Apple Move Highlights Commercial Pressure To Enhance Supply Chain Responsibility

Apple Store

On 13 February 2014, Apple published its Supplier Responsibility 2014 Progress Report (PDF download). The report made public details of its progress in raising standards throughout its global supply chain, educating staff, improving working conditions and imposing higher standards of conduct on the businesses it relies on for the manufacture of products such as the iPad, iPhone and Mac.

Of particular interest is Apple’s decision to publish a list of smelters and refineries used by the company, indicating which of them may be using conflict minerals. Conflict minerals are metals, typically tungsten, tantalum, tin and gold, which are mined in conditions of armed conflict and human rights abuses, mostly in the eastern provinces of the Democratic Republic of Congo and adjacent areas of neighbouring countries.

Over recent years, campaigners and NGOs have exerted considerable pressure on corporates to ensure that the minerals they use in the manufacture of their products are not sourced from mines controlled by militant groups. This resulted in s.1502 of the US Dodd-Frank Act, which was signed into law in 2010.

Apple’s report contains a list split into three sections according to smelters’ compliance with the Conflict-Free Smelter Programme (CFSP). Companies are placed in one of the following:

  • CFSP Compliant Smelters
  • CFSP Participating Smelters (those that have agreed to participate in the CFSP audit)
  • No known or public CFSP participation (Apple has reached out but no participation is yet acknowledged).

This move ultimately casts doubt on the ethics of those with no known participation, pressuring many of the smelters to sign up to the CFSP or to ensure that the minerals they use are not sourced from conflict mines. Yet it also demonstrates the importance that Apple has placed on promoting transparency in its wider business operations.

Major companies, from Coca-Cola to BP, now have stringent supplier codes of conduct that they require partners to sign up to in order to enter into business relationships. In Apple’s report, it states that “to do business with Apple, our suppliers must live up to the toughest standards in the industry, and we make sure there’s no confusion over our expectations”.

The standards that Apple and other leading multinationals impose upon their business partners frequently meet international best practice standards rather than minimum levels set by legislation. In theory, this ought to create a domino effect that forces the rest of the supply chain to get their houses in order or risk losing important contracts.

Increasingly, attention is expanding from management and vetting of the existing supply chain to evaluation and selection of new vendors. In higher-risk activities such as logistics and customs clearance for example, FTSE-100 corporates are increasingly evaluating the ethical policies and procedures of potential new vendors.

Vendors with clear, detailed, and demonstrably active ethical programs open up clear blue water between themselves and their competition. Ironically, this means that suppliers with historic problems, and the enforced remediation that follows, find themselves in a much stronger position than their competition.

With society attributing greater value to ethics and corporate responsibility, NGOs and the media frequently place the world’s leading companies under scrutiny. Where companies are found to be operating in an objectionable manner – such as avoiding paying tax in jurisdictions where they generate substantial revenue or being linked to child labour in South Asia – businesses can face negative publicity campaigns and consumer boycotts.

Following the release of Apple’s report, Greenpeace published a statement praising Apple’s transparency in its monitoring of conflict mineral usage, urging its competitors to follow suit.

It is clear that companies at all levels of the product supply chain must think beyond compliance with the national laws they are subject to. With 70 per cent of global trade estimated to involve the world’s 500 largest companies, multinationals are crucial to the financial health of smaller corporates throughout the world.

They are also the primary targets of prosecutors, NGOs and consumers owing to their high profile. NGOs and the media pressure companies to address issues throughout their supply chains, from the mining of raw materials to the sale of finished products.

All corporates should take an interest in their supply chains, undertake due diligence of new business partners and implement robust compliance programmes which meet best practice norms. Should they fail to do so, they risk losing out on lucrative contracts and suffering reputational damage in the increasingly public sphere of business ethics.

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Toby Duthie

Toby Duthie is one of FRA's co-founders and heads its London office. With experience in cases involving government enforcement in the UK and the US, his expertise lies in internal and regulatory investigations, data protection and complex financial modelling, with particular experience in global, multi-jurisdictional cases. Toby was instrumental in the development of FRA's service in the anti-corruption and white-collar defence arena across Europe. He spent more than five years in the US, gaining extensive experience advising on damages amounts in a number of complex civil and criminal litigations and in connection with a number of high-profile FCPA enforcement actions (e.g. Panalpina, Bonny Island LNG and Oil for Food). He has also worked on matters involving the UK, Swiss and French regulators.