BSR Conference 2013

The Power of Networks

November 5-8 / San Francisco

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Networks Gone Wrong

One-Hour Conversation Session / November 5, 2013

Speakers

  • Peter Daszak, President, EcoHealth Alliance
  • Pamela Shifman, Director, Initiatives for Girls and Women, NoVo Foundation
  • Louise Nicholls, Head of Responsible Sourcing and Plan A, Marks and Spencer
  • Guy Morgan, Director, Advisory Services, BSR (Moderator)

Highlights

  • According to experts, the sex trafficking trade is unfortunately a nearly perfect business model, and a perfect example of a network gone wrong. It has low risk and investment with high volume and reward and an inventory of goods—people—who can be sold again and again.

  • One difficulty in disrupting networks gone wrong is that they tend to be very profitable. For example, it is difficult to stop Malaysia from deforesting their pristine rain forest to make palm oil because of the potentially huge profits, even if the deforestation is causing a significant long-term dollar-value loss.

  • Proactively working to prevent networks from going wrong is also difficult because companies are rarely rewarded for preventing something from happening.

Memorable Quotes

“There is nothing or no one more undervalued, but with greater potential, than girls and women around the world. [The business of] sex trafficking is a barrier to their empowerment … If the bought had more choices, if the buyer had more risk, if the business had less reward, and if the bystander were motivated to act and knew what to do, we could put this business out of business.” —Pamela Shifman, NoVo Foundation

“McKinsey found that two-thirds [of business leaders] believe supply chain risk has significantly increased since the 2008 recession. That’s partially due to the growth of complex supply chains in countries with lax regulations, but it’s also about the nexus of energy and water volatility and weather patterns … The truth is that supply chain risks are not an exception, but increasingly the norm. It’s important for companies to think of them not as black swan events, but as things that they must prepare for and prevent.” —Louise Nicholls, Marks and Spencer

“Public perception of what’s going on is the real risk [of a network going wrong]. It’s enormous, difficult to manage, and driven by media reporting.” —Peter Daszak, EcoHealth Alliance

Overview

Morgan kicked off the session by asking the panelists to describe what networks gone wrong meant to their work. Daszak gave the example of a network-related pandemic, the SARS virus in China. Buyers shipped wildlife in huge numbers from Vietnam and China to a single marketplace, mixed them together in unsanitary conditions, and then redistributed them to a number of foreign countries, ultimately causing a network-spread virus with upward of US$50 billion in damages globally.

Describing a network of an entirely different sort, Shifman gave the example of the sex trafficking business. This US$32-billion-dollar-a-year industry rivals the trade in guns and drugs and adds up to 2 million people trafficked annually. It is a nearly perfect business model, with low risk and investment, high volume and reward, and an inventory of goods—people—who can be sold again and again. Its network is made up of business operators (pimps), buyers (typically men), the bought (women), and bystanders (the rest of us).

Finally, Nicholls recounted her experience working with supply chains. Marks and Spencer has more than 2,000 factories, 10,000 farms, and hundreds of thousands of smallholders, a network that can easily go wrong. But she shared three ways that responsible sourcing can prevent a negative outcome. The first is to account for current and future risks. The second is to build supply chain resilience. And the third is to demonstrate the business case for responsible sourcing; 2013 has provided some notable examples: the horse meat scandal in the UK and the Rana Plaza factory collapse in Bangladesh, both of which cost multinationals billions of dollars and caused huge reputational damage.

Morgan followed up with a few questions for the panel, first asking Daszak to share thoughts on how networks can manage risks. Daszak responded that the food industry is particularly vulnerable and addresses the challenge through the Safe Network, a collaboration of multinationals working to build solutions. He highlighted that costs related to food risk don’t come from illness but rather from the liability of public perception. When the H1N1 virus proliferated, it was commonly referred to as swine flu due to an inaccurate attribution to pigs, causing the pork industry to experience a nearly 10 percent drop in share prices. EcoHealth Alliance works to analyze these sorts of risks in advance and plot likely outcomes.

Shifman was then invited to share what can be done to break up bad networks. She provided three avenues for business. First, follow the rule “If you see something, say something.” Massage therapists in the United States, for example, have begun blowing the whistle on the illegitimate parlors that are discrediting their industry. Second, use the specific competencies of business: Google, for instance, uses their search portal to block sites facilitating sex trafficking. And third, help actors like the NoVo Foundation better map the profit flows of the sex trafficking business.

Continuing, Morgan asked Nicholls to offer solutions on how to prevent supply chain networks from going wrong. Nicholls cited a set of potential costs to businesses if they don’t build responsible supply chains, from losing their social license to operate to missing commercial opportunities or no longer being seen as a partner of choice. One solution is to create the right incentives for change. As an example, Marks and Spencer has put into a place a balanced procurement scorecard that gives equal weight to commercial and sustainable performance and sets objectives for buyers, helping share the incentives to improve the responsibility of the company’s supply chain.

Before closing the session, Morgan fielded audience questions. David Wilcox from CSRwire asked why there hasn’t been more proactive leadership around preventing bad networks, rather than the reactive steps companies take to mitigate their effects. Daszak responded by saying that there is a fundamental dilemma: If a proactive network is very successful, then nothing happens—and no one wants to invest in something that doesn’t have any visible benefits.

James Morris from GlobeScan asked what happens when networks going wrong collide and whether work has been done across these networks so that they can learn from each other. Daszak answered that the networks involved in the illegal wildlife trade are the same ones that operate the sex trafficking business; disrupting one network gone wrong will affect others. Further, these networks are often based in developing countries with poor government enforcement. Nicholls mentioned that in Bangladesh, for example, the rule of law is inadequate; governments from the West need to work closely with the national government to improve it.

Morgan closed by thanking the panelists and thanking the audience for their engagement and interaction.


Thank You Sponsors

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