Guest Column: Building an Ethical Supply Chain

Being an ethical company isn't enough anymore. A company is expected to have its entire supply chain ethical. Ultimately, every company finds itself part of a supply chain experiencing ethics or compliance violations. When this happens, chances are the biggest brand in the chain will get blamed.

The supplier-generated ethics scandal is one of the biggest business risks most leading companies face today. The damage is great, and protective measures should be adopted immediately. The good news is that feasible, affordable solutions exist and can quickly be implemented.

What Is the Ethics Problem in the Supply Chain?

Almost every company buys unfinished inputs from other companies before refining and sending them downstream toward their ultimate end-users. Simply put, the problem in the supply chain is that consumers often blame purchasers for ethical lapses that were committed further upstream by suppliers.

It is worth noting that it is not just any company that takes the rap for wrongdoing committed by suppliers. In the typical supplier-related ethics imbroglio, many different purchasers could be hit with the blame. In reality, the blame usually falls on the biggest brand playing any role in bringing the offending product or service to market.

The scapegoat company could be closely associated with the unethical supplier or many steps removed but will always have the biggest reputation to protect. This state of affairs may not be just, but it is how the ethics and compliance game works when ethical violations by suppliers are involved.

No organization or industry is immune to this risk. In 2007 the drama unfolded at eye-catching companies such as Mattel, Del Monte Pet Products, Toshiba and Dole. Each is a real-world example of a leading brand taking the hit for ethics or compliance breaches committed by suppliers.

In these and similar instances, suppliers created the dangerous conditions that captured the public's attention — yet the suppliers' names could not be found in headlines. The biggest brand paid the price. When toy shopping, consumers boycotted Mattel, not the invisible supplier Yip Sing.

Despite the pervasiveness and seriousness of the problem, companies can take a positive step toward inoculating themselves against damaging headlines by implementing a supplier ethics management (SEM) initiative. In fact, boards of directors should make this a priority for 2008.

What is the Current State of SEM?

Most companies do a good job of managing risk categories within their four walls. However, these same companies often fall short managing corporate integrity risk in supply networks.

In a recent survey of Global 2000 companies, Integrity Interactive uncovered the following:

  • 88 percent of respondents do not maintain a Web-based portal that suppliers can use to receive communications from the purchaser. Of the 12 percent that do maintain such portals, none used them to deliver any compliance- or ethics-related information to suppliers.
  • 86 percent of respondents concede that their primary ethics code does not address the conduct of suppliers.
  • 59 percent of respondents do not include suppliers in their analysis when assessing their company's ethics and compliance risks.

Compliance Officers Should Collaborate with Procurement Colleagues

What Can Companies Do Today?

  • distributing a company's code of conduct and updates to suppliers
  • documenting supplier receipts of these requirements
  • facilitating two-way communication between a company and it suppliers on topics regarding ethics and compliance.

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