Milton Friedman’s Shareholder Theory, which elevates advancing shareholder value above all else, has long held sway over the American economy. The practice has always been contentious but has come under particular fire as of late with detractors holding it responsible for rising economic inequality and general corporate callousness. Perhaps as a response to this increased pressure, the Business Roundtable (composed of chief executives from 200 of the nations’ largest companies) has put forth a statement that prioritizes ethical sourcing, specifically: “dealing fairly and ethically with our suppliers,” and “investing in our employees,” by “compensating them fairly and providing important benefits” alongside shareholder value.
The Roundtable’s dramatic shift away from shareholder primacy marks a sea-change in both big-business thinking and the American political landscape. It illustrates that even the largest corporations can scarcely ignore growing public concern over inequality and the ethical sourcing of where our most ubiquitous products come from. According to Judith Samuelson, executive director of the Aspen Institute’s Business and Society Program, by even making the statement “the voice of corporate America — the Business Roundtable — has now signaled how much things have already changed.”
Rising public concern around ethical sourcing
Increased public awareness is pressing businesses and agencies to source responsibly. Per a 2017 study on corporate social responsibility, 87% of consumers will hold a more positive image of a company that supports social or environmental issues and 65% of Americans say that when a company takes a stand on a social or environmental issue they will do research to see if it is being authentic. Moreover, a 2018 study at MIT found that “consumers may be willing to pay 2% to 10% more for products from companies that provide greater supply chain transparency.” That means businesses are heavily incentivized to offer more than idle boasts. They need to demonstrate real commitment to responsible sourcing, and have true awareness of their second, third, and nth-tier suppliers, or pay the reputational cost. Make no mistake, that cost is ultimately paid in dollars. According to a 2015 survey, 41% of businesses that experienced a negative reputational event said that loss of revenue was the biggest impact.
Traditional means of maintaining supply chain awareness, manually driven systems that rely on willing supplier transparency, aren’t going to hold up against the increased scrutiny of the present age. To achieve total supply chain awareness, businesses need to leverage the power of emerging technology, like AI and machine learning. These technologies offer the power to dynamically ingest and assess data across news sources and social media to provide real-time supply chain awareness. They enable businesses to detect and defuse potential ethical concerns well in advance of public discovery. These tools hold the potential to even model potential outcomes of incorporating new suppliers into the chain, acting as an all-in-one due diligence solution.
As the vast and frequently opaque web of global supply connectivity increases in density, even the largest businesses are being forced to reckon with the fact that consumers genuinely care about the ties that bind us.
Learn more about ethical sourcing, and how to achieve greater supply chain transparency, at Interos.ai