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News < Back Sarbanes Oxley : Governance : Survey Lack of Ethics in Supply Chain a Major Risk 78 percent of companies do not include suppliers in their company’s ethics and compliance programs, creating financial and reputation risk
Many enterprises around the world are unaware of how effective supply chain ethics and compliance programs can help them avoid costly recalls and brand damage that results from a supply chain ethics scandal. Supplier ethics management (SEM) is a relatively new business practice that enables companies to manage their suppliers and supply relationships through strategies, programs and metrics that better align supplier business conduct with purchaser standards. The goal is to reduce a purchasing company’s overall risk of corporate integrity failure in the supply chain by aligning supplier conduct with purchaser standards in three major areas of corporate integrity: compliance, ethics and corporate responsibility. In the globalizing economy, most companies outsource much of their manufacturing to a network of external suppliers. While many large U.S. companies have implemented some degree of ethics and compliance programs and training, the survey indicates that a great majority of Global 2000 companies have not extended these programs and practices to their supply chain. This is a significant risk to the financial health and reputation of these companies and to their customers. In addition to the troubling absence of ethics and compliance programs for the supply chain, the survey also found information that points to other areas of significant risk: • 88 percent of respondents do not maintain a Web-based portal for suppliers • 78 percent of respondents do not include suppliers in their company’s Code of Conduct • 58 percent of respondents don’t regularly assess compliance risk in their supply chain • 56 percent of respondent companies do not audit supplier compliance with Code standards In recent weeks, U.S. consumers have seen a series of stories about tainted food, lead paint in toys and other disturbing developments. All of these dangerous products came through an extended supply chain. Recent product recalls at Mattel and Starbucks underscore the need for corporations to reevaluate their company programs regarding supplier compliance and ethics. Mattel had to recall more than nine million toys because they included millions of tiny magnets that can be deadly if swallowed. Starbucks is recalling 250,000 plastic cups made in China that can break easily and endanger children. Recent negative stories about overseas child labor at outsourced suppliers to The Gap and other retailers have also focused attention on the problem. “Being an ethical company isn’t enough anymore,” said Richard J. Cellini, vice president of Integrity Interactive. “Enterprises are being judged by the company they keep, which means the whole supply chain must be ethical. If a dishonest supplier 6,000 miles away disregards manufacturing standards to make more profit, it reflects on the U.S. company which hired that supplier. The public holds the supplier accountable – not the outsourced vendor. Supplier ethics is a serious and growing problem. It is one of the biggest ethics issues enterprises face today. It impacts revenue and market share because consumers reward companies that deliver a safe product to market and punish those that do not.” The demand for organized SEM programs is being driven by, regulations, business partners, consumers, and media organizations. The changes include stronger import/export standards, product safety rules, and labeling requirements. Ethics and compliance officers can ensure their company creates and maintains an effective SEM program by implementing the following: • Make ethics and compliance a factor in supplier selection • Create and maintain compliance histories profiles of important suppliers • Assign ethics and compliance personnel to major supply relationships • Conduct regular assessments of supplier ethics • Target and segment suppliers by importance and ethics risks “These are basic, affordable actions that companies can enact today to ensure they don’t make the headlines as the subject of the next supply chain scandal,” said Cellini. “The long-term goal of every company should be to supplement these actions with comprehensive SEM programs that ensure a consistent ethics and compliance environment for every member of its supply chain.” Integrity Interactive helps leading companies and large organizations build ethical cultures that reduce risk. We design, develop, and deliver programs and services that mitigate risk in three areas: compliance, ethics, and corporate responsibility. Our comprehensive culture-building and risk reduction services include: Strategy and Assessment; Training and Communication; and Measurement and Reporting. Integrity Interactive works with hundreds of the world’s greatest companies, and serves millions of employees on six continents. For more information about Integrity Interactive visit www.integrity-interactive.com. 
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