Ikea, the Swedish manufacturer of flat-pack furniture and purveyor of Swedish meatballs, has been accused of using forced labour. It is the latest in a long line of major corporates and global brands that have ended up having to de-fuse a potential public relations bomb. Mark O'Shea from our Commerce and Technology Team looks at this in further detail.
In Ikea's case, the adverse publicity centres on Ikea's alleged, knowing use of East German political prisoners by some of Ikea's suppliers in the manufacture of Ikea products. Ikea engaged accountants Ernst & Young to investigate the matter.
A common problem
Other corporates, including some luxury brand owners, chocolate
producers, and sporting, clothing and footwear manufacturers, have
been accused, often with some justification albeit not always with
their proven knowledge or complicity, of using or acquiescing in
the use of forced and/or child and/or impoverished labour.
Similar accusations have been levelled at corporates who allegedly
source raw materials from unsustainable sources. In August 2011,
Gibson Guitar Corporation in the US was raided by Federal
Authorities who alleged that Gibson had illegally imported wood
from Madagascar and India - Gibson agreed to pay a $300,000 fine
but contended that the wood had been incorrectly labelled by a
local supplier.
Some have admitted to past transgressions by previous management /
owners; others have blamed suppliers, either admitting to failing
to ask any or the right questions or that they were actively misled
by the supplier as to the nature and/or conditions of the labour
force used / source of raw materials.
In such cases the adverse publicity and public backlash can
severely impact sales and profits, not to mention brand
reputation.
The commercial driver
For many global brands and manufacturers, the attraction of
overseas manufacture in countries where labour and raw material
costs are low, and where there is an abundance of ready and willing
labour, is clear.
However, the difficulty is that in the age of the Internet, of
instantaneous communication, with cameras on every mobile phone and
device, any transgressions can be global news in the blink of an
eye.
An 8-point action plan to reduce risk
But what can and should corporates do to minimise and mitigate their risk?
- Conduct an audit of your supply chain. You need to know what your suppliers are doing – don't just take their word for it. At the end of the day, it's your brand, reputation and sales on the line!
- Put in place a comprehensive Corporate and Social Responsibility (CSR) Policy – it is vital not just to have a CSR policy but, moreover, to ensure that your personnel and suppliers 'buy in' to that policy, adhere to it and highlight any concerns without delay – this will involve you involving all interested parties in preparing the policy, communicating that policy to your personnel and suppliers and making it a fundamental tenet of your business, and providing necessary training.
- Ensure your supplier contracts are robust – have your suppliers warrant and undertake not to use forced or child labour, and that their own personnel will enjoy a reasonable wage for the work done and safe and acceptable working conditions.
- Inspect the locations where any manufacturing or assembly will take place and carry out spots checks – ensure you have contractual rights allowing you or your representative access to supplier premises at all times and on no or short notice, and that you have the right to demand steps be taken to address any concerns. There may be local law issues to consider.
- Put a solid PR plan in place – work with your PR team, legal advisors and PR agency to produce a PR plan that can swing into action should an unexpected problem arise.
- Reserve explicit termination rights for transgressions - ensure that you can terminate your supplier agreements in appropriate circumstances and seek redress. However, do recognise that nothing will provide an adequate remedy for loss of reputation, loss of goodwill and damage to brand – prevention is infinitely more preferable than cure!
- Plan for the unexpected - if you suspect that your company has been involved, unwittingly or otherwise, with unethical practices or something it should not have been, decide how to address this – honesty is often the best policy but how you react needs to be carefully thought through. It may be advisable to get your redress in first - public apologies, compensation payments and/or charitable donations, and withdrawal of offending products (if practicable) may all be prudent steps to take before the proverbial hits the fan. Alternatively, if the news breaks before you have had the opportunity to react, a timely and measured response including an admission (where applicable) may be advisable – we all remember the PR gaffes that compounded the misery and added insult to injury in the BP Deepwater Horizon disaster in the Gulf of Mexico.
- Monitor matters going forward – do not simply assume that everything has been checked at the outset and will remain fine.
Having strong supplier contracts and good CSR and PR policies and procedures in place are crucial, but practical measures such as audits, inspections and your reaction to adverse situations are just as essential to safeguard your brand and reputation.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
