With the increase of supply chains that span the globe and involve multiple links in the chain, there is potential for forced labor. Who is in charge when this happens? Who bears the burden? This episode explains the business ethics principle of avoiding forced labor, and how to put it into practice. Your resource for practical business ethics tips, from the Business Integrity Leadership Initiative at the Sam M. Walton College of Business.
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Episode Transcript
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00:03 Cindy Moehring: Welcome to this edition of The BIS, the Business Integrity School. Your resource for practical tips from a business ethics pro who's been there. I'm Cindy Moehring, the Founder and Executive Chair of the Business Integrity Leadership Initiative at the Sam M. Walton College of Business. Joining me today is Dr. Matt Waller, Dean of the Walton College.
00:20 Dr. Matt Waller: Cindy, what is one thing that the tech giants, Google, Microsoft, Apple, Tesla, etcetera, have in common with the Congo?
[chuckle]
00:37 Cindy Moehring: That's an interesting question, but there is one thing they all have in common, and it's cobalt.
00:42 Dr. Matt Waller: Cobalt?
00:43 Cindy Moehring: Cobalt. Two-thirds of the world's supply of cobalt is found in the Congo, which is in Central Africa, and all of those tech giants that you mentioned, all need cobalt to go into their lithium-ion batteries for our phones and our computers and electric cars.
01:02 Dr. Matt Waller: And so this has to do with principle number...
01:05 Cindy Moehring: We are on principle number five.
01:07 Dr. Matt Waller: Five, alright.
01:08 Cindy Moehring: Yes.
01:08 Dr. Matt Waller: No forced labor.
01:10 Cindy Moehring: No forced labor, that's right. No forced labor. And so in the Congo, they actually have a minimum working age now, like 18. But what's happening is there's such a demand for this right now, for cobalt, that allegedly, children are being used as young as 10 to go mine the cobalt. So, they're in the condition where they're forced to go do it.
01:33 Dr. Matt Waller: And cobalt's been used in cell phones for a long time. So what's driving all of this increase in demand?
01:42 Cindy Moehring: What's driving the increase in the demand as the electrification of cars.
01:45 Dr. Matt Waller: Oh!
01:45 Cindy Moehring: Because the size of the battery in a car is a lot bigger than the size of a battery in our cell phones or in the computers. And so, that means the demand for the cobalt is greater because the batteries are bigger.
01:57 Dr. Matt Waller: And so the estimates are it's increasing quite rapidly.
02:00 Cindy Moehring: Yes, quite rapidly.
02:01 Dr. Matt Waller: Double-digits.
02:02 Cindy Moehring: Yes, double-digits. And here, just recently, because the automakers are really trying to ramp up on the electrification.
02:10 Dr. Matt Waller: So there's a lot of rare earth metals that are procured from all over the world.
02:16 Cindy Moehring: Yes.
02:18 Dr. Matt Waller: And many times, they're in places where we know there's slavery, there's modern-day slavery going on. I've heard estimates that there's more slaves today than there were even 200 years ago, possibly it's because of the size of the population.
02:34 Cindy Moehring: Sure.
02:35 Dr. Matt Waller: So with the size of this problem, if you're responsible for a supply chain, who is responsible for it? Is it the buyer, is it the supply chain manager, the purchasing people? Who's responsible for that?
02:53 Cindy Moehring: Yeah, that's a great question. I would say at the end of the day, the company that has the most exposure, let's say, is the one that's got the big name on the door. So it's gonna be Apple, it's gonna be Tesla. So those companies have to figure out how to manage their reputation, right? And so, I would say it's actually something that is owned by many people in the company. Reputation of course, is gonna be managed in one area of the company, and the CEO has gotta be very focused on that. But the actual business relationship and who's gonna be responsible for it is gonna be whosever overseeing and responsible for those transactional supplier relationships, and then there's gonna be lots of people that are involved in it. And that's one of the ways you can get into trouble in situations like that, is because decision making can be somewhat dispersed, right? You've got so many different people involved at trying to pin it down on who exactly is responsible for this one decision can be difficult.
03:47 Dr. Matt Waller: It can be. You think about one example we've talked about before with North Korea, where North Korea as a country leases out or sells their population to companies to do work, it's slavery. And just recently, there was a company that does business in the US, but they're a Chinese company, and the US blacklisted them because they were using those laborers. And that meant that nobody can do business in the US with a blacklisted company.
04:25 Cindy Moehring: That's right.
04:26 Dr. Matt Waller: And their assets were frozen.
04:28 Cindy Moehring: Yeah.
04:29 Dr. Matt Waller: So the cost of failure here is enormous.
04:34 Cindy Moehring: It is.
04:35 Dr. Matt Waller: But if you're doing business all over the world, it's so hard to know. You could actually go to China, visit a factory and not know this is a North Korean who's been purchased from the government.
04:48 Cindy Moehring: Yeah. So, that's where technology can really be your friend and actually making sure that you've got very detailed processes and procedures for making sure that you're not doing business with somebody who's been sanctioned by the US government or a company that's been sanctioned by the US government. So technology and actually walking through where, who are the parties in the contract, what are they selling to you, who are the beneficial parties, there's lots of detail involved in that. And procurement departments in particular, have to really manage that. But it's also where you could say a supply chain, blockchain, in terms of managing a supply chain, where technology can really help you because it can give you visibility all the way back. I think what some people don't understand at a very basic level is there may be 10 steps between a Tesla, or maybe 20, who knows? Lots of steps between that mineral, cobalt, and the end product. And it's just one component of how many go into a car, right? So when you talk about the supply chain that you're managing is actually quite complex, and I do think it is one of the areas where, for example, you can have clear policies and procedures. But without that, you really are gonna have to go further and have some technology to help you manage that, hopefully get visibility from not just one step back, your own supplier, but all of the different suppliers all the way back.
06:11 Dr. Matt Waller: I think this really might grab more demand for blockchain because one benefit of blockchain is it's immutable. So once a record is...
06:20 Cindy Moehring: That's exactly right.
06:21 Cindy Moehring: Created it never goes away. You can change that record, but there's been of record of what was changed.
06:26 Cindy Moehring: And who changed it.
06:27 Dr. Matt Waller: With and when.
06:27 Cindy Moehring: Exactly.
06:27 Dr. Matt Waller: And where.
06:28 Cindy Moehring: That's very transparent.
06:30 Dr. Matt Waller: And with the growth of sensors, because one of the problems with implementation of blockchain is being able to collect the information about when transactions occur. But the number of sensors that are coming on the market is growing exponentially. The costs are decreasing so the internet of things, which can enable blockchain. So it's actually, business integrity is a reason to be looking into blockchain.
06:58 Cindy Moehring: Yeah, it can really help ensure the integrity of a number of different things all along the supply chain, which is really great because trying to do that on Excel spreadsheets is next to impossible and it's very labor-intensive. Company policies which you have to have and supplier code of conduct, that's like practical tip number one. You've gotta have your own company policies that would say, "We absolutely prohibit forced labor of any kind, dealing with our own suppliers, and we expect that responsibility and that obligation in that requirement to carry all the way back through all of the different suppliers." So it's an obligation that would carry forward, but you've gotta start that chain and you gotta have a supplier code of conduct. So it starts there, you've got to be able... Practical tip number two, I would say, is back that up with technology, so you can have visibility to it, operate effectively. And then finally, I'd say, you really do as a practical tip, third, when you can do unannounced audits and require that of your suppliers too, so that you can monitor what you think is really happening that you're seeing in the technology with some kind of boots on the ground, from time to time.
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08:09 Cindy Moehring: Thanks for listening to today's episode of The BIS, the Business Integrity School. You can find us on YouTube, Google SoundCloud, iTunes, or wherever you find your podcasts. Be sure to subscribe and rate us, and you can find us by searching "The BIS", that's one word, T-H-E-B-I-S. Tune in next time for more practical tips from a pro.
