A Ham and Eggs Breakfast

Last week I attended a conference where one of the breakout sessions focused on this question:  How do we get sourcing managers and buyers to reinforce a company's code of conduct for suppliers?

A common observation by many at our double table was that "The Company" has a "Code of Conduct" which they expect their suppliers and vendors to abide by, and that the "Compliance Department" is the group responsible for making sure the vendors are in compliance.  The Compliance Department conducts regular or random audits to make sure the supplier understands the requirements and is in compliance with those requirements.  However, in far too many instances, the suppliers are far from compliant.  According to "The Rules", the non-compliant suppliers should be removed from "The Approved List" and barred from producing products for The Company.  But, the Compliance Department rarely has the ability to stop or prohibit production from non-compliant factories.

"The Buyers" - the ones who order products from the supplier - are focused on three things:  making sure The Product is shipped/delivered on time, that The Product meets The Company's Quality Standards, and that The Price is as agreed upon.  The Buyer is paid for ensuring these three things, and their bonus is, in turn, dependent upon consistently performing to these three standards.  It is not The Buyer's job to ensure Compliance with company standards.  Hence, The Buyer and The Compliance Department are not In Sync.  They have different roles and priorities.  To the above question, my response is this:  If you want to have The Buyers and Sourcing Staff help enforce The Company's Code of Conduct, we must change the rules.

As one CEO told a group of buyers during a discussion about The Company's Code of Conduct:  "If we don't have product on our shelves, we're out of business.  The one thing you need to remember of all our suppliers is this:  Ship The Product!  The ONLY reason you shouldn't ship product is if you find child labor in the factory.  (pause) Let me rephrase that.  If you find kids working in one of our supplier factories, call me."  In other words, there was nothing he could think of that would take a supplier out of their supply chain as long as the supplier met the three rules of price, quality and delivery.  Everything else was a distant second to shipping the product.

Have you ever heard the phrase "Involvement and Commitment is like a ham and eggs breakfast:  The chicken is Involved, the pig is Committed."?  In this case, I believe the CEO is the chicken.  He supports the Code of Conduct, and he's Involved in Compliance discussions, but he's not Committed.  He's Committed to Price, Quality and Delivery.  Why?  Because he is paid on the Sales and Profits of the company.  He is not paid based on compliance with the Code of Conduct.  The Board of Directors supports the Code of Conduct, but  they set the compensation rules for the CEO.  When The Board decides to include a Compliance component in the CEO's annual performance review and/or his bonus, then he (or she) will pay attention to The Code.  When the CEO includes a Compliance section in the annual performance review of The Buyers, then they will pay attention to the Code of Conduct and only buy from compliant factories.

So, you ask:  "How do I get The Board of my Company to include Compliance with our Code of Conduct in our CEO's performance review and/or bonus?  And, in the performance review and/or bonus of our buyers?"   Probably by having a frank and honest discussion at management meetings about the true values of the company, and where their commitments lie.  Is management committed to the words they write, or are they simply involved in a CSR movement they may not really believe in?