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And as if things were not already complicated enough …

March 29, 2015

So Microsoft now requires its suppliers to commit that their workers in the US receive a guarantee of paid leave. This requirement will apply to all employees who do ‘substantial work’ for Microsoft.

This announcement has a number of fascinating implications – and reinforces my past blogs suggesting that the contract and commercial management community need to start taking sustainability issues far more seriously.

First, I was interested to note that it was Microsoft’s General Counsel, Brad Smith, who made this announcement. It’s not the sort of issue that would typically have been associated with the Legal function – but this is just one indication of how fast the role of in-house legal is altering.

Second, the broader rationale for this move is to enhance (or protect) Microsoft’s reputation in an environment of growing public hostility to Corporate ethics and practices, especially in matters of finance and income distribution. So expect much more of this type of initiative, as others jump onto the bandwagon and try to build their reputation. What might come next? Perhaps push-back on zero hours contracts, or demands that workers receive health coverage, or insistence on specified minimum wages? And issues around ‘ethical practices’ won’t stop there. What about caps on executive compensation, or limits on employee bonuses, or elimination of tax arrangements that are viewed as ‘unfair’?

Third, just think of the practical issues associated with implementing and managing the Microsoft requirement. Even if there is agreement on what constitutes ‘substantial work’, can suppliers really start to differentiate among their employees in this way? Issues of morale, employee relations and potentially litigation would suggest that Microsoft suppliers will have little choice but to change policy for all their US employees. And can they limit geographically? Indeed, can Microsoft justify the geographic limit to US workers?

Microsoft say that they recognize the potential cost impact of this change and are willing to negotiate with suppliers accordingly. Other customers may not be so happy to follow suit. So that leaves a supplier wanting either to pass all resultant costs onto Microsoft, or of having to accept a potential hit on margins. It will be interesting to discover how Procurement at Microsoft has been instructed to deal with these situations and in what way their measurements are being adjusted; for example, will Procurement continue to be measured on savings, or increasingly on maintaining corporate reputation?

Finally, if you think this move will be complicated to manage, just imagine what it will be like when others start jumping on the bandwagon. There is little point in them following the Microsoft approach – it is no longer newsworthy. So each initiative needs to have originality – and imagine for a moment what that could mean for suppliers. How can they possibly manage in a world where individual customers start to set rules for personnel policies and broader business practices. For example, Oracle may now say they don’t want to deal with suppliers who avoid taxes through offshore operations (unlikely I know, but I use it simply as an example).

As the Corporate world awakens to the need to rebuild public trust, we have to anticipate a mass of sustainability initiatives – and it is hard to see how they can be achieved without significant cost and price increases.

One Comment
  1. There’s an increasingly strong push toward incorporating social responsibility into the supply chain. This is probably a reaction to the factory collapse and fire in Bangladeshi garment factories.

    I’m puzzled by Microsoft too. Microsoft is a member and one of more than 100 signatories to the Electronic Industry Citizenship Coalition, which has developed a standard Code of Conduct for their suppliers. One purpose of having a common code is to relieve suppliers of having to deal with multiple and conflicting codes. Another purpose is to have a common code with competitors so a buying company doesn’t lose competitiveness.

    Even the clothing industry is joining together to have a common code. Other industries should be considering it. I wonder why Microsoft is embellishing the Code on their own.

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