During the global economic recession that began in mid 2008, many companies found it diffi cult to gain enough credit in the form of short-term loans from their banks and other lenders. In some cases, this caused working capital problems as short-term cash fl ow defi cits could not be funded. Ultra-Uber Limited (UU), a large manufacturer based in an economically depressed region, had traditionally operated a voluntary supplier payment policy in which it was announced that all trade payables would be paid at or before 20 days and there would be no late payment. This was operated despite the normal payment terms being 30 days. The company gave the reason for this as ‘a desire to publicly demonstrate our social responsibility and support our valued suppliers, most of whom, like UU, also provide employment in this region’. In the 20 years the policy had been in place, the UU website proudly boasted that it had never been broken. Brian Mills, the chief executive often mentioned this as the basis of the company’s social responsibility. ‘Rather than trying to delay our payments to suppliers,’ he often said, ‘we support them and their cash flow. It’s the right thing to do.’ Most of the other directors, however, especially the fi nance director, think that the voluntary supplier payment policy is a mistake. Some say that it is a means of Brian Mills exercising his own ethical beliefs in a way that is not supported by others at UU Limited. When UU itself came under severe cash fl ow pressure in the summer of 2009 as a result of its bank’s failure to extend credit, the fi nance director told Brian Mills that UU’s liquidity problems would be greatly relieved if they took an average of 30 rather than the 20 days to pay suppliers. In addition, the manufacturing director said that he could offer another reason why the short-term liquidity at UU was a problem. He said that the credit control department was poor, taking approximately 50 days to receive payment from each customer. He also said that his own inventory control could be improved and he said he would look into that. It was pointed out to the manufacturing director that cost of goods sold was 65% of turnover and this proportion was continuously rising, driving down gross and profi t margins. Due to poor inventory controls, excessively high levels of inventory were held in store at all stages of production. The long-serving sales manager wanted to keep high levels of finished goods so that customers could buy from existing inventory and the manufacturing director wanted to keep high levels of raw materials and work-in-progress to give him minimum response times when a new order came in. One of the non-executive directors (NEDs) of UU Limited, Bob Ndumo, said that he could not work out why UU was in such a situation as no other company in which he was a NED was having liquidity problems. Bob Ndumo held a number of other NED positions but these were mainly in service-based companies. Required:
(d) Criticise the voluntary supplier payment policy as a means of demonstrating UU’s social responsibility. (5 marks)
参考答案：
Criticise the voluntary supplier payment policy Supplier payment disclosures have become increasingly popular in recent years in some countries as a signal of intent to suppliers that larger buyers will not exploit the economic advantage that they sometimes have over smaller suppliers. It is usual for these statements to announce that all payments will be made in line with the supplier’s terms and so UU’s intention to voluntarily pay within B0 days is more generous that would usually be expected. In terms of criticism as a means of demonstrating social responsibility, the case says that the purpose of the policy is to ‘publicly demonstrate our social responsibility’. A key limitation of the policy is, however, that the policy only focuses on one stakeholder (suppliers) and apparently ignores other groups. Given the information in the case, the social responsibility policy is apparently aimed at one single stakeholder which is an ineffective overall strategy. Secondly, however, it is unlikely that this policy is the best use of resources if the desire is to ‘publicly demonstrate’ social responsibility. Measures aimed more at customers or more charitable causes would be likely to attract more publicity if that is the intention. The policy is very costly to UU in terms of cash flow. So much so that the fi nance director has questioned whether it can actually be afforded, especially at times of a lack of short-term credit, particularly during the global economic recession. It is, of course, a matter of ethical debate as to how committed UU should be to its social responsibility in terms of resources. Finally, the policy doesn’t enjoy the support of the other directors and is thus hard to maintain as an ongoing commitment. This means it is vulnerable and susceptible to change if the CEO is the only person who really believes in it. As a part of the company’s overall strategic positioning, the components of social responsibility must enjoy widespread support, especially among the senior offi cers in the company, and arguably most importantly, it must enjoy the support of the fi nance director.