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Board-Level Solutions:
Managing Ethics in the Supply Chain
SCCE - Integrity Conference Call
Thursday, May 15, 2008
12:00 pm Central
Private & Confidential
For registered participants only
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Today’s Speakers
Michael Levin• Vice President, Corporate Integrity
Strategy, Integrity Interactive
• Former trial attorney
• B.A. University of Maryland;
J.D. Massachusetts School of Law
• Bar admission: Massachusetts
Richard Cellini• Chief Marketing Officer,
Integrity Interactive
• Former CFO & GC, Salary.com Inc.
• Former Associate, Milbank Tweed
• Former Associate, Lord Day & Lord
• A.B. Georgetown University;
J.D. Georgetown University;
LL.M. University of Cambridge (UK)
• Bar admission: New York and
Washington, DC
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Today’s Agenda
Our speakers will address the following topics:
What is the ethics problem in the supply chain?
What is Supplier Ethics Management (SEM)?
What is the current state of SEM?
What is changing?
How can E&C help the VP of Supply?
What can your company do right now?
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Purchasers can get blamed for ethical lapses of suppliers:
Lead in Toys (2007)
Poisonous Wheat Gluten (2007)
Poisonous Wheat Gluten
(2007)Vendor Collusion (2007)
Faulty Batteries (2007)
Tainted Lettuce (2007)
Defective Tires (1995)Battery Failures (2003)Tainted Spinach (2006)
1. What is the ethics problem in the supply chain?
Sweatshop Conditions (1996)
Faulty Batteries (2007)
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Mattel Does Damage Control After New Recall(Wall Street Journal)
Del Monte Pet Products Recalls Food Items(Washington Post)
French Retail Giant Carrefour Is Fined(AP online)
Nike Admits Sweatshop Conditions(The New Zealand Herald)
Toshiba Laptop Batteries Pose Fire Hazard(computerworld.com)
A Blowout of Trust - Firestone and Ford Motor Co.(Automotive Industries magazine)
1. What is the ethics problem in the supply chain?
Purchasers can sustain brand-damage (and worse):
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1. What is the ethics problem in the supply chain?
The supply chain ethics problem in a nutshell:
• Being an ethical company isn’t enough anymore.
• Your brand will be judged by the company it keeps.
• Your whole supply chain must be ethical.
• The biggest brand in the chain will get most of the blame.
• Solutions can and should be implemented immediately.
• Penalties for inaction can be great (damaged brand reputation).
• Cost of implementation can be affordable.
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2. What is Supplier Ethics Management?
Supplier Ethics Management:
The management of suppliers and supply relationships with
strategies, programs, and metrics that better align supplier
business conduct with purchaser standards, with the goal of
reducing the purchaser’s overall risk of corporate integrity
failure in the supply chain.
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Supplier conduct should align with purchaser standards in all three major areas of corporate integrity:
2. What is Supplier Ethics Management?
Supplier Integrity
Conformance with:
�Laws
�Regulations
Adherence to:
�Internal Values
�Internal Standards
Commitment to:
�External Values
�External Standards
Compliance EthicsCorporate
Responsibility
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Supplier codes should address these topics:
2. What is Supplier Ethics Management?
Environment,
Health
& Safety
Forced
LaborChild
Labor
Wage
& Hour
Free
Association &
Collective
Bargaining
Discrimination
& Abuse
Compliance
with Laws
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3. What is the current state of SEM?
Most ethics & compliance programs don’t reach suppliers.
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When it comes to supporting Supplier Ethics Management, the answer inside most companies today is no:
3. What is the current state of SEM?
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Does your company maintain a Web-based portal for suppliers?
suppliers
3d pty
Yes
12%
88%
No
Integrity Client Survey (Sept. 2007)
Survey Group: Senior ethics & compliance officers at 108 Global 2000 companies.
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Integrity Client Survey (Sept. 2007)
Are suppliers included in your company’s primary Code of
Conduct?
Survey Group: Senior ethics & compliance officers at 108 Global 2000 companies.
no
yes
86%14%
Suppliers Included
Suppliers Not Included
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Does your company have a separate Code of Conduct for suppliers?
Integrity Client Survey (Sept. 2007)
Survey Group: Senior ethics & compliance officers at 108 Global 2000 companies.
no
yes
No
50%50%Yes
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Integrity Client Survey (Sept. 2007)
Does your company require suppliers to acknowledge or certify
a Code of Conduct?
yes
no
40% 60%Require Action
Require Nothing
Survey Group: Senior ethics & compliance officers at 108 Global 2000 companies.
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Integrity Client Survey (Sept. 2007)
Who is included in your company’s ethics & compliance programs?
Survey Group: Senior ethics & compliance officers at 108 Global 2000 companies.
no
yes
83%17%
Suppliers Included
Suppliers Not Included
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Leading brands are taking responsibility for supplier ethics:4. What is changing?
Gerald L. StorchChairman & CEOToys “R” Us, Inc.
September 12, 2007
Dear Valued Guest,
...We are wholly committed to our customers’ safety and have reiterated that simple, single fact to our suppliers and business partners. We will not tolerate products that do not
meet our rigorous safety standards...
Sincerely,
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Company leaders are looking beyond the “Corporate Veil”:
4. What is changing?
“Not our employee” is no longer an acceptable answer!
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And here’s one more thing that is no longer good enough:
4. What is changing?
29. REGULATORY COMPLIANCE.
(a) Supplier will comply in all material
respects with all federal, state and local
laws, regulations and standards applicable
to production by Supplier and its
performance of its obligations hereunder,
and will also use best efforts to comply
with any applicable laws, regulations and
standards of those European countries set
forth on Exhibit B.
Supplier Representations & Warranties
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Do you plan to include suppliers in your ethics programs in the next
two years?
yes
no
nto sure
57%31%12%
Yes
No
Not Sure
Integrity Client Survey (Sept. 2007)
Survey Group: Senior ethics & compliance officers at 108 Global 2000 companies.
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Who should drive supplier participation in your company’s ethics
and compliance programs?
Integrity Client Survey (Sept. 2007)
Suppliers or Someone Else
Purchaser
Suppliers or Someone Else
Purchaser
86%14%
Survey Group: Senior ethics & compliance officers at 108 Global 2000 companies.
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Who should pay for providing your company’s compliance & ethics
programs to suppliers?
Integrity Client Survey (Sept. 2007)
Suppliers
Purchaser
75%25%
Purchaser
Suppliers should share or bear the cost
Survey Group: Senior ethics & compliance officers at 108 Global 2000 companies.
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6. How can E&C help the VP of Supply?
Ethics & compliance officers can partner with Procurement colleagues on 5 major initiatives:
• Make ethics & compliance a factor in supplier selection.
• Target and segment suppliers by importance and ethics risk.
• Create and maintain compliance profiles of targeted suppliers.
• Assign E&C personnel to major supply-relationships.
• Conduct regular assessments of supplier ethics.
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7. What can your company do right now?
Do a quick self-assessment & check all that apply. Does your company:
If you have checked 2 or more boxes, you should focus on SEM.
� Have a large number of suppliers
� Maintain high profile
� Possess a valuable brand
� Sell to high profile partners
� Have suppliers in developing nations
� Feel pressure by NGOs or regulators
� Depend on consumer trust
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7. What can your company do right now?
Companies should immediately deploy an SEM platform for targeted suppliers:
Deliver Code &
Updates
Document
Code
ReceiptCollect
CodeCertification
DeliverOutbound
Messages
(Alerts)
Receive
Inbound
Messages
(Reports)
Your
Company
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7. What can your company do right now?
• is capable of reaching tens of thousands of supplier companies.
• performs basic SEM functions and tasks over the Internet.
• maintains a persistent link between purchaser and suppliers.
• allows communication with suppliers on an as-needed basis.
• costs nothing to access, deploy, or maintain.
• costs suppliers a nominal annual usage fee.
• can be deployed today.
An SEM platform is available today that:
To learn more, email [email protected].
Don’t wait 2 years to focus on SEM!
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For More Information
For more information on this or any other topic relating to the
management of corporate integrity risks, please contact:
Thank you for your interest in Integrity Interactive & SCCE!
Integrity Interactive Corporation
51 Sawyer RoadWaltham, MA 02453
+1 781-891-9700www.corporateintegrity.com
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