Ethical Project Management : how to apply governance, manage the risks and gain the benefits.

This article, published in the Spring 2017 edition of 'Project' [1], discusses the considerable risks that can be reduced, and the opportunities that can be seized, by behaving and adopting policies for procuring and managing supply chains ethically.  It was was co-written with Philip Reese of Reese Procurement.

"Ken dumps Barbie because of links to deforestation"

That was the essence of an eye-catching article published in trade publication “Supply Management” during early 2016, describing how in 2011 Greenpeace linked the producer of the Barbie doll (Mattel) to the deforestation of orangutan inhabited parts of Indonesia. The link established was via one of its supply chain, a company called APP who had been producing paper used in its packaging [2]. 

The longer-term effects of this loss of reputation were that :

  • a number of APP’s global customers followed Mattel’s lead in dropping them as a supplier, creating a significant effect on their profitability and hence the stock value of the company.
  • during the 5 years since, Mattel’s global sales of Barbie dolls have fallen around 25% from just over $1.2Bn to around $900M globally.

The sourcing of raw materials for use in our businesses and for our projects is just one of many ethical matters which we should be aware of in our position of influence as Project Managers. Here are some more examples and statistics to illustrate the point :

  • In 2010, KBR were fined over $400M for bribery and corruption offences [3].  
  • In 2013, as well as a £300m fine for GSK from the Chinese government, the employees who were linked with paying bribes to purchasers were detained by the Chinese authorities [4]. 
  • Transparency International provide some startling statistics on the perception of corruption and the impact of fraud: for example, fraud is estimated to cost the UK over £70Bn per year and perhaps, most worrying, is that over half of survey respondents believe that corruption is on the rise. More positively, they calculate that by reducing corrupt practices by just 10% in a high-risk country, the country’s GDP can go up by 4%, because the money paid for the finished goods and services can filter down to those toiling at the grass roots, rather than being sucked out by those who may be up to no good [5] [6]. 
  • The Walk Free Foundation estimates (in its latest Global Slavery Index) that 45.8M people (up from an estimate of 29M in 2013) are the subject of modern day slavery, fuelling a human trafficking and cheap labour sector which is estimated to be a $32Bn industry [7].
  • Verisk Maplecroft found that modern slavery was "rife" in 58% of 198 countries.
  • The Ethical Trading Initiative have found through industry research that 77% of companies think there is a likelihood of modern slavery occurring in their supply chains [8]. 

In the UK, Health and Safety initiatives have greatly improved the way that the final project workplace is managed, with behavioural safety initiatives becoming more widespread. But are these practices applied in the production of goods before they make it to your project? The country of Bangladesh has been the setting of at least 3 serious disasters since 2012, including the infamous Rana Plaza incident. Thousands of people have died during this time in one country alone [9]. Many of the UK’s high street retailers were not even aware that their produce came from some of the factories, buried deep within the tiers of the supply chain. Do you know who is in tiers 2 to 7 of your supply chain?

So what has this got to do with project management ?

NGOs and other interested parties have identified several specific risk factors and industry sectors which are known to be linked to an increased likelihood of unethical labour practices occurring. Do any one (or all) of the following circumstances occur on projects which you are familiar with?

  2. Multinational supply chains?
  3. Hidden tiers of the supply chain or a lack of direct contact with suppliers?
  4. Materials sourced by mining and extraction?
  5. Use electronics and high tech components?
  6. Steel?
  7. Materials brought to site by shipping & transport? (Of course, they are)
  8. The supply chain or project working being done anywhere there is an informal economy or a culture of cash payments?
  9. Are products sourced from countries or regions with weak governments, areas of conflict or widespread poverty?
  10. Is there use of migrant workers or agency labour?
  11. Is there contact with raw material industries?

For a project of any complexity and significant value, the answer is almost certainly ‘Yes’. And we can add in some project specific factors like time driven projects where normal processes are often cut to save time.

Therefore, your project and hence organisation is at risk of bribery & corruption, exploitation throughout the supply chain, human rights violations, modern day slavery, health & safety failings, fraud, erroneous specification and the supply chain not getting paid on time (or indeed at all).

This could lead to loss of reputation, profit, share price, company fines and, in some cases, criminal charges against individuals. So, to understate the case, there is clearly a business rationale to managing these risks !

But there is opportunity ...

... to grasp and best practice to share :

  • in many parts of the world simply getting project funding (for example funding from development banks to build roads and infrastructure), relies on being able to demonstrate that the money will be well spent and that controls are in place, so the very existence of the project depends on the ability to procure your project ethically.
  • eliminating bribery and corruption reduces ‘expediting’ costs;
  • paying faster often reduces the price you pay;
  • procuring and contracting ethically can also have a very positive effect on the supply chain and wider society;
  • doing the right thing improves your organisation’s reputation, which means other organisations, whether clients or suppliers want to work with you giving you more favourable terms etc.
  • anecdotal evidence suggests that businesses can often also attract brighter talent on the back of an ethical reputation, which is increasingly important in a “skills-shortage” world.

So how do we make our projects more ‘ethical’ ?

The answer is partly cultural and attitudinal i.e. reflecting on your moral compass and not deliberately or knowingly encouraging or letting these practices occur in your project or organisation. This starts with how we behave and conduct ourselves on a day-to-day basis as role models and what we call people to task for. The higher up we are in an organisation or project's hierarchy, the greater our influence. However, that is not enough both practically or legally !

Far better to take a positive approach to considering ethical concerns and acting upon them at various times during the project lifecycle. For example:

  • at project set-up : deciding whether the project is ethical and the right thing to do in the first place; identifying appropriate governance structures, policies and procedures; assessing potential risks; putting together a suitable project team.
  • at the pre-contract stages : pre-qualification of suppliers; final supplier selection criteria; choice of procurement route and contracting strategy; risk allocation throughout the supply chain.
  • at post contract stages : assurance activities such as quality control, auditing, approval of invoices, variation control.
  • during the management of the supply chain : relationships and day to day interactions, especially with less well known suppliers or across borders.
  • having policies and procedures in place for dealing with so-called Associated Persons e.g. agents or intermediaries.

The Contracts & Procurement SIG are in the process of developing a 7-stage approach to the governance of ethical procurement that can be applied to identify structures, provide assurance, guard against the risks and deliver benefits and value to a project. The intent is to identify a framework which includes;

  • how to undertake risk assessment of ethical issues,
  • signposting project managers towards sources of information and resources
  • methods for the prioritisation of actions
  • guidance on developing appropriate policies, procedures & processes for aspects such as governance, transparency, accountability, anti-corruption, prevention and controls
  • how different contracting strategies are affected by and affect ethics
  • what forms of due diligence are there, when to use them and how effective they are
  • how can we develop trust, confidence, transparency and continuous improvement?
  • how you can communicate your organisation's or project’s stance on the issues which are relevant in your sector or for the project?

If the subject is of interest, you can get involved too.

1. Reese, P and Broome, J (2017), Procuring Projects Ethically, Project, Issue 270 p.54-55.