Crafting an effective code of conduct—often more art than science—is difficult enough for a single, domestic entity. Developing them worldwide and getting not just employees but vendors and suppliers to abide by them is an even taller task.
Implementing supplier codes of conduct for global companies in global markets was the topic of discussion during last week's Compliance Week Europe conference held in Brussels. Carol Umhoefer, a Paris-based partner with the law firm DLA Piper, and Karis McLarty, director of group compliance for TUI Travel, provided tips on how to express a company's basic values simply and in ways that can be recognized across cultures and languages. They also discussed ways to get a diverse group of suppliers and vendors, which can number into the thousands at some companies, to actually abide by the code.
McLarty has first-hand experience meeting this challenge. Her company created codes of conduct that reach more than 60,000 employees and suppliers in 180 countries.
“To create a code of conduct that is going to be relevant to all suppliers is nearly impossible,” McLarty said. However, there are approaches to make the process more effective and earn acceptance, she adds. It is crucial, for example, to establish the relevance of the code, something best done by making sure it adapts to local language and culture. McLarty summed it up simply: “Will people use it?”
“We had to create a Frankenstein's monster to create our first supplier code of conduct,” McLarty said, of all the various pieces considered for it. The code needed to be engineered so that it didn't conflict with any local legislation. “When you put into place labor laws requirements, that actually gets very complicated,” she said. The code also had to mesh with any conventions or agreements the company agreed to.
The supplier code of conduct was designed to mirror the company's own code of conduct. “We didn't want to ask our suppliers to do anything that we weren't prepared to do ourselves,” she added.
Why should suppliers and internal business units care about a code of conduct and live by it? Umhoefer stresses risk management and the protections adherence can bring when it comes to legal and regulatory mandates, or as a defense against Bribery Act claims. Those protections are just part of the rationale, she says. The goal is to also convey the corporate culture out to suppliers and set a tone that is fair and ethical.
“You are coming down from the mountain with your 10 commandments,” she said. “Even private companies that don't have an explicit obligation to have a code will tell us that it is about integrity and credibility with clients. It is very important to have values and live those values within the company. There are many elements of a compliance program but the code is often the centerpiece,” Umhoefer said.
Enforceability of a supplier code of conduct can foster significant internal debate. “Some wanted suppliers to sign on to it, and they wanted it to be a material breach of their contract if they didn't,” McLarty said of the discussion at her company. “For some suppliers, however, that was impractical.”
“When you are talking about corruption it probably doesn't matter. You don't need a code to tell your employees not to make a bribe.”
—Carol Umhoefer,
Partner,
DLA Piper
Rewriting contracts to enforce a code is not something that should be done cavalierly. “If you are going to renegotiate a longstanding contract, it could be vulnerable to the supplier then renegotiating other provisions,” she said.
Her company chose to structure their codes as guidelines, forgoing, for now, the inclusion of a right to inspection. As needed, however, any parts of a supplier code of conduct that business units think should be contractually required will be raised when those contracts are renegotiated.
TUI Travel was also willing to let suppliers adhere to their own internal codes of conduct instead. This was done, however only after a careful comparison of the documents, vetting what the differences were, why certain elements were not common, and what to do about those discrepancies.
Keep It Simple
Carol Umhoefer, a partner at DLA Piper, led the discussion on global codes of conduct.
“Clarity,” is another key ingredient for an effective supplier code of conduct, McLarty said. This entails making the document language compatible and “making sentences shorter and more easily translatable.” Just as important as the supplier code of conduct itself is having an accompanying “frequently asked questions” document to explain it in greater detail. “Your business has to understand what you are trying to do and that it isn't lip service,” she said.
“Local language translations are very helpful,” Umhoefer said “People don't know English as well as they think they do. If you are a native English speaker, think of how many misunderstandings you have had with another native speaker. Now, think about how that gets multiplied when you are dealing with people for whom English is not their natural language.”
Although some codes take a “kitchen sink” approach, others earn their value and clarity from being concise. Boeing, as large and diverse as the aeronautics giant may be, has a code that is less than a page long and sticks to presenting core company values.
Pictured above: Karis McLarty, director of group compliance at TUI Travel.
“Our supplier code of conduct is about five pages long,” McLarty said. “When we started it was about 20 pages long. We just kept cutting, seeing where duplications were, and changing a whole bunch of provisions to applicable laws where we saw there were difficulties. We felt we couldn't cut it down any further and still have it be useful.”
Despite the push for brevity, she advised against writing a code that is too intangible. “If we really want to change conduct we can't have it be too high level,” she said. “We have to cover actual topics and spell out ethical practices.” Buy-in from the board and top management is important validation, but earning it from front line employees and suppliers means “showing how it works on the ground.”
ESTABLISHING SUPPLIER CODES OF CONDUCT
Below is an excerpt from the CW Europe presentation of Karis McLarty, director of group compliance at TUI Travel.
Supplier Code of Conduct FAQs:
1. If it is not contractual, what is it for?
2. What will the consequences be if a supplier is in breach of the Code?
3. Is the Code to be given to all suppliers or just material suppliers?
4. How do we monitor supplier adherence to the Code?
5. What is the scope of the Code?
6. Will we expect suppliers to sign this document?
7. Can we apply our own branding to the Code?
8. Not all the provisions in the Supplier Code of Conduct are relevant to my suppliers. Does this mean that it does not apply to them?
9. What sort of training in these issues will we offer suppliers?
10. Where do the provisions in the Code come from?
11. Will Competitors have the same Supplier Code of Conduct?
12. Some of the provisions talk about minimum wage standards, etc., which are not the same as the law in my supplier's country of work. What do we do then?
Source: Karis McLarty, TUI Travel, Codes of Conduct Presentation.
Some of the strategies for getting suppliers to buy into the code of conduct are similar to the ways companies get employees to abide by the code. Both panelists said that employee buy-in isn't always easy to obtain, but they can be won over in due time. For those who are not, enforcing the code with punitive action isn't as easy as it sounds when employees are multi-national.
“What it really comes down is how long or short a leash do you put on HR,” Umhoefer said. “Time and time again, companies tell us they have a code and want to take disciplinary action. The answer, sometimes, is that they can't do anything because it isn't enforceable for various reasons, even though they thought it was.”
“When you are talking about corruption it probably doesn't matter,” she added. “You don't need a code to tell your employees not to make a bribe.” Less cut-and-dry, however, are scenarios such as a marketing director who takes a client to an overtly expensive dinner, or an employee who downloads pornography at work. Those behaviors may be prohibited by code, but are not necessarily enforceable. Local laws and cultural norms make enforcement even tougher. Some of those laws, in an effort to protect employees, tie the hands of employers.
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