Good Honest Dollar $$

With a federal election scheduled for this coming Saturday, things are reaching a climax in the political climate in my home country of Australia.

One hot topic: plans of the current Labour government to require cigarettes to be sold in plain packaging from the middle of 2012 onwards.

With reservations, I support this plan. Governments do have a responsibility regarding public health, and this does include undertaking appropriate measures to curb cigarette consumption. 

Nevertheless, the proposal does raise disturbing questions about intellectual property rights and how far governments should go in terms of intervening in standard commercial practices.

 
About the plan:
Announced last April, the plan represents the latest development in efforts on the part of the Australian government to curb cigarette consumption.

Under the plan, which the governing Labour Party claims is a world-first, the following requirements will apply to the packaging of all cigarettes sold in Australia from 01 July 2012 onwards:

 • all cigarettes will be sold in plain packaging (the government will specifically develop and test packaging design that will make cigarettes less attractive – especially to young people);

• tobacco industry logos, brand imagery, colors and promotional text (other than brand names in a standard colour, position, font style and size) will not be allowed on cigarette packaging; and

• graphic health warnings displayed on packaging will be expanded and updated.

 
The positive side – reduced consumption
Contrary to claims by the Alliance for Australian Retailers (ARR), a lobby group for Australian retailers supported by the tobacco industry, the plan is likely to discourage smoking and help reduce overall cigarette consumption.

For one thing, the extent to which retailers and big tobacco have opposed the plan (the AAR was created specifically for the purpose of campaigning against plain packaging) does appear to contradict their claims. Indeed, the fact that they are so opposed to the idea indicates that they fear just how effective it might be.

Moreover, the idea of plain packaging resulting in lower levels of cigarette consumption than would otherwise be the case does make sense. For any given product, cigarettes included, cleverly designed packaging makes buying more attractive – vice versa for merchandise packaged in plain or unattractive colours.

That matters. According to the World Health Organization, smoking kills more than five million people worldwide each year, accounting for one in every ten adult deaths.  And this is not to mention the pain and suffering endured by those who contract smoking related diseases whilst they are alive. Nor does it account for broader economic costs associated with tobacco related illnesses, particularly in terms of health related expenditure and lost productivity.

 
The negative side:
Nevertheless, the proposal does raise two key areas of concern:

 
• Intellectual property rights.

In a submission to a senate enquiry, the Property Rights Alliance (PRA), a global organisation dedicated to the protection of physical and intellectual property rights, asserts that the proposed legislation would violate the intellectual property rights of tobacco manufacturers under two international treaties: the Agreement on Trade Related Aspects of Individual Property Rights (TRIPS) and the Paris Convention.

Without a legal background, I am in no position to make informed comment as to whether or not PRA’s assertion is correct.

What I will say, however, is that this is a serious matter. Without exception, all rights granted under international treaties, including those of cigarette manufacturers, must be respected and upheld. Any violation with regard to these agreements is serious, and before plain packaging is introduced, the government must obtain strong legal advice to ensure that any associated legislation is in full compliance with both of the above agreements.

 
• Unprecedented intervention.

The second area of concern relates to questions about the extent to which governments should intervene in standard commercial practices.

Cigarettes are a consumer product, and governments are right to intervene in some aspects of their packaging – mandatory inclusions about health warnings being a prime example.

But government intervention in packaging design is unprecedented. Labour’s plan to meddle in this area does raise questions about the freedom of companies to package merchandise using the design of their choice and whether or not government prescription of specific packaging design is going too far.

Close call. I support plain packaging, but with reservations.

Your thoughts?

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The recent announcement by Wal-Mart of its intention to adopt a more stringent approach toward its supply chain in terms of labor and environmental standards represents a positive step in the right direction.

Now comes the hard part – verifiable and lasting improvement on the factory floor.

 
Wal-Mart’s strategy
On October 22, the company outlined a renewed strategy designed to produce significant improvement in terms of the management of its supply chain from a social and environmental perspective.

The centerpiece of this strategy is a new supplier agreement, to be phased in over a three year period beginning in January 2009. Under the new agreement, suppliers will be required to:

• Certify (a) compliance with all relevant laws and regulations in areas in which they operate and (b) adherence to strict social and environmental criteria;
 
• Conduct their own audits, as well as co-operate with (sometimes unannounced) audits from company representatives or independent auditors;
 
• Provide the name and location of every factory which they use in the manufacturing process; and
 
• By 2012, source 95% of all manufacturing inputs from suppliers which receive the highest ratings in relation to social and environmental practices.

In addition, the strategy also includes a range of targets relating to energy efficiency and product quality and safety, with particular emphasis upon its Chinese operations.

(Refer company announcement and International Herald Tribune article for more details)

 
Lessons from Nike
Associate Professor Chris McDonald, author of The Business Ethics Blog, draws a comparison with Nike. By all means, this is a valid comparison – Nike once had a poor reputation from the point of view of labor practices within its supply chain, but its reputation has improved considerably over recent years due to improvements in public transparency and accountability.

Nevertheless, the comparison with Nike raises three interesting issues:

 
• Wal-Mart’s efforts, at least in terms of public accountability and transparency, do not appear to be as extensive as those of the sporting goods manufacturer.

Nike currently provides full public disclosure in relation to (a) the location of supplier factories; and (b) the aggregate results of audits into labor conditions at supplier factories.

The announcement by Wal-Mart does not state whether or not such information will be publicly disclosed. If not, the general public will not have means by which to verify any claimed improvement in supply chain practices.

 
• Wal-Mart’s problems go beyond its suppliers.

Whilst the problems at Nike relate predominately to its external contract manufacturing practices, those at Wal-Mart extend further, and include alleged poor labor practices in the U.S.

If the company is serious about improving its reputation, it must address all of these issues, not just the issues which pertain to its supplier base.

Moreover, responsibility for improvement cannot be simply transferred to suppliers. Wal-Mart itself has a responsibility to adopt proactive supply chain management initiatives, including the training of suppliers in terms of best practice operating proceedures. Perhaps the most important action which the company could take is to cease placing unrealistic cost and time pressures upon its supply chain – suppliers must be provided with the opportunity to make improvements in operating practices without compromising the viability of their operations.

 
• Accountability is one thing, results are another.

As noted in an earlier post, whilst Nike has made significant improvements from an accountability viewpoint, its progress in terms of verifiable improvement on the factory floor has been very disappointing, with problems occurring frequently in terms of excessive overtime, poor occupational health and safety practices and failure to pay legal minimum wages.

Wal-Mart must go beyond Nike and demonstrate a substantial level of verifiable improvement at the level of the factory floor. Until this happens, no improvement in its corporate reputation will be justified.

 
Summary
Wal-Mart is to be commended on its positive initiatives, particularly its new supplier agreement.

Now comes the hard part – results on the factory floor.

“It’s just six quick questions and will take about thirty seconds of your time.”

To this day, I still remember those untruthful lines.

The above lines formed part of my script at an outbound call centre for a mortgage brokerage firm, where I worked for a short period whilst between jobs in 2005. My role was simple – make cold calls to residential numbers during dinner time to ascertain highly sensitive personal and financial information in relation to any mortgages held by call recipients. The data was then analyzed to determine which prospects represented promising leads.

According to the company spiel, the process was just six questions and would take thirty seconds. The questionnaire which then followed involved nine questions and rarely took less than three minutes.

According to the call centre manager, the questionnaire did indeed have only six questions. Yes, there were nine question marks on the page, but some questions had two parts.

Not surprisingly, many prospects did not respond in a positive manner.

A suggested response in the company manual to customer objections was to say that many people found that “that prospect of saving up to $11,000 or three years off their mortgage was worth thirty seconds of their time.”

Naturally, given the ‘cold call’ nature of the contact, neither I nor the firm had any idea whether or not we could actually deliver anywhere near that amount of savings.

 
A little respect, please

Telemarketing is a legitimate promotional medium. However, it is more intrusive than other forms of promotion, and companies who use it should at least observe some simple etiquette.

Customers deserve the truth. If the call involves nine questions instead of six, prospective customers should be told this up front. If the expected duration of the call is around three minutes, customers should be told this, not that it will take ‘around thirty seconds’. Finally, unless the firm has a sound basis for believing that they could actually deliver savings of the magnitude described above, prospective customers should not be given that promise.

Not to be truthful in relation to any of these matters shows complete disrespect for prospects’ time.

Companies who engage in telemarketing should be truthful about the nature and expected duration of the call.

Prospective customers at least deserve that much. 

Much has been written over the past few years about the problem of counterfeit goods.

There are many losers from this unethical practice. Consumers end up with less reliable and potentially unsafe products. Manufacturers suffer from lost sales, loss of reputation and potential liabilities for warranties. Finally, in cases where such products are sold through online auctions, the online auction houses themselves suffer from loss of reputation.

In addition, sales of counterfeit goods at online auctions raise some interesting legal and ethical issues. These were highlighted by the well publicized court case in France between online auction house eBay and luxury goods manufacturer LVMH.

LVMH took legal action against eBay on two grounds. Firstly, they claimed that eBay did not take sufficient steps to prevent the sale of counterfeit goods on its site. Secondly, LVMH claimed that even sales of legitimate goods on the site were illegal as the company only allows sales of its merchandise through selective distribution channels.

A French court last week ordered eBay to pay 40 million Euros ($63 million) in compensatory damages, a decision which eBay has indicated its intention to appeal.

The case has highlighted two interesting legal and ethical issues:

• whether or not online auction houses be held responsible for the sale of counterfeit goods on its site; and
• whether or not a manufacturers should have a right to control distribution of their products.

 
Responsibility for counterfeit goods at online auction houses

In my opinion, primary responsibility for sales of counterfeit goods must lie with individual sellers, who have a duty of care to ensure that their merchandise is genuine.

Online auction houses themselves have a duty of care to take reasonable steps to detect and prevent such sales. Failing this, they should be held liable for compensation from affected manufacturers and/or consumers.

In the case of eBay, its Verified Rights Owner scheme invites brand owners to report suspected counterfeit sales. The company also restricts seller activity in certain cases and enforces limits on items favored by counterfeiters. (click here for details)

These are constructive steps, but the company could do more. For one thing, sellers found to have sold counterfeit goods should be placed on a blacklist and permanently barred from future auctions.

 
Manufacturers right to control distribution channels

The second aspect of the eBay case involves a more basic question as to whether goods manufactured by LVMH should be allowed to be sold on eBay at all. As part of its branding strategy, sales of LVMH merchandise are restricted to selective distribution channels. The company claims that eBay, by allowing merchandise to be sold on its site, violated the company’s right to control how its products were distributed.

I have considerable empathy for LVMH on this point. Surely, a company has a right to decide how its products are distributed, particularly given the impact this can have on branding. Parties who violate that right should be held accountable.

 
A case of poor conduct

Regardless of the final outcome, eBay’s conduct in relation to the case has been very poor.

Rather than publicly address the issue about distribution rights, the company has chosen instead to insult LVMH and spout rhetoric about consumer choice and livelihoods of sellers.

Equally as poor is the company’s flagrant disregard for European legal proceedings. According to a Business Week report, the company has refused to remove any LVMH products from its site until an appeal is heard, despite an injunction preventing the sale of LVMH perfume on its European sites.

Whatever the final result, eBay has not covered itself in glory during the proceedings. In future, the company should show more respect toward both the distribution rights of manufacturers and to legal proceedings across all jurisdictions in which the company operates.