Cultural shift needed to cut food fraud risk: ‘Put product ahead of profit’
Food fraud is a growing concern that can result in significant financial and reputational losses for those caught up in a scandal. It is estimated that the cost of food fraud totals between $30-40 billion dollars annually.
While most food companies purport to guard against this risk, fraud expert Chauhan suggests that the pressure to improve financial performance year-on-year can have the unintended consequence of placing supply chains under greater threat.
“Across a number of senior boards, the pressure is to deliver shareholder value ahead of product. Everyone amazingly thinks profits and targets should go up year on year. This results in demand pressure placed upon management, people in our organisations and employees to deliver no matter what because we have to deliver shareholder value on an upward trend. This can cause people to dilute their approach, to cut corners or turn a blind eye when they have some suspicions about the authenticity of a food product because it gets in at a better price,” Chauhan warned.
A similar pattern can be seen in the financial services sector – with devastating global economic results - the legal expert noted.
“When employees are pushed so hard to hit targets, measurables and KPIs regardless of what they are being asked to do, they are in a very difficult position… That is what has happened in the financial services industry time and again – and my fear is too much pressure on profits in this industry and the same risks are going to occur.”
Where are the risk points?
Cases of food fraud can range from serious threats to public health through to ‘misrepresentation’ of claims, Chauhan noted.
In particular, a high level of risk is associated with claims that ‘add value’ but are difficult to verify. “It all comes down to misrepresentation. To ensure you keep market share, what are the differentiators in the market? It may be words like ‘handmade’, ‘authentic’, ‘natural’, ‘locally sourced’. All of those emotive phrases that give you a feeling of comfort and elevate a product can also be easily misrepresented.”
This misrepresentation can have serious consequences in regard to regulatory retaliation such as fines and, often more significantly, on the reputation of a brand. “The biggest [concern of] any consumer group is about misrepresentation or provenance. There is a natural inclination for us to want to trust what we are being told about products. From a consumer point of view, they need to understand where food is coming from and how it is made.”
Chauhan suggested that the executive leadership of large companies ultimately bare responsibility for ensuring their organisations have a culture that does not ‘turn a blind eye’ or ‘cut corners’ in the pursuit of profits – and this boils down to the pressure placed on employees.
“The person sitting on the executive board in a large food manufacturer is not going to know personally that the product was locally sourced or handpicked. They are going to rely on their people in procurement. If they put so much pressure on their people in procurement, who then puts pressure on their suppliers, the easiest thing for their supplier to do is say ‘yeah, it's handpicked’. It puts pressure on people to misrepresent their products. Who loses there is the consumer who is overpaying for a product that they expect a premium on."
The structure of businesses and measurable targets required of employees can contribute to a policy of ‘maximum tolerance’. Chauhan explained: “As an employee, your job depends on hitting certain targets. To achieve those targets you have governance over parts of your supply chain and you know if you turn a blind eye to a question that hasn’t been answered about the authenticity of a food product you can retain your job as a result.”
Combatting ‘maximum tolerance’
Chauhan said that businesses need to stop thinking about safety and compliance as a business cost. “Safety, regulation, governance are cost centres of any organisation. They aren’t profit centres. Compliance is something that is going to cost the business and they don’t see it as a profit centre. They don’t see how getting that right can lead to better profit because trust is a fantastic commodity for any business.”
Food makers require a cultural shift to fight fraud. This comes from the top, and senior leadership needs to embed a zero-tolerance approach.
“In our world, the Bribery Act came out 8 years ago – one of the principles is the executive should have a policy of zero tolerance. But what you actually have is a culture allowing ‘small wrongs’ – what I call maximum tolerance.
“When I look at fraud, it is about manipulation and human behaviour. If you don’t recognise that as a business, if you create an environment where those behaviours can be manipulated, your corporate statements are worthless really.”
This culture is starting to change but Chauhan believes the industry should pick up the pace: “There are a few organisations that are starting to take that responsibility with a more senior executive role. Because that is where it starts. [These executives] are given complete scope to challenge question and push, from the board right down to people in procurement. And that is great – but there aren’t many of them out there.”