Build better supply chains

Our Auditors  

Build a better supply chain with enhanced obligations around governance & compliance.

 

Our view at ETHIC Intelligence is that trickle-down concepts can be used in governance & compliance and to drive behavioural change in suppliers so that you can build a better and more compliant and resilient supply chain.

Adjusting your governance and compliance practices to push down obligations strengthens your supply chain.

The concept of trickle-down compliance is not new. Almost every contract written by a major company pushes the other party to adopt and comply with obligations that they might otherwise not have a legal requirement to comply with. These contractual provisions might be for a supplier or partner to agree with the adoption of the company’s code of conduct or to comply with laws like the Foreign Corrupt Practices Act (even if the supplier is not based in the United States and the law does not apply to them).

The last few years has seen a significant change to the approach to pushing down obligations to suppliers and partners. These obligations have now gone far beyond a requirement to follow a law (which may or may not otherwise apply to that supplier), and now include obligations arising from policies. Companies regularly try to push down obligations around their own diversity policies, HR rules, reporting obligations, use of certain compliance reporting tools, and the requirements to have governance and compliance programmes in place.

 

 

We recommend you adopt these practices and include these obligations in your supplier contracts as part of a GREAT governance & compliance system.

The inclusion of push-down obligations in contracts is becoming more common simply because companies are being held responsible for the actions of their suppliers and partners. While the laws (and the governments that create and regulate those laws) may not be piercing the corporate veil and holding companies accountable for the conduct of their third parties, the court of public opinion and the media certainly are. There is an increasing risk that members of the media and users of social media will ignore the corporate-veil principles and hold companies accountable for the acts or omissions of their suppliers, irrespective of fault. The adage that ‘if your logo is on the front of it, you are responsible’ is certainly playing out in the views of the community.

Does trickling down obligations through to suppliers work?

A supplier is unlikely to follow 100% of their contracted obligations and actively adopt and report out on compliance.

In many cases, contractual requirements are there for the company to rely on in case they want to terminate the arrangement – the requirements are not there as a true trickle-down initiative that the company genuinely wants to be effective. To the company, the inclusion of the trickle-down obligations into the contract is ‘compliance’ and they have no intention of following up, checking compliance, or actively driving the supplier to adopt such standards – they are just ticking a box because they are required to ‘pass on obligations to suppliers or other parties’.

Most trickle-down compliance is actually focused on an attempt to shift risk rather than an actual interest in improving the governance and compliance of the contracting party.