Cotton Plant Bulb
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Governance

Benefits of industry self-governance

Business Climate
There are times when the actions of one company (or its contactors) can lead to long-term consequences on the entire industry. In my July 26th blog I discussed how the BP Deepwater Horizon spill will likely lead to more restrictive permitting of new deep sea drilling and increased regulations and engineering control requirements.

Tighter regulations can also result from an industry's inaction such as not acknowledging corruption or human rights violations associated with raw material production. For example, The Dodd-Frank Wall Street Reform and Consumer Protection Act signed by President Obama on July 21, 2010 mandates new auditing and disclosure requirements for companies that use certain minerals in their products originating in areas known to be mined under conditions of armed conflict and human rights abuses. On December 15, 2010, the U.S. Securities and Exchange Commission proposed rules to implement the provisions of this Act. Its focus is to ban the use of metals from the Democratic Republic of the Congo due to human rights violations that are occurring in that country.

Although the regulations don't ban the use of conflict minerals, many industries, such as the electronics and airline industries, are responding to the regulations by developing programs to rid their supply chains of conflict minerals. These programs that rely heavily on audits to confirm the origin of a given metal, are resource intensive, expensive and create new reputational and legal risks to the companies should the audits not satisfy all interested stakeholders. It could also lead to a more restrictive number of qualified suppliers (those who don't purchase any conflict minerals) and more limited source of materials that could, in turn, lead to higher prices if demand outstrips qualifying supply.

The cotton industry can learn from these events and proactively mitigate the risk of reputational damage or increased and burdensome regulations. The industry faces several challenges: 1) cotton is often perceived as being pesticide and water intensive, 2) the Uzbek government's use or acceptance of child labor during cotton harvest is gaining more public attention and action by the U.S. government, and 3) WTO rulings shifting the landscape of cotton production. The cotton industry could avoid negative reputational impacts or the risk of future regulations by addressing the areas of concern (e.g. pesticide use, child labor) as well as communicating all of the positive aspects of cotton (e.g. natural fiber, creates income to rural, poor farmers). This may become more beneficial and important as cotton prices soar and faces competition from synthetic fibers.

Question

Is there a role the cotton industry could take to minimize the risks to the industry's public perception associated with the most egregious environmentally and socially conditions?

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