‘Lieferkettengesetz’: How workers don’t profit and consultants do
On June 11, 2021, German Parliament voted in favour of a law that demands importers of consumer goods to secure human rights in their supply chains. The law comes on top of existing voluntary agreements and ‘soft law’, which apparently were too weak to to the job. Will this be remembered as a major achievement? Let’s start with a phantasy.
11th of June: Supply Chain Justice Day Imagine: in the not too distant future, the 11th of June will be a national holiday in Vietnam, Bangladesh and a few other countries. Why? Because on this date in 2021, the German Bundestag passed the ‘Lieferkettengesetz’, a law that forcers importer of consumer goods to take care of human rights in their supply chain. It was a milestone on the road to respecting human rights in these exporting countries.
Sorry to say that this is extremely unlikely to happen, for one simple reason. It is based on a great number of wrong assumptions about the real world. Therefore the law is not going to improve anything substantial for these workers,
The road to hell is paved with good intentions
The only good thing about this law is its intention: improving human rights. Unfortunately the road to hell is paved with good intentions. The law rests on three very weak pillars: poor understanding of how supply chains work, ridiculous ideas on how real companies in the real world tick, and, last but not least, blindness to the lessons learned since the 1990s.
Clueless and blind
Clueless about supply chains
The law is apparently written by people who don’t have a clue about the real nature of supply chains and their complexity in the real world: not only are the company’s supply chains composed of hundreds or more suppliers. These suppliers engage many sub-suppliers or parallel suppliers. Supply chains may change with the speed of light. The way the word ‘Lieferkette’ as used in the legal text suggests a false impression of stability and simplicity that only occurs as an exception. The makers of the law have avoided the fundamental question whether controlling human rights issues from the importers side is a good idea at all. Of course it is not: if a producer has say 200 customers and all these 200 customers have to deal with human rights at a distance of 5000 km through their 200 supply chain management systems, it’s a waste of time. Production issues should ideally be dealt with at the production site, not at the 200 customers’ offices. It cannot be a model for the future.
Clueless about real companies
The law is written by people who seem to be even more clueless about how real companies work real time in the real world. The image the law text evokes is that of an old-fashioned slow working hierarchically organized government department, rather than the real type of nervous animal that operates on the interface of rapidly fluctuating consumer markets and volatile export markets for consumer goods. This lack of understanding can have seriously negative consequences. The law, for example, demands companies to create additional staff functions, management and information systems. Everybody with a bit of understanding of how real companies work, knows that the creation of staff functions for sustainability or human rights is a good model to side-track these issues and to de-couple them from real business. The ‘Lieferkettengesetz’ contains a lot of reporting obligations on different issues. Interestingly, they are all on an annual basis and should be kept for many years, similarly to financial records for tax purposes. It is questionable how helpful annual reports are in a business that ticks in time-scales of weeks, days and hours.
Blind to lessons learned
The law appears to be blind to the lessons learned since the 1990s, when companies were forced by NGOs and consumer organizations to take influence on their suppliers. Many large retailers and brand owners have built up considerable experience since then, in cooperation with standard owners, certification organisation and auditors (SA 8000, BSCI/Amfori, ETI, etc.). On the basis of strong efforts, modest results have been reached, but the fundamental flaws of the model – in the 1990s the only option available – are becoming increasingly visible. Too many suppliers appear to be in endless processes of continuous improvement without actually improving, too many players in the supply chain manage to remain invisible. Real supply chains change more rapidly than auditing reports manage to report. Audits can easily be circumvented and results falsified. Beautiful audit reports are at best an indication of the company’s interest in the issue, rather than a hard proof that their suppliers are OK. More than often, the reports fake responsibility for the companies.
Because of these deficiencies, there is a urgent need for a different model: which assists producers to manage themselves on the basis of local self-interest, local expertise and local management systems and to reduce the importers’ role. Increasing the dose of a medicine that does not work well is not always a good idea. That is what the German law suggests, however.
The resulting mess
On the basis of this collection of unbelievable stupidities, the Germans have passed a law:
- that is written by people who care more about popular prejudice and politically attractive slogans than about the real world;
- that creates tons of paper/gigabytes without creating sufficient incentives for real pragmatic action on the working floor;
- that most likely will not bring any noticeable improvement to workers in exporting countries;
- that effectively blocks progress towards more effective ways to improve human rights in the producing countries;
- that helps institutionalize a model that has already reached its practical limits and is overdue to be replaced by more effective ways of securing human rights;
- that is so problematic in its enforcement that it will lead to an endless agenda of updates, corrections, the creation of new management tasks, management information systems and the like;
- that is a goldmine for all those consultants who are not interested in real improvements in human rights in the real world but like to create instruments to gather terabytes of data on parameters nobody really understands.
Accepted and rejected for the wrong reasons
Why the hell was this law, if it is so problematic, accepted at all? The answer is not too difficult: because major stakeholders profit more than they lose.
Against for the wrong reasons
Of course, there was huge resistance in the business world, but not all companies were against. On the one hand, the traditional conservative German associations BDI and BDA were strongly against, but clearly for the wrong reasons. Their main complaint was about costs for industry, especially in the post-Covid era. This is a bullshit argument. Human rights are important and may cost a Euro. If you are against this law, you can be only for one reason: it does not contribute too much to human rights.
In favour for the wrong reasons
Another part of German industry, especially the companies that had implemented compliance standards like BSCI/Amfori in their supply chains were (of course) in favour of the law. The law demands them to do what they have been doing for the last 20 years, not too much more. It creates a business advantage vis-à-vis companies that haven’t started yet. So they agree on the law, but for the wrong reasons. They do not agree because it helps secure human rights in the producing countries. They agree because it makes them stronger competitors.
There is no need to explain why the usual suspects such as the NGOs and consumer organisations were and are in favour. The do not have any interest in questioning the idea that retailers and brands in Germany can and should made responsible for crimes against human rights in third world countries. But again, it is the wrong reason to agree. Independently of the interests one serves, the only valid reason to honestly agree on this law can be that is furthers human rights in the exporting world. This stupid law most likely will not.
It will take some time before relevant people and organizations discover that this law won’t do what it is intended to do: helping workers in countries that produce mass consumer goods for us. There is a real risk that, before that, this nonsense will be exported to the EU level. Good news for IT consultants and those who want to sell needlessly complex systems for solving badly defined problems. But sooner or later we will be able to remove the thick layers of impenetrable words and see the reality on the work floor. But long before this time, importers of mass consumer goods and their governments should re-think their strategies for securing human rights in the exporting countries.