Why business ethics should be a pivotal part of every organisation’s strategy
22 May 2018
Being purpose-focused is essential to engaging customers and employees and being perceived as relevant, admired, and innovative by investors, partners, communities, and public entities. In this interview Justin Sadler-Smith of SAP Ariba outlines why procurement is the critical change agent in this process.
Justin Sadler-Smith - Head of UK, SAP Ariba
Everywhere you look, Business is under scrutiny. Whether it is for environmental practices, labour conditions, tax or paying suppliers on time individual citizens increasingly are expecting companies to behave in a socially responsible manner.
This issue is no longer just for idealists or activists, take for example the issue of Modern Day Slavery. There are 46m people worldwide who work basically as modern day slaves, and about 150m child workers. Any company doing business needs to make sure that their supply chain is not tainted by this cruel practice, and here in the UK, it’s not just a good idea: it’s now the law.
Eliminating forced labour from your supply chain is just one example of what SAP Ariba calls “Procurement with Purpose”. This is an umbrella term which includes social, environmental and sustainability practices. All business leaders need to be focused on these topics, research shows that companies that do so can significantly outperform their rivals over a 10 year period. Or look at it this way, can you afford the reputational risk of a photo in social media of a child worker in one of your suppliers?
The procurement department used to be a backwater, but it is increasingly being brought in to help protect the brand, run pro-active supplier audits and drive suppliers to support an ethical agenda.
The compounding fact is that your supplier’s supplier needs to be risk assessed. With many companies have 10,000 suppliers, you see that even getting to the second order means millions of potential assessments, but It turns out that Business Networks are the way to solve this. By joining a network like the Ariba Network you can not only start to address the issue of “multi-tier” but also select new suppliers who are aligned with your social goals.
Modern-day procurement leaders are starting to use the phenomenal buying power of their organisations to address some of these big social challenges. What legacy do you want to leave?
To find out more click here.
Hello and welcome to Business Reporter's The Future CFO Campaign. I'm Alastair Greener and today I'm talking to Justin Sadler-Smith from SAP Ariba.
Good morning, Alastair.
What would you say to the CFO who says that ethical business is nice to have. It's all very well in theory, but actually it's really for idealists.
I'd say open your eyes. Just open your eyes to what's going on around the world. See what other organisations are doing. Because the fact is, there are 46 million people in modern day slavery. You have 150 million children who are undergoing child labour, as we speak, as we speak, around the world. This is not an insignificant number that's affecting people around the world.
But with that factor in place, then consider the impact businesses can have to that. And it's a two-edged sword here. There's a positive and there's a negative. So the positive side is you do the good, there's a major impact on the planet, you're doing well from a business perspective. From a reputational perspective, there's obviously big improvements to be made from there. And that reputation improvement can have a direct correlation to a company's success.
The negative side is, with increased regulation, if you're not in control of your supply chain, if you don't have transparency in your supply chain beyond level 1, what we call tier 1, your main supplier, so your suppliers who supply the suppliers, if you don't have that visibility, you're going to be opening us up to potential huge potential reputational risks.
There's someone taking a photograph, bang. And there's a child working on a factory line somewhere in Southeast Asia. Instagram, social media. Here's the difference between now and a few years ago. Social media. It's out there, straight away.
But I'd rather flip it around and talk about the positive, which is why wouldn't you want to make an impact to modern day slavery? Why wouldn't you want to make an impact a take child labour out of the supply chain? Surely that's something that we should be focused on. So there's a real opportunity to make a better world and have an impact in terms of business success as well.
Now CFOs are under enormous pressure, so how much power do they actually have to pick the right supplier and to make sure the supply chain is as it should be.
So the procurement function, typically, was a legacy function, a back office function, if you'd like. And it's very much been driven by cost saving. Great, but some of the things the organisations have to do. But what about all this other stuff you can do if you have the data and the information to do so? So when you talk to chief procurement officers now, a lot of these guys, when you ask them, what is your major thing that keeps you up at night? It's protecting the brand.
So when we talk about a CFO having power, absolutely they have power. Because when they start working with their procurement organisation to identify the right suppliers, relative to the ethical behaviour they want to engender in their supply base, which you can do, now you have power. Because you can drive the suppliers behaviour to conform to your agenda.
But also, you have the power to say, no, we're going to take you away. We're not going to do business with you because you don't comply to a CSR agenda.
We've talked a lot about transparency and control. So can you tell us about SAP and what you do to assist in that process?
It's provided in our consolidation of data to provide that single source of truth. So on the cloud, a network of buyers and suppliers, over 3 million suppliers that we have on our network now. So if you imagine that B2B network is there, that's the SAP network, buying organisations can access that to do business with their suppliers and transact with those suppliers.
How that helps is because a buying organisation can go through a standard process that they would need to do to be able to identify key suppliers, source the right suppliers, contract with those suppliers, and then obviously ensure you have the right service from that supplier as well. So that's what those tool sets that we have allow organisations to do that.
But then you get into a whole area of management of that supplier, which goes to the crux of this, which is being able to assess how that supplier was performing against your criteria that you've set up at the beginning, in terms of how you've sourced. How are they performing against those areas? What proactive warnings are happening that we should be aware of that we need to proactively manage. Whether it's financial risk, whether it's regulatory risk. You had Philip Hammond talk about the plastic reduction supply chain and using the tax system to try to leverage or encourage people to reduce single use plastics, for example.
So this ability to be able to interact with supplier, over a network, via the cloud, to be able to ensure they're delivering the right thing. But also to make sure that they're also changing as required to ensure they remain compliant to ethical behaviour is really important. And that's what we do.
You're talking about pretty robust change for an organisation. And for some, more than others. How do you sell that to the upper echelons of any organisation?
This is where I get passionate, OK. Because if they're not considering this now, then they really shouldn't be in the position that they're in. And I mean that sincerely. Because an awful lot of the organisations that are innovative, they're doing some fantastic things around this. This is not a check box exercise. And I think sometimes, some industry, or some organisations in some industries, think they're protected from this. But beware, because you're not protected from this stuff. It's going to happen. And if you've got multi levels in your supply chain, it will be found out at some point.
So if you're not considering this, if you're not factoring in improved transparency in your supply chain, driving ethical behaviour, then here's what's going to happen. You're going to get hit with regulation fines. You're going to get hit with audit costs. You're going to get hit with an impact to your stock price. You're going to get hit with employees who aren't motivated, who don't want to work for you. You're going to get hit by competitiveness.
This is more than just a check box exercise. And I think it's about time organisations stood up and realised the impact they could have. Because, ultimately, when you talk to CEO, CEOs want to leave a legacy both personally and for their organisations. This is a board level discussion. What legacy do they want to leave? I'd say, make your business successful and make a better world. It's not a bad legacy.
As you say, this is definitely happening. And it's going to keep on happening. And it's interesting to see how some companies who are endorsing it and getting involved, the difference it's making to them. And you've given us a lot of clarity in the impact it has, actually, on their businesses. It's been great finding out more. Justin Sadler-Smith from SAP Ariba, thank you very much indeed.
Thanks, Alastair. Thanks for having me.