The business case for good corporate behaviour

Originally printed in THE FACULTY QUARTERLY here.

Andrew MacLeod – CPO speaker spotlight647-cpo-forum-15may14

Being a good corporate citizen, while operating a cost-conscious organisation is achievable, according to Andrew MacLeod, Good Super MD and adjunct Professor at Kings College London. It just requires a bit of lateral long-term thinking on behalf of the CPO – first, to identify community projects that will add value and then, more importantly, making them stick.

The former aid worker and community relations manager for Rio Tinto spoke with The Faculty Quarterly ahead of the 8th Asia-Pacific CPO Forum which will be held in Melbourne 13-14 May 2015.

With the mining and resources industry coming out of its boom phase and many other industries looking to procurement to tighten corporate belts, MacLeod said it was now that CPOs had to stamp their authority as business leaders and ensure unsustainable or unethical procurement practices don’t creep in to damage their organisation’s long-term financial and reputational prospects.

“A CPO is not a junior in the C-Suite,” Macleod said. “The CPO has to have the same long-term view as the CEO, CFO and the CIO and as a team, be looking at the ways they adjust all components of their business, both internal and external, to ensure long-term sustainability.”

So how can procurement feed into good Corporate Social Responsibility (CSR)?:

“When people ask how you can get more impact from CSR? My answer is you don’t do CSR,” MacLeod said. Instead you look at all the external impacts and characteristic of your business and ask ‘how can I seek positive change and shared value that can improve our profitability and improve social outcomes?’”

“I think in leading businesses, CSR is now passé. The reputation of a company is not made or broken through CSR, the reputation of a company is gained through the way it conducts itself in its standard operating procedures and how it can create shared value in the community.

“For example, BHP Billiton runs the world’s biggest anti-malaria project. Not Save The Children or The World Health Organization. But a mining company. Their program has reduced adult malaria infections from 92 per cent of the population to 5.6 per cent within Mozambique – where they have a large workforce.

“By lowering the malaria infection they have improved community health, which has reduced absenteeism in the workforce from 22 per cent to 2 per cent. That reduced absenteeism has improved productivity within their own workforce to an amount higher than the cost of running the malaria program. In other words the anti-malaria program is profitable for the business.”

“The leading organisations in the world have shown that these type of social projects aren’t just a cost-line item but can also be a revenue line item for the business.”

How can procurement teams drive change from within to make their businesses better corporate citizens?

MacLeod said it can be very difficult to shift a company’s ethical or sustainable culture from within, without it being driven by senior management. “If you are working in an organisation that services that price conscious end of the market, your chances of convincing senior management to increase their cost curve is pretty poor.”

“That’s why you’ve got to be really clever and look for shared value opportunities and find ways you can be more ethical and lower your risk or make your supply chain more sustainable, but also provide long term value to the business, even if it requires an intial short-term investment dip.”

“So if I were a procurement manager, in a company servicing the low cost end of the market and I wanted to mount an argument for better corporate behaviour, I’ve got to find a way that that better corporate behaviour results in better profitability.”

The need for CPOs to think long-term and outside the box: 

Rather than focus only on bottom line value today, CPOs always need to be thinking long-term and outside of the silo that their business operates in.

An example is the challenge Rio Tinto faced in Mongolia, where they were looking at a $1.5 Billion ten year cost for their fly in-fly out workers to travel to mine sites using the country’s three domestic airlines.

“So in the long term, the company is building a sustainable village for their workers to live in to reduce their travel costs. But in the interim what do you do about having to fly your staff in and out of the south Gobi desert?”

“What Rio have done is they have calculated what the operating costs are for each of the three airlines and realised that they need to maintain the sustainability of all three businesses because so one or two of the airlines wouldn’t go out of business.

“If there was only one of the airline left, then Rio would be price gouged. So the CPO needs to mount an argument to the CEO that they need to be prepared to pay a premium for their staff to fly on each of the three airlines, because we if they don’t the long term cost will be much higher operating in a monopoly.”

“So it took Rio to really understand the domestic airline industry, probably better than the airline’s own executives, to be able to secure a deal at a sustainable price.

“That takes a lot of creativity and understanding of the broader business model in that. It’s not just a matter of drilling down a supplier to the lowest possible price, if that’s going to drive your supplier out of business.”

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