Can Suppliers Hurt Your Corporate Social Responsibility Initiative?

conflict minerals

Can suppliers jeopardize a business’ social responsibility initiative? Absolutely. Here’s a harder question: How would a company know it’s happening?

There have been a number of high-profile cases in recent years, where reputable companies got dragged through the mud, thanks to the unethical, even illegal, business practices of a supplier. Think Ikea, Nike or Apple. And once it hits the newspapers, it can take years for a scandal to die down.

To raise the stakes even higher for manufacturing companies, the U.S. federal government passed Section 1502 of the Dodd-Frank Financial Reform Act, which prohibits trade in conflict minerals, or metals mined in war-torn regions of central Africa. To keep any questionable metals out of their supply chains, U.S. hardware manufacturers are investing heavily in vetting their suppliers – and monitoring their practices over time. Apple made headlines with its work, and the company released its Supplier Responsibility 2014 Progress Report earlier this year.

Companies need to protect their reputations and ensure their business partners are following sound business practices – and new laws. A good first step for any business is to create a formal Corporate Social Responsibility (CSR) policy. An official document communicates your standards to suppliers and is good PR – showing customers, partners and the public that you’re taking your larger business responsibilities seriously: to protect workers, consumers, communities and the environment.

Next, businesses can and should take an active stance in ensuring their suppliers comply with their CSR standards, rather than relying on them to self-monitor. You can check on a supplier’s business practices just as you can check their creditworthiness – using third-party reporting. Trust, but verify, as the saying goes. Get insight into suppliers’ activities by pulling data from multiple sources, including:

  • Litigation and court rulings
  • Watch lists and blacklists
  • Compliance with U.S. Federal laws and regulations including diversity and hiring practices, the Occupational Safety and Health Administration (OSHA) and the Environmental Protection Agency (EPA)
  • Violation of U.S. government sanctions programs such as the Office of Foreign Assets Control (OFAC) and International Traffic in Arms Regulations (ITAR)

Integrating these sources, and ensuing the data is up-to-date, gives CSR watchdogs the full picture. Many companies are expanding their monitoring of suppliers’ business activities to include key individuals as well.

The final step is talking to your suppliers. Let them know about your company’s CSR goals and why they are important for long-term business success. It also gives your company a chance to build a feedback loop with business partners, to address any concerns or problems that may come up – before they blow up in your face.

Posted in Credit & Risk, Supply Chain Management by Phil Fisher

Phil Fisher is Senior Director of Partner Solutions Strategy and D&B.

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