As ethical standards become reviewable for all members within the

supply chain, employees will have a stronger grasp of corporate values. This practice

allows for more open communication, and can help firms capitalize on

recommendations from staff, as well as ensure whistleblower rights.

Improved Brand Reputation – The open nature of an IMS ensures stakeholders that

a firm is responsible for their actions. Top ranking companies under the GRI also

benefit from publications boasting a firm sustainability procedures, which can amplify

social capital. Companies that notice their partners violate corporate values can either

correct their partners more quickly, or rescind contracts to invest in suppliers who will

honor a company’s values; this would allow a firm to maintain their reputation.

Page 24: Hess^LJ Macaluso^LJ ^L0 Vorobets - Exploratory Research^LJ Importance of Communicating Code of Ethics Throughout the Supply Chain_2

5. CONCLUSION

Our team concedes, there are heavy limitations to our study. Without primary

evidence, our research is unable to create causal connections between SRSCO, and

corporate performance. We recommend that our study be continued by collecting financial

data from firms who implement different CSR measures. Our data is also limited in

demarcating the most effective codes of ethics on the supply chain. More detailed data

will have to be collected to determine which ethical by-laws garner the most ROI.

However, our research did provide primary indicators of financial success when

incorporating a code of ethics throughout the supply chain. With the companies we

researched, a strong CSR approach ensured more sustainable organic growth. These firms

also ranked higher amongst Millennials, and were able to increase their margins due to

heightened social capital. We recommend using multivariate analysis in the future, once

more data has been collected, to quantify the precise impact of certain triple bottom line

factors on a corporations projected bottom line. However, scholarly journals exemplified

immediate enactment of ethical auditing through GRI. These journals presumed that the

future of business responsibility would be determined by universal auditing standards that

replicate the transparency of financial auditing. Companies who are early adopter of G4

will position themselves as having ethical prowess, capitulating higher margins.

Page 25: Hess^LJ Macaluso^LJ ^L0 Vorobets - Exploratory Research^LJ Importance of Communicating Code of Ethics Throughout the Supply Chain_2

REFERENCES

5 Most Publicized Ethics Violations By CEOs. (2013, February 5). Retrieved October 1, 2015,

from http://www.forbes.com/sites/investopedia/2013/02/05/5-most-publicized-ethics-

violations-by-ceos/

Asghar, R. (2014, January 29). Study: Millennials' Work Ethic Is In The Eye Of The Beholder.

Retrieved November 1, 2015, from

http://www.forbes.com/sites/robasghar/2014/01/29/study-millennials-work-ethic-is-in-

the-eye-of-the-beholder/

Bardi, E. J., Coyle, J. J., Gibson, B., Langley, C. J., & Novack, R. A. (2013). Supply Chain

Management: A Logistics Perspective. (9th ed.). Mason, OH. Southwestern.

Biskup, R. (2013, May 14). Making the Bottom Line Case for Compliance: The ROI of a Robust

Compliance Department. Retrieved November 1, 2015, from

http://corporatecomplianceinsights.com/making-the-bottom-line-case-for-compliance-

the-roi-of-a-robust-compliance-department/

Buckingham, J., & Buckingham, M. (2012, September 28). Note to Gen Y Workers:

Performance on the Job Actually Matters | TIME.com. Retrieved October 1, 2015, from

http://business.time.com/2012/09/28/note-to-gen-y-workers-performance-on-the-job-

actually-matters/

Campopiano, G., & De Massis, A. (2015). Corporate social responsibility reporting: A content

analysis in family and non-family firms. Journal of Business Ethics, 129(3), 511-534.

doi:http://dx.doi.org/10.1007/s10551-014-2174-z

Page 26: Hess^LJ Macaluso^LJ ^L0 Vorobets - Exploratory Research^LJ Importance of Communicating Code of Ethics Throughout the Supply Chain_2

Collins, M. (2015, May 6). The Pros And Cons Of Globalization. Retrieved October 1, 2015,

from http://www.forbes.com/sites/mikecollins/2015/05/06/the-pros-and-cons-of-

globalization/

Dixon, I. (2013, January 17). The Apparel Truth - SHOCKING footage of sweatshops supplying

Walmart, Nygard, H&M, Nike & GAP. Retrieved October 1, 2015, from

https://www.youtube.com/watch?v=Fve0xjEyk4U&feature=iv&src_vid=5yafZp8VTbc&

annotation_id=annotation_61138

Duggan, T. (n.d.). How Do Ethics Affect the Financial Results of a Company? Retrieved

October 1, 2015, from http://smallbusiness.chron.com/ethics-affect-financial-results-

company-51280.html

GRI Application Levels. (n.d.). Retrieved October 28, 2015, from

https://www.globalreporting.org/resourcelibrary/G3.1-Application-Levels.pdf

Guthrie, D. (2012, March 9). Building Sustainable and Ethical Supply Chains. Retrieved October

1, 2015, from http://www.forbes.com/sites/dougguthrie/2012/03/09/building-sustainable-

and-ethical-supply-chains/print/

Hansen, R. (n.d.). Perception vs. Reality: 10 Truths About The Gen Y Workforce. Retrieved

October 1, 2015, from http://www.quintcareers.com/gen-y-workforce/

Hunger, J. D., & Wheelen, T. L. (2015). Strategic Management and Business Policy:

Globalization, Innovation, Sustainability. (14th ed.). Upper Saddle River, NJ. Prentice-

Hall.

Page 27: Hess^LJ Macaluso^LJ ^L0 Vorobets - Exploratory Research^LJ Importance of Communicating Code of Ethics Throughout the Supply Chain_2

Kiisel, T. (2011, December 14). Improving A Leading Indicator of Financial Performance:

Employee Engagement. Retrieved October 20, 2015, from

http://www.forbes.com/sites/tykiisel/2011/12/14/improvinga-leading-indicator-of-

financial-performance-employee-engagement/

Last Week Tonight with John Oliver: Fashion (HBO). (2015, April 26). Retrieved October 1,

2015, from https://www.youtube.com/watch?v=VdLf4fihP78

Leigh, A. (2015, May 5). Will the millennials be more ethical leaders in business? Retrieved

October 1, 2015, from http://www.ethical-leadership.co.uk/millennials/

Lindgreen, A., Xu, Y., Maon, F., & Wilcock, J. (2012). Corporate social responsibility brand

leadership: A multiple case study.European Journal of Marketing, 46(7), 965-993.

doi:http://dx.doi.org/10.1108/03090561211230142

McMurrian, R., & Matulich, E. (2011, November 11). Building Customer Value And

Profitability With Business Ethics. Retrieved October 1, 2015, from

http://www.cluteinstitute.com/ojs/index.php/JBER/article/viewFile/2710/2756

Millar, R. (2015, February 4). Employee advocates: Unlocking the potential of your most

valuable audience. Retrieved October 25, 2015, from

http://www.ipra.org/itl/02/2015/employee-advocates-unlocking-the-potential-of-your-

most-valuable-audience

Morali, O., & Searcy, C. (2013). A review of sustainable supply chain management practices in

Canada. Journal of Business Ethics, 117(3), 635-658.

doi:http://dx.doi.org/10.1007/s10551-012-1539-4

Page 28: Hess^LJ Macaluso^LJ ^L0 Vorobets - Exploratory Research^LJ Importance of Communicating Code of Ethics Throughout the Supply Chain_2

Moran, T. (2015, June 15). TPP, FDI, and 'good jobs' in the US. Retrieved October 1, 2015.

Nunn, M. (2011, December 20). Millennials to business: Social responsibility isn't optional.

Retrieved October 1, 2015, from https://www.washingtonpost.com/national/on-

innovations/millennials-to-business-social-responsibility-isnt-

optional/2011/12/16/gIQA178D7O_story.html

Palvia, S., & Sharma, S. (n.d.). E-Government and E-Governance: Definitions/Domain

Framework and Status around the World. Retrieved October 1, 2015, from

http://www.iceg.net/2007/books/1/1_369.pdf

Park, Y., Song, S., Choe, S., & Baik, Y. (2015). Corporate social responsibility in international

business: Illustrations from korean and japanese electronics MNEs in indonesia. Journal

of Business Ethics, 129(3), 747-761. doi:http://dx.doi.org/10.1007/s10551-014-2212-x

Park-poaps, H., & Rees, K. (2010). Stakeholder forces of socially responsible supply chain

management orientation. Journal of Business Ethics, 92(2), 305-322.

doi:http://dx.doi.org/10.1007/s10551-009-0156-3

Patil, S.,K., & Kant, R. (2014). Knowledge management adoption in supply chain. Journal of

Modelling in Management, 9(2), 160. Retrieved from

http://search.proquest.com/docview/1660758700?accountid=10358

Pullman, M. E., & Dillard, J. (2010). Values based supply chain management and emergent

organizational structures.International Journal of Operations & Production Management,

30(7), 744-771. doi:http://dx.doi.org/10.1108/01443571011057326

Page 29: Hess^LJ Macaluso^LJ ^L0 Vorobets - Exploratory Research^LJ Importance of Communicating Code of Ethics Throughout the Supply Chain_2

Schlitzer, V. (n.d.). For Millennials, Does a Big Paycheck Trump Ethical Responsibility?

Retrieved October 28, 2015, from http://www.bentley.edu/impact/articles/millennials-

does-big-paycheck-trump-ethical-responsibility#sthash.Cne8KrIQ.dpuf

Sethi, P. (2013, May 8). The World of Wal-Mart. Retrieved October 1, 2015, from

http://www.carnegiecouncil.org/publications/ethics_online/0081

Tarí, J. J. (2011). Research into quality management and social responsibility. Journal of

Business Ethics, 102(4), 623-638. doi:http://dx.doi.org/10.1007/s10551-011-0833-x

Tschopp, D., & Nastanski, M. (2014). The harmonization and convergence of corporate social

responsibility reporting standards.Journal of Business Ethics, 125(1), 147-162.

doi:http://dx.doi.org/10.1007/s10551-013-1906-9


Recommended