We have all heard the stories about Nike using child labor to make their clothes or Apple permitting poor labor standards in their factories to assemble iPhones. But to single out one part of the supply chain is only part of the picture. The reality is that the integration of supply chains and the practices of our partners all can result in reputational effects. In realizing this, a Supplier Code of Conduct has become a necessary tool for retailers to ensure their standards and values are maintained throughout their network. When building a Compliance program, it is important that partners and suppliers keep in mind Dr. Seuss’s admonition against becoming a bee watcher–you can’t be passive and simply watch what others are doing. In order to maintain standards, you have to be an active participant in your Supplier Code of Conduct.
It is critical to not just click “agree” to a Supplier Code of Conduct, but also to invest in understanding the appropriate controls to ensure you can pass an audit of your practices. A supplier should also put in place the appropriate policies and maintain control evidence, which can free the bee watcher from having to watch the bee watcher. Your company’s ability to demonstrate that it is a good partner is increasingly becoming the metric of whether you get that big contract or not.
For example, Nordstrom’s Partnership Guidelines state in relevant part:
“Nordstrom will review and may terminate its relationship with any supplier who is unwilling or unable to comply with the Partnership Guidelines. Nordstrom monitors compliance with our Partnership Guidelines and undertakes onsite inspections of suppliers’ factories. Factories must be transparent and maintain all accurate documentation on file. Factories must authorize Nordstrom representatives and designated third-party monitors to engage in announced and unannounced monitoring activities to ensure compliance, including confidential worker interviews.”
The main elements of a Supplier Code of Conduct are as follows:
- Notification of subcontracting
- Compliance with anti-corruption laws
- Prohibition against child labor
- Prohibition against forced labor
- (Whistleblower) Hotline
- Prohibition against harassment of any kind
- Animal welfare
- Compliance with intellectual property
- Environmental compliance
- Conflict minerals prohibition
Depending on the size, complexity, and offerings of your business, only some of these may be applicable. This is where it is important that you tailor the Code of Conduct to your respective business. It is important that this be a “built-in” rather than a “bolt-on” process. A traditional bolt-on approach establishes a control outside the system – a bee watcher. This creates inefficiencies and slows the overall transactional velocity. A built-in approach instead requires those performing the central task to do the checking themselves. By doing so, you can use existing resources to monitor compliance without having to have a whole new team. There should still be some monitoring to make sure that the correct rigor still exists, but this would be limited and should not slow the overall transactional velocity.
|Bolt-On Approach||Built-In Approach|
|Design||Creating tasks that maximize compliance outcomes||Designing tasks that improve business workflows and compliance at the same time|
|Coordinate||Taking a comprehensive approach to covering risks, with ad hoc cross-functional collaboration||Coordinating risk mitigation with relevant assurance functions via more regular operational collaboration|
|Assess||Focusing measurement efforts on program implementation and employee participation||Targeting opportunities to assess how well compliance activities are built into the business|
Working with a Compliance expert is critical to developing a compliance system that can withstand scrutiny and is defensible as an audit. And a well-designed program can enable innovation and overall increase the value of your business because of the investment in controls that make partners and investors value you at a higher level. And the best part yet? No bee watching involved.
The Bee Watcher
“Oh, the jobs people work at! Out west near Hawtch-Hawtch there’s a Hawtch-Hawtcher bee watcher, his job is to watch. Is to keep both his eyes on the lazy town bee, a bee that is watched will work harder you see. So he watched and he watched, but in spite of his watch that bee didn’t work any harder not mawtch. So then somebody said “Our old bee-watching man just isn’t bee watching as hard as he can, he ought to be watched by another Hawtch-Hawtcher! The thing that we need is a bee-watcher-watcher!”. Well, the bee-watcher-watcher watched the bee-watcher. He didn’t watch well so another Hawtch-Hawtcher had to come in as a watch-watcher-watcher! And now all the Hawtchers who live in Hawtch-Hawtch are watching on watch watcher watchering watch, watch watching the watcher who’s watching that bee. You’re not a Hawtch-Watcher you’re lucky you see!” –Dr. Seuss