A supplier’s commitment to ethics and compliance should be a key consideration when assembling a supply chain. –  Patricia J. Harned, ECI CEO

The Ethics & Compliance Initiative’s (ECI’s) latest Global Ethics Survey, Ethics & Compliance Risk in the Supply Chain, focuses on employees in the business supply chain (ECI, 2016). It found that as a group, employees in supplier organizations are, on the one hand, more aware than employees of non-supplier organizations of the ethics and compliance resources provided to them and feel better about their ability to face workplace integrity challenges, and more likely to agree that leadership values workplace integrity and ethical conduct.

On the other hand, they are more likely to feel pressure to compromise standards and to observe misconduct, and more likely to report misconduct when observed and to experience retaliation as a result. Notably, supplier employees are more likely than non-supplier employees to make their first report to a helpline/hotline (12% vs. 4%), perhaps because of concerns about retaliation.

They are also more “far more likely” than non-supplier employees to “experience significant organizational change – which is linked to considerable increases in workplace ethics challenges.” The report advises that “during times of organizational change, ethics and compliance should be a top priority—not relegated to a minor role relative to other business considerations.”

The most common types of misconduct reported are:

• Violations of health and/or safety regulations, 30%
• Conflicts of interest, 29%
• Hiding (potential) violations before onsite inspections, 28%
• Delivery of goods or services that fail to meet specifications, 25%
• Violations of environmental regulations, 25%
• Retaliation against someone who has reported misconduct, 23%
• Inappropriate alteration, falsification, and/or misrepresentation of your organization’s documents or records, 20%
• Engaging in anti-competitive behavior (e.g., price fixing, bid rigging), 19%

This list of the common types of misconduct reported by supplier company employees is a good place for the leaders of those organizations—and for the firms they supply (buyer organizations)—to focus their attention. The ECI report highlights the self-interest and responsibility of the buyer organizations in ensuring that suppliers adhere to ethics and compliance expectations and commitments.

Effective supply chains are crucial for business success. When working properly, partnerships between suppliers and businesses that market to consumers enable goods to reach the market faster and more cheaply. [But] violations of workplace integrity can carry a profound cost for buyer organizations. This is especially true for recognizable brand names that often suffer severe legal and reputational harm when their suppliers go astray.

Per ECI, “Buyer organizations that depend on third party suppliers should take a deep look at potential suppliers’ ethics and compliance standards and programs as well as work conditions before committing to a deal.” They should also ask tough questions of their suppliers and potential suppliers, to include:

• Do potential suppliers operate with integrity and expect their employees to do the same?
• Are employees properly trained to recognize misconduct, and will they report it if they see it?
• Are senior leaders committed to ethical performance?
• Will senior leaders support employees who speak up about wrongdoing?

Buyer organizations typically work with multiple suppliers from across the country and around the world, so it is no easy task to scrutinize supplier commitment to ethics and compliance. However, doing so reduces risk to the organization and provides additional incentive to supplier company management teams to demand and support a culture of ethics in their own organizations.

Ethical Advocate is an independent, third-party ethics and hotline company that specializes in advocating ethical culture and behavior in the workplace. Feel free to contact us for additional information.

References

Ethics & Compliance Initiative (ECI). Global Business Ethics Survey: Ethics & Compliance Risk in the Supply Chain, December 2016. http://www.ethics.org/research/gbes/supply-chain