A research report on ‘The value of supplier codes of conduct: supporting transparency and improving performance’, co-authored by sustainability, business and human rights consultancy Ardea International and the University of Westminster Business School, has presented some interesting analysis. It includes the value of supplier codes of conduct, their purpose, weaknesses and make-up.
Primary among the messages to come out of this review, which reflects our own experience, is that for opportunities to be optimised from a code of conduct exercise within your organisation, stated aspirations must be followed up with ongoing monitoring and commitment. In other words, promises, however good and well intentioned, are worthless without action.
In this article we take a look at this white paper and specifically at the seven elements to consider when designing your own code of conduct.
What is the purpose of this particular code of conduct?
The report states: “The goal of a code of conduct is to help demonstrate corporate social responsibility (CSR) in the marketplace. Upholding CSR standards benefits the public reputation of a company because it exemplifies an organisation’s commitment to ethical business practices which builds trust between their stakeholders and consumers.”
Perception has become an incredibly important factor in customer buying decisions. An organisation’s labour practices, environmental commitments and community responsibilities, and those of its partners and suppliers, can and do have direct impact on bottom lines as increasingly socially aware consumers vote with their metaphorical feet.
We have seen that when companies exploit their workforce or are found to be involved in poor environmental practices, they lose out to competitors who have invested more cleverly in setting out and upholding their CSR commitments.
A code of conduct is an internal commitment towards ethical practices, but increasingly it is being extended to all the organisations a company will include in its supply chains. It is a self-governance initiative, a set of guidelines that the organisation is promising to uphold.
How does a code of conduct benefit an organisation?
Fundamentally, the benefit of a supplier code of conduct is wrapped up in transparency and accountability.
A supplier code of conduct sets out the behaviours and expectations of individuals within an organisation, the practices and standards they are to hold themselves up to. That’s the promise the organisation is making to the world at large. Transparency comes from the regular monitoring of how they and their suppliers are faring against these standards, and how much of this information they share publicly.
Promises made, but not backed up by action, offer no positive benefit. Promises made, but clearly broken, can – and will – have a negative impact, whereas promises upheld and surpassed, and shown consistently to be so, will not only encourage consumers to buy, but will also provide a moral shield around the company.
A word of warning though – once an organisation goes down this road it has to commit to not only maintaining the standards it promised, but to also keep on evidencing that they do so, because trust is, as always, hard won and easily lost.
Extending your code of conduct to include your suppliers
In the globalised world of commerce today, it would be rare to find a major organisation which does not use the services or support of others across the world. Some may have local ethical and behavioural standards that fall short of your own. And, if your brand or organisation should be linked with a pollution problem caused by your manufacturing partners in Southern India or the exploitation of underage workers at your factory partners in China, the public will see your company as the one breaking ethical codes, and both your sales and reputation are likely to suffer.
The report notes that: “In order for a code of conduct to have a meaningful impact, organisations should create a document that demonstrates a cultural awareness and feasibility of expectations for their suppliers. The content of a code should also establish a monitoring mechanism to measure if the code is working and make changes when violations are found.”
It is, therefore, not surprising that those who use codes of conduct to best effect, involve their suppliers in their promise. They claim that no matter where in the world they may be, their suppliers are held to the same standards. Evidence that these standards are being upheld is gathered on a regular basis and published for everyone to see. This requires consistent processes to be in place for realigning failing suppliers and rejecting those who do not make the grade.
It is more important than ever for organisations with strong codes of conduct to ensure that their suppliers fit their ethical mould. The cost to your organisation of a reputational scandal is likely to outweigh the inconvenience of seeking to align a supplier’s practices to your own, or finding another, better supplier to work with. The way you handle suppliers that do not conform to your code of conduct says more to your customers often than the words within your conduct ever could.
7 key elements of a supplier code of practice fit for your organisation
While every organisation is different, the white paper suggests seven fundamental elements that all codes of conduct should contain.
- Organisational responsibility. Understand your organisational responsibility in the global economy. A good first step here would be to review the UN Guiding Principles on Business and Human Rights (UNGPs)
- Conduct implementation. Incorporate human rights, labour, the environment and anti-corruption, as well as your organisation’s approach to whistleblowing, as the framework for your codes of conduct.
- Best Practice. Also include best practice categories specifically suited to your sector. The OECD Guidelines for Multinational Enterprise was considered a useful source for these.
- The right individual. Choose the right person to draft the code of conduct. Anyone within the organisation can pull together the document; however, senior leadership and legal counsel should review it for complete suitability for the task.
- The correct framework. Be direct and clear, make sure all requirements are measurable, provide context, reason and examples, determine everyone’s responsibilities and level of compliance as well as referring to relevant international guidance.
- Monitoring compliance. Determine who is responsible for monitoring compliance and how regularly assessments will take place to ensure standards are being upheld.
- Keeping aligned. Set out how violations will be identified, how they will be dealt with, and how relationships will be terminated if realignment with expected standards is not possible.
The creation of a supplier code of conduct document involves significant research to determine the ethical standards you wish to be associated with. It operates alongside the appropriate promises that should be incorporated to earn and maintain the trust of your buying public. However, implementing these behaviours will always be far trickier.
Most major organisations will either have, or be moving towards, a CSR policy to demonstrate all the benefits that this expression of their ethical standards can offer. Backing this up with a code of conduct to set in stone these promises, alongside the transparency of reporting on progress, is a sensible next step. However, perception is a tricky thing – one slip up, one bad news report about an employee or a supplier and all of that good work could be forgotten and trust needs to be built up again.
A code of conduct is just the starting point – it’s the strength of your ability to uphold its standards and how you share your successes, and your failures, which will maintain and strengthen the buying public’s belief in your convictions.