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NOT the Smartest Guys In The Room!

Lynn Johnson
29 October, 2020

The business world likes to portray itself as the smart kid on the block, best placed to keep the global economy ticking, as long as governments and regulators don’t interfere with its activity. And because in the main they get what they want, modern-day industrialists buy into the delusion that they are the smartest guys in the room.

COVID-19 is the best evidence yet showing just how much the business mindset is lacking. While in recent decades MBAs have taught future leaders to read profit and loss statements, they have haven’t supported their understanding about the importance of making the time to reflect. Thinking, and as result, behaviour conforms to a narrow set of accepted norms.

The current business model doesn’t reward employees for making intuitive links and cognitive leaps or for bold, ethical and empathy action. What has been taught is a tick box approach and compliance. And this has worked for decades because in reality markets kept growing because of momentum, due to speculation, not business acumen.

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Strategic thinking was outsourced to consultants and this could have worked but for the fact that most consultants tell their clients what they what to hear and not what they need to know, to ensure that they get ongoing work (and let’s remember they did the same MBAs at the same business schools as their clients). But sometimes consultants do hold up the mirror and show business its ugly face, through a lens of blatant failures and the the tragic results that occur when business ‘doesn’t know what it doesn’t know’; or just blatantly ignores the ramifications even when it does.

A report on green crime published in early 2020 by Refinitiv provides information, for those willing to look, on how the global system of trade is enabling industrial scale environmental damage; this tolerance (for profit) of unethical behaviour has enabled a pandemic that has brought the world to a halt. The Refinitiv (one of the world’s largest providers of financial markets data serving over 40,000 institutions in 190 countries) report highlights the scale of supply chain risks going unreported and undetected.

The survey revealed that just 26% of respondents are knowledgeable about environmental crime and its associated risks. Of those who were aware, a substantial 65% of respondents know or suspect that third parties they conduct business with may have been involved in a range of illegal, environmentally damaging activities.

It wouldn’t take a huge investment, compared to the profits being made, to mitigate the risks of environmental trade. All the evidence seems to point to the smart guys leaving the room some time ago, the exodus starting in the 1980s.

The compliant group left behind, and the generations they have educated since, don’t seem to know how to have difficult conversations, which must be why only 16% of respondents say that they would report a third-party breach externally and only 53% said they would report it internally. Does it mean that the employees who found these discrepancies lacked the confidence or emotional resilience to report these risks to the CEO; or lacked the integrity to whistblow when companies chose not to deal with the ‘illegal, environmentally damaging activities’ they had uncovered in the supply chain?

It is critically important to ask about ethics, integrity and motivations when 63% of respondents agree that the economic climate is encouraging organizations to take regulatory risks in order to win new business. This will (and already has) become worse as a result on COVID-19, with already lax regulations weakened under the guise economic stimulus in many countries.

The report confirmed why it is so easy to launder illegal product into the legal supply chain and marketplace, as represented by the diagram:

Refinitiv’s survey and report demonstrates the need for radical transparency. Many businesses make public proclamations about their commitment to ensuring ‘transparent supply chains’, but too often it results in nothing more than a PR spin.  There is a big difference between public proclamations and the private lobbying of governments that business engage in. In private, businesses continue to lobby for less transparency, more secrecy, more ‘commercial in confidence’. What is the evidence?

Here is just one example. Research published earlier in 2020 reported that luxury fashion brands including Chanel, Gucci, and Coach had thousands of imported exotic leather goods seized by U.S. law enforcement between 2003 and 2013. The researchers only knew which fashion brands were linked to the seizures up until 2013 because after that the US government redacted the names of the businesses importing these products. And why?

Because these businesses had lobbied the government to exempt this information from Freedom of Information requests, under the guise of ‘commercial in confidence’. Having read through some of the submissions made to the U.S. government, from international luxury brands or companies involved in the exotic pet trade, I am left thinking how has this been allowed? Having radical transparency in the supply chain of the fashion industry or the pet trade is not a matter of national security. Commercially, I can see no harm in this information being available if these businesses have nothing to hide because they are doing the right thing!

It is very worrying that these precedents are set, because they are used again-and-again. In recent weeks, the global regulator of the trade in endangered species, CITES, has followed this USA lead. Information in the CITES trade data has been changed to make it even more opaque. The CITES website states:

Given their confidential nature, import, export and re-export CITES
permit numbers have also been replaced with unique identifiers. This
ensures that no confidential data are made available, whilst still enabling
users of the data to identify instances where the same permit number may
have been used for multiple shipments.”

You can imagine who has lobbied for this change!

Business can’t push their sustainability credentials and desire for supply chain transparency while at the same time lobbying for business information to be redacted under the guise of ‘commercial in confidence’. Businesses brand and reputation should be at risk here and Refinitiv’s survey respondents know the value of this type of loss; 25% of the survey respondents said the organization’s corporate value would be lost as a result of a regulatory breach.

American psychologist William Schutz said “Trust is the great simplifier. If people in business [just] told the truth, 80 to 90 percent of their problems would disappear.” We need to let business and governments know we can handle the truth and we expect it. It is time to end the secrecy in the legal trade in endangered species.