You comply with all legislation that you can possibly think of in the area of ‘Ethical sourcing’. But can you say the same of your sourcing partners? Do they also comply with your own ethical standards, for example in aspects such as sustainability, social return and fair pricing? Taking chain responsibility is unexplored territory for many organisations. At the same time, legislation such as REACH, the Conflict-Free Smelter Program and the Dodd Frank Act require you to be in control – also of your suppliers. Just like Apple, McDonalds and recently Shell, your organisation could be publicly named and shamed. How can you realise such third-party compliance? How to control the interests of your stakeholders?
Shame and Blame – but who?
The Dodd Frank Act, for example, determines that companies listed on a US stock exchange and their suppliers must report to the Security and Exchange Commission (SEC) on the use of conflict minerals. Conflict minerals are minerals extracted in the Democratic Republic of Congo or one of its nine neighbouring countries. The mineral mines in this area are under the control of militant groups that are responsible for serious violations of human rights. There is no supervisor controlling child labour, forced labour occurs and developing mines leads to deforestation. The afore-mentioned minerals are used in many products, ranging from mobile telephones, x-ray equipment, satellite dishes and telecom broadcasting towers to zippers, computers, televisions, packaging and circuit boards. According to SEC, reporting the use of conflict minerals in products leads to more transparency in trade in minerals that contribute to financing armed combat. As yet, no sanctions are imposed upon the use of conflict minerals, but the name, shame and blame has been set up.
The hazards of chain responsibility in your supply chain compliance
Also in the REACH legislation, we can see such a chain responsibility concept. REACH relates to registration, assessment and authorisation of chemicals. European legislation makes the full industrial chain responsible for safer use of chemical products. Under REACH, for example, it is mandatory for manufacturers to think about their purchasing policy, their production process and the way in which they communicate with their customers and suppliers. For example, preparing a Safety Information Sheet (SIS) of each substance listing the key properties and hazards of a product and providing it to its buyers is mandatory to each importer or producer of a substance. In turn, these buyers must forward this SIS to its own customers, etc.
New legislation, new opportunities
This type of legislation is arising in many other areas in the supply chain. Furthermore, your organisation probably has its own ethics, the critical consideration of correct actions. In this context, you try to establish clear criteria in order to asses whether an action should be classed as right or wrong. And you evaluate the motives and consequences of this action in relation to your stakeholder. Ethical sourcing combines legislation with your own values and standards, which creates de facto third party compliance. You know that your suppliers comply with the standards you have chosen and you no longer need to lose any sleep over it. In order to achieve that peace of mind, you need active stakeholder management. You continue the dialogue, for instance with your suppliers, on your standards and values and the legislation applicable to you. This creates commitment from your suppliers as well as awareness on legislation such as REACH and the Dodd Frank Act.
For several years, RGP has been aiming to compare listed companies in various countries using the RGP Governance Index , based on several aspects other than compliance with acts and codes. Based on disclosed information, governance performances are measured on three themes: compliance, capacity and commitment. By actively entering into a stakeholder dialogue on these themes, you will be better able to limit reputation damage or compliance risks, while enhancing your third-party compliance and ethical sourcing. You are closing gaps and you can count on the actual commitment of your suppliers.
On may 23, 2013 we will host a Dialogue session on this topic in English