James Murray

A couple of months ago Microsoft received some pretty favourable publicity after it emerged the company had axed a supplier because of its weak policy on employee diversity.

The company said that it had no problems with the firm's general performance, but that its attitude towards employee diversity was not up to its standards and as a result it had severed their contract.

Speaking at the time Microsoft UK's HR Director, Dave Gartenberg, said that "in the UK, Microsoft is committed to ensuring we have a diverse and inclusive workforce, and we want to work with companies that share these principles. Consequently, we are beginning to look at how we can take a leadership position in driving positive change, while respecting local legislation."

The move won deserved praise as a prime example of how supply chain audits and policies governing suppliers behaviour can provide a mechanism that ensures that market forces help proliferate progressive business values.

The incident also offered an example of how the recent batch of corporate policies governing suppliers' environmental sustainability could be enforced to ensure green business practices multiply across firms supply chains.

With companies as diverse as Tesco and Marks & Spencer to HP and Sun Microsystems committing to talking to their thousands of suppliers about the sustainability of their practices, Microsoft's willingness to axe a partner who did not meet its standards, albeit in a different area of corporate governance, highlights the lengths firms must occasionally go to in order to ensure best practices are adopted.

However, with supply chain audits for environmental, diversity, and employee welfare purposes set to become an even bigger fixture on the business landscape there is also an interesting question as to whether Microsoft went far enough in axing its recalcitrant supplier.

Sure, Microsoft has punished the firm for its apparently Victorian attitudes to workforce diversity by cancelling its contract, but why is it now protecting the company's reputation by refusing to name it?

A spokesperson for the company claimed that "we want to encourage our suppliers to provide a positive place of employment that is free of discrimination and barriers, not name and shame those who don't".

This is fair enough, but given the supplier in question had presumably already been encouraged to change its ways and had failed to do so I'm not sure why it can't now be named.

Suppliers aware of their customers' supply chain audits already know they have a commercial motivation to exceed expected environmental and workforce standards or risk losing the deal, but just imagine how urgently they would strive to meet those standards if they knew there was a risk they would be named and shamed as a polluter or a poor employer.

The aim of a supply chain policy is to use market forces to drive up standards, ensuring that the most environmentally-friendly firms' win the juiciest contracts, thus encouraging their rivals to emulate them. But this whole process could be rapidly accelerated if the most irresponsible suppliers were branded as such and effectively forced out of business as their increasingly green and socially responsible customers refuse to do business with them.

If you really want to create an environmental arms race across your suppliers, how's about an experiment in true corporate transparency that sees firms publish a league table of their suppliers' environmental performance and then axe the bottom ranking company each year? It would open up a legal minefield, but it would sure as hell drive up standards.

Of course it is legal problems that underpin the case against naming and shaming polluting suppliers. Any company naming one of its suppliers as a poor environmental performer would run the risk of a massive legal case hinging on the validity of the green metrics used to judge the supplier's performance and the interpretation of the contract.

However, no company ever axes a contract unless it is certain it can win any subsequent legal challenge and if a firm is certain its supplier is not meeting environmental standards that are required in the initial contract then why not name them? They would be pretty stupid to sue and bring yet more bad publicity raining down upon them.

That said it will still take extremely brave companies to breach the cosy Cosa Nostra that surrounds many commercial deals, face up to any legal challenges, and run the humiliating risk of its customers doing the same to them at a later date by naming and shaming them if their green standards ever slipped.

But it would also undoubtedly signal how serious a company is about driving adoption of green business models and as multinational firms become increasingly committed to branding themselves as the greenest around there are signs that some could soon become brave enough to take the plunge and throw their most polluting suppliers to the media wolves.

Once several firms take this position the pressure will be on their rivals to emulate their stance. If enough companies then adopt the name and shame policy the stimulation of competitive forces amongst their supply chains would drive up green standards across the board.

It might be something of a pipe dream to think that a large number of companies will take such an aggressive stance towards the environmental record of their suppliers, particularly when price still remains the determining factor for most firms looking for a supplier.

But if we are to have confidence in the plethora of green supply chain policies being released by major companies we have to see evidence they are backed up by real action, and that means naming those firms that they axe.

What's more doing so might just prove the simplest means imaginable of exploiting competitive forces to kick off a genuine green business arms race.