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Globalization and a Corporate Crisis

"Life is divided into three terms-that which was, which is, and which will be. Let us learn from the past to profit by the present, and from the present, to live better in the future."

-William Wordsworth

"The past can hurt. But the way I see it, you can either run from it, or learn from it."

-Walt Disney

One hundred years ago, the idea of a corporate executive from the United States meeting face-to-face with the woman weaving baskets for the company in her home in the Philippines would have been straight out of science fiction. But the rise of globalization has made the world interconnected in ways no one living at the turn of the 20th century could have imagined. Designers have access to new materials and techniques; if they can think it, chances are someone, somewhere can produce it. Consumers expect their cherished goods to be in ready supply at whatever brick-and-mortar or online store they shop at and on their doorstep days, if not hours, later. When that is not possible, there's a problem (save for disruptions such as global pandemics). Thanks to increased competition, production companies feel more pressure to create products in record time, in higher quality, with faster delivery, and with more innovation than ever before. As a result, people like our basket weaver Laurie are able to benefit from newfound economic opportunity, a chance to remain in their community and be productive to support their family. When the system works, it encourages a race to the top. More work, more wages, more innovation, better products, and stronger economies overall.

However, if the system lacks standards of ethics and greed goes unchecked, history has proven there will be few winners and many losers. Within the traditional sourcing model, the corporate motivation to pursue profit above all else has historically led to a race to the bottom. Companies chase the lowest cost for the highest return with no regard for or loyalty to the producer. On a constant quest for the best return, companies pit vendors against each other, leading to issues-sometimes abuses-within the supply chain. The company, facing pressures around profit from investors or board members, turns a blind eye and lets questions go unanswered. Limited transparency breeds a diminished sense of ownership and responsibility, creating the perfect environment for worker and environmental exploitation. To use a stark example, slavery has existed since the dawn of recorded history. And still today-the most prosperous era the world has ever known-there are people toiling under this vile practice, suffering due to corporate greed or neglect. The use of forced labor has been linked to the Uyghur population in the Xinjiang Province in China within the cotton supply chain, and many of our electronics are produced with minerals pulled from mines in the Democratic Republic of Congo via forced labor.1 It is not just the abuse of the global workforce; overconsumption and massively complex supply chains are degrading our planet from deforestation to the carbon required to ship things around the globe.

Who Is to Blame?

An easy target to blame for this misbehavior is Milton Friedman, a name you probably recognize if you have ever taken any business-related coursework. Friedman was an economist whose 1970 essay "A Friedman Doctrine: The Social Responsibility of Business Is to Increase Its Profits"2 continues to influence business leaders today. In the piece, Friedman argued that, just as the title declares, a corporation's sole purpose is to increase returns to its shareholders. Furthermore, any activity that does not actively increase those profits, including those related to corporate responsibility, is equivalent to stealing money right out of shareholders' pockets. Even today, despite the threats of climate change, a global pandemic, and calls for greater equality, many business leaders still tout (even if subconsciously) Friedman's philosophy as gospel. Think about the car manufacturer that makes claims their diesel engine is better for the environment without having the research and data to in fact support these claims (Volkswagen), or the financial institution that develops a program of issuing credit cards customers didn't ask for in order to boost loan numbers at the expense of hard-working lower income and middle class families (Wells Fargo), or the countless companies that make claims of caring for their customers but launch aggressive anti-union campaigns against their employees. The leaders at these companies use Friedman's philosophy to excuse such behavior.

But this is not a book about the evil of corporations, the flaws of capitalism, or the downsides of globalization. In fact, I, along with many other socially minded people in business, actually agree with aspects of Friedman's premise: but I give it a modern twist. A corporation does, indeed, have an obligation to provide profits to its shareholders. Otherwise, it would be, or should be, a nonprofit organization or government agency, which exist to serve the public good (and as an executive for a nonprofit, I do see the value in those). However, the for-profit firm also has a responsibility to its shareholders to adapt and change to maintain its existence, and within the existence of society, in perpetuity. If in the course of doing business, a company is actively harming the environment or the people making or consuming its products, it is not acting in its own best interest (let alone that of the society around it). In a world of mounting environmental concerns, global pandemics, and increased social unrest, corporations need to not only limit their negative externalities but actively produce positive impacts. It is out of these ideas that the concepts of regenerative finance, conscious capitalism, stakeholder engagement, and, yes, responsible sourcing have taken root and come into public consciousness. And here is the kicker: data is now starting to prove that if a company pursues profit and a more socially minded purpose, it becomes better able to absorb market shocks (such as COVID-19) and is more likely to increase above-market returns for its shareholders over the long term. In its 2019 report, the Torrey Project found that ethical companies (using the 48 US companies listed by Ethisphere on their Ethical Companies list,3 18 companies listed in the book Firms of Endearment,4 and the nine actively traded companies from the book Good to Great5) experienced stock price growth of 50% more than the S&P 500 when looking at performance over the last 20 years.6 What do you think Friedman would have to say about that?

If we assume corporations have a responsibility toward their employees, consumers, suppliers, and larger communities, the question becomes what kind of responsibility? How far does it extend? Since this is a book focused on sourcing and supply chains, I'll leave the arguments about government control of worker protections, employee wages, taxes, and other worthy concerns for another book. But that still leaves plenty of questions for us to explore. As our world becomes more complicated and interconnected, how can companies exercise their responsibility and how far does that responsibility extend? What factors do they need to consider? And how do they maintain visibility when they quite literally may have never seen where their goods are being produced? Those are the questions we'll continue to explore in this book.

To understand the current state of feelings regarding corporate responsibility-and to better predict where we're headed in the future-it's useful to take a minute to consider the past. How did we arrive at our current moment? How did supply chains become so vast and complex? How have the standards changed and why? And where have current feelings regarding corporate obligations come from? For me, it all starts with globalization and the dramatic decentralization of production.

The Rise of Globalization

When I think of how a community and industry can be impacted by globalization, my mind goes first to New York City's Garment District. Perhaps it's because, before the pandemic, the Nest offices were located in midtown Manhattan, just a few blocks from the one-square-mile area that was once the center of the American clothing manufacturing industry. The rise of garment trade in the area, which stretched from 34th to 42nd streets and was bordered by Fifth and Ninth Avenues, was fueled by the prevalence of cheap, immigrant labor (at a time in the early 1900s when 2,000+ people came through Ellis Island every day), combined with its geographic proximity to the wealthy factory owners. Keep in mind that telephone lines only started appearing in New York City in the 1880s, so the easiest way for an owner to know what was happening on the line was to go visit in person. With access to a large working port for both raw materials and for the distribution of finished products, the Garment District once housed 450 textile factories and employed more than 40,000 people.

Today the area looks vastly different. Yes, some fabric and trim shops still exist, but the number and types of businesses have changed dramatically. Gone are the mass-manufacturing operations, replaced now by specialist businesses that are much fewer in number. Some businesses, such...