Rethinking CSR in global value chains
Peter Lund-Thomsen,
Professor, PhD,
Copenhagen Business School,
Denmark
Introduction
In 2020, COVID-19 has been associated with a major shake-up of global value chains (GVCs), particularly in the global garments industry, which connects consumers, brands, and retailers in the global North with local producers, workers, and communities in the global South. Initially, in January and February 2020, COVID-19 hit China leading to a temporary closure of large parts of the ‘world’s factory floor’ as thousands of factories either had to slow production or closed. When COVID-19 reached North America and Europe in March and April of 2020, countrywide lockdowns and closure of retail outlets led to a dramatic fall in the international demand for products such as clothes and shoes.
The knock-on effect could quickly be seen in many producer countries where factory closures and job losses were acutely felt. For instance, in Bangladesh, hundreds of thousands of workers faced an abrupt loss of income, possibly leading to the starvation of their families, as their factory owners were not receiving payments for orders already shipped or faced sudden cancellation of orders from their buyers in the global North. In India, millions of migrant workers were suddenly on the move as the workplaces shut down. Without possible alternative sources of income, they were struggling to travel hundreds, if not thousands of miles on foot, to their native villages at a time when nation-wide transport had been shut down. In addition, with a sudden dramatic worldwide increase in the demand for hand sanitizers and safety masks, workers in some factories in the global South had to work around the clock to help their employers accelerate production. All while these workers suddenly had to be trained in physical distancing and other safety measures at the factory premises.
These dramatic events in the global garments industry in the first six months of 2020 provide us with an opportune moment to take a step back and reflect on whether these recent developments have had any direct implications for the dominant ways in which we theorize corporate social responsibility (CSR) in GVCs. I here understand CSR as a process through which companies attempt to address the social and environmental effects of their business operations, make sure that their business partners operate in ethical ways, manage their stakeholder relations, and seek to achieve wider social legitimacy.
Following exposes of poor working conditions and child labor in the subcontracted value chains of brands such as Nike and Levi Strauss in the 1990s, the so-called compliance-based paradigm to CSR in GVCs emerged. This paradigm has been very influential in CSR theory as it relates to global value chains in the last 20 years. The main idea was that multinational retailers and brands should:
- develop ethical guidelines for the social and environmental behavior of their suppliers;
- monitor the implementation of these guidelines through first party; second party, and third party audits;
- provide suppliers with a chance to rectify instances of non-compliance within a reasonable time period – for instance, six months.
- if suppliers still did not comply with the buyers’ ethical codes of conduct after this period, retailers and brands should terminate their trading relations with these suppliers.
An Expanded CSR compliance paradigm
I now argue that – post COVID-19 – our understanding of the compliance-based paradigm to CSR in global value chains needs to change. First, in my view, CSR compliance monitoring must not only be seen as related to on-site factory audits. It should also include so-called ‘remote monitoring’. For instance, during 2020, UK-based labor rights consultancy, Impactt Limited worked with brand suppliers and workers’ in remotely monitoring work conditions at factory sites when physical visits were made difficult due to COVID-19 travel restrictions. In practice, Impactt obtained a list of employees and phone numbers from brand supplier factories, and undertook ‘remote’ worker interviews via phone, WhatsApp, or other online communication tools at a time and location chosen by the workers’ themselves. While this method did not permit for first-hand impressions of workers’ conditions in the same way as physical factory visits would have done, it did make it possible to gather some rudimentary information about workers’ conditions at the base of global value chains.
Second, in the light of COVID-19, I suggest that the compliance paradigm should be modified so that compliance with corporate codes of conduct – at least in theory – is not only expected from suppliers but also from buyers. Hence, in an expanded version, the compliance paradigm should include corporate codes of conduct for the purchasing practices of buyers. Such corporate codes of conduct for buyers’ purchasing practices could stipulate that: (a) brands should not cancel already confirmed orders, (b) brands should not delay payments for existing orders, and (c) brands should not fail to pay suppliers altogether for orders already placed.
My third argument is that we must rethink another central feature of the compliance paradigm: i.e. it should not only be buyers that can exclude suppliers from their value chains if the latter fail to comply with CSR codes of conduct. Suppliers should also exclude buyers from their value chains in case these buyers fail to comply with codes of conduct that should guide their purchasing practices.
In short, I stipulate that we can (at least theoretically) imagine situations, in which suppliers ‘blacklist’ brands and retailers from their value chains due to their noncompliance with ethical purchasing practices as we (hopefully) move out of beyond COVID-19 in the coming year.
Email: pl.msc@cbs.dk
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