Finding the Right Balance: The Risks and Rewards of Third Party Ethics Programs
Companies are growing ever more dependent on relationships with third parties for the achievement of business objectives. Suppliers of goods or services, temporary employees, and contractors can help to reduce costs while agents and distributors can reduce barriers to entry. But while critical to a business plan companies are increasingly recognizing that by entering such arrangements, they also expose themselves to legal and reputation risk.
To enable companies to benchmark their policies and procedures against those of other organizations, The Conference Board and the Ethics and Compliance Officer Association (ECOA) surveyed 169 companies about practices regarding compliance and ethics requirements and standards to third parties.
Among the key findings:
- The most common method for handling third party ethics and compliance issues is to adopt a code of practice that governs the manner in which the company's own employees deal with third parties. Written policies applicable to specific third parties are less common.
- Companies show little interest in the third party's own ethics programs. Slightly more than one-quarter of the participating companies ask third parties whether or not they have them, but only 14 percent of respondents actually ask for documentation.
- Background or due diligence checks are also preferred to insisting that the third party adopt the company's ethics and compliance programs.
- Disabling financial or legal conditions are more likely than reputational impairments to be the subject matter of due diligence searches.
- The most common component that companies extend to third parties is offering employees of third parties an opportunity to report ethics- or compliance-related concerns.
- Company audits of third party compliance with ethics policies and practices are infrequent, and a majority of the companies that audit do not do so on a routine basis.