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A Business Leader Creating a Supplier Code of Conduct

Supplier Code of Conduct: How to Ensure Ethical Practices

What is a supplier code of conduct?

Put in simple terms, a supplier code of conduct is a document you put together that defines your company mission, rules, and expectations for your employees. Generally, these are focused on ethical operations, fair labor practices, fair treatment of employees, environmental protection, and a variety of other social and sociopolitical stances.

Critically, a supplier code of conduct applies both to you as a business and to the suppliers you work with throughout your supply chain. This is because a common source of contention and greenwashing is a company that itself works ethically but has no qualms about working with exploitative or damaging companies further down the chain, often in a “don’t ask, don’t tell” sort of fashion. To them, it’s all about appearances rather than reality. A supplier code of conduct helps enforce ethical production from farm to table (or whatever other destination there is for your non-food products.)

A supplier code of conduct, then, is a comprehensive statement of the guidelines, rules, ethical stances, and rules the company wishes to follow. It applies to the company and its employees but also to the ethical stances required to work with the company as an investor, supplier, stakeholder, or other partner.

What is covered in a supplier code of conduct?

  • Labor standards, which govern the fair and ethical treatment of employees working for the company, as well as contractors partnering with the company. This can also include physical treatment rules for worker safety.
  • Human rights standards, which provide a review of the treatment of people within and surrounding the company, particularly in terms of antidiscrimination, inclusivity, and other social rights.
  • Environmental policies that govern things like water usage, ethical farming practices, use of materials, energy savings goals, carbon neutrality, and other elements of environmental justice.
  • Overall financial and ethical policies meant to prevent corruption and exploitation, both of your suppliers and of yourself.

Moreover, a supplier code of conduct is two things: a living document and a standard that is actively monitored.

What this means is that the supplier code of conduct is regularly reviewed and updated to adhere to the latest goals and guidelines for each standard and level of environmental justice. As the goalposts move, so too does the code of conduct so that your company can always be seen as pushing the envelope for what a company can accomplish.

It also means that it’s not just an empty document full of vapid promises. It’s made of tangible goals and guidelines, and it’s not just about what you say you’ll achieve; it also includes actual records, milestones, and data that indicate how well you’re achieving those goals. Even in cases where you aren’t living up to your standards, your code of conduct includes a rundown and report of that failure and how you can strive to improve. This can involve anything from firing and working with different suppliers to adjusting internal policies and more.

How to Write a Supplier Code of Conduct

If you’re interested in putting together a good supplier code of conduct, know three things in advance.

  1. It’s a large and complex document that will require a decent amount of time to put together and requires buy-in and approval from your top-level executives and directors.
  2. It’s a tangible document full of promises that you need to actually act on and live up to.
  3. Because it requires an explanation of how you’re living up to your goals, along with tangible data, you need to be able to harvest that information, both from yourself and from your suppliers.

That said, since a supplier code of conduct is a living document, you don’t need to produce and implement everything at once. You can start small, focusing on your core ideals, and expand to apply those ideals on a broader perspective, along with expanding it to apply to your suppliers. It can often take months or even a year to fully develop and implement a robust supplier code of conduct.

Writing a Supplier Code of Conduct

There’s also no firm format or template for a supplier code of conduct. You can follow general guidelines or pick an ethical company you admire and mimic theirs, but the best way to go about it is to evaluate your own position, your goals, and your ideals and figure out a roadmap you can codify in a code of conduct document.

That said, there are some elements of a supplier code of conduct that are standard, and you can develop them according to a guide like this one. Let’s go through those elements.

The Introduction

The introduction is your top-level overview section. Since your supplier code of conduct serves as a legally binding document – where there are repercussions for violating your own policies – it’s important to be firm and consistent in your stances and goals. The introduction lays out your ideals and your main mission, as well as any legal jurisdiction, to whom you’re applying the code of conduct, what regulations you want to follow, and what you want your suppliers to follow.

Supplier Code of Conduct Introduction

This is an important place to make note of any industry-level, country-level, or other regulations that may come into play. This can be anything from human rights treatment to regulations on the use of certain materials or processes to avoiding working with suppliers in countries that are sanctioned by the government. If there are regulations that apply to you, they should be acknowledged in the introduction, even if you go on to strive for ideals beyond that baseline.

Labor Rights

Often, the first section of a supplier code of conduct focuses on the labor rights of your company and the suppliers you work with. Labor and human rights encompass a wide range of factors.

Labor Rights

This often includes, but is not limited to:

  • Preventing human trafficking and cutting ties with suppliers that are found to participate in it.
  • Minimizing and preventing child labor and exploitation with yourself and your suppliers.
  • Enforcement of reasonable working hours, breaks, overtime benefits, and working conditions.
  • Ethical contracts for interns if you or your suppliers hire interns.
  • Reasonable industry standard or above-standard wages and benefits packages.
  • Attention to employee diversity and inclusivity, with tangible DEI standards.
  • Review and promotion of overall health and safety in the workplace.

It can be difficult to develop all of this yourself. Fortunately, you are far from alone in this arena. You can view the supplier code of conduct documents from other businesses and see what they use. You can also look into international standards, like ISO 45001, which is an international development of baseline occupational health and safety management systems. These standards aren’t all-encompassing (this is mostly OSHA-style safety regulations), but it’s a good place to start.

Environmental Justice and Protection

Protecting, safeguarding, and improving the environment is an area of increasing concern as climate change continues to go unaddressed and the general population improves in both awareness and concern. This section of the supplier code of conduct considers the environmental impact of everything from your corporate office’s work to the ground-level production of your suppliers and manufacturers. It can include but, again, is not limited to:

  • Emission evaluation and reduction strategies, including within logistics.
  • Use of, processing of, and proper disposal of hazardous materials.
  • How materials, in general, are produced and disposed of (including landfill reduction and recycling.)
  • Efficient use of available resources.
  • Carbon neutrality or mitigation efforts.
  • Use of and treatment of water supplies.

These can range from the use of green energy and renewable resources to switching from fluorescent to LED lights, reducing paper usage in the office, enforcing water usage rules on suppliers who operate farms, and more. The environment is vastly complex but more than that, the industry you operate in will impact what kinds of concerns you have and what suppliers will need to do.

Environmental Justice and Protection

For example, a clothing production company will need to be concerned with farming raw materials, protecting water supplies, and the emissions of production. A company manufacturing computer parts will have much more attention paid to hazardous materials. Other companies may have few ground-level environmental concerns but primarily focus on logistics and shipping emissions.

Again, much like social justice standards, this can be very complex and requires a comprehensive analysis of your role in the overall supply chain and the pressure you can exert on your suppliers. Similarly, there are international standards like ISO 14001 that can help by forming a good baseline. Other standards, including governmental regulations on your industry, can also apply.

Overall Ethics in Business

Ethics in business can be another arena where you put effort into your supplier code of conduct. Some companies focus more on this, while others focus on the more tangible, physical attributes from previous sections.

Leaders Focussing on Business Ethics

Business ethics include social responsibility, business integrity, prevention of corruption, protection of intellectual property, fair business practices, fair advertising, and risk management. All of this aims to prevent your company from exploiting people socially, morally, and ethically.

This can also be a catch-all category for social and ethical concerns that you want to focus on as a company but which don’t fall cleanly into the other categories.

Ongoing Monitoring and Improvement

As mentioned above, a supplier code of conduct is not just a set of policies that you implement and ignore. It’s a set of standards and rules that grow, evolve, change, and are enforced on an ongoing basis. You codify your ethical stances, and then you find ways to measure those, verify the measurements coming from suppliers, and generally keep tabs on how you’re doing in upholding those ideals.

Ongoing Monitoring of a Supplier Code of Conduct

This section of your supplier code of conduct is almost more like an ongoing “state of the business” report. It considers each of your overall ethical stances and reports on how well you’re adhering to them. In cases where a violation in a supplier or in your own business has occurred, this section reports on that transparently, including what went wrong, how it was fixed, and how it can be prevented from happening again.

This is the area of your supplier code of conduct that will get the most ongoing attention. While ethical and social stances may need review and adjusting every year or so, this section is continually being monitored and reported.

Overall References

As a final section of a supplier code of conduct, you should have a robust set of references. These are not references to data you harvested but rather references to legal regulations and overall social guidelines that you use to develop your stances.

A Team Reviewing a List of References

In any case, where you are taking standards from something like an ISO guideline, a governmental regulation, or a guide from the United Nations, that regulation should be cited in this references section.

Do You Need a Supplier Code of Conduct?

If you’ve read through this and thought, “Dang, a supplier code of conduct is a big deal!” you’re right. A supplier code of conduct is a massive legal document produced by major companies like Apple and Nike as a way of showing transparency, validation, and verification of their stances and their efforts for a more sustainable, ethical, and moral world. While these major corporations may not all be on the same page and may strategically leave out areas where they falter, it’s still a far sight better than having nothing of the sort in place.

Developing a Supplier Code of Conduct

So, does your company need a supplier code of conduct?

Even if you’re a smaller business, the answer may be yes. In fact, as a smaller business, you likely have fewer moving parts to review and can more easily make changes that improve your overall position in terms of ethics and justice. Where Nike might have to review dozens or hundreds of suppliers and contractors, you might only have a couple, and with more options to change, you can more easily adjust to violations of your ethical goals.

It can also be an excellent idea to establish an ethical code of conduct now rather than later. Some people might criticize you – and rightly so – if you go from a small business to a large corporation on the back of exploitation, only to shift and promote ethics later, which reeks of greenwashing. By establishing both ideals and records now, you can grow sustainably and ethically the whole way. It’s also always better to promote change now rather than delay it for a nebulous chance in the future that may never come.