Frank Tortorici

Global companies are increasingly confronting a difficult balancing act between the need for partners in highly competitive global markets and the growing external pressures for high standards of business conduct from governments, international organizations, and NGOs, according to a report released by The Conference Board. <br /><br />        "Rather than insist on third party inclusion in their own ethics and compliance programs, companies are more likely to respond to the challenge of media and NGO scrutiny of third party relationships with due diligence efforts regarding third party ethical compatibility and through ethics and compliance measures that alert their own employees to the risks of third party engagement, says Ronald E. Berenbeim, Principal Researcher, The Conference Board and co-author of the report with Rebecca Walker, an attorney specializing in corporate compliance and business ethics. <br /><br />        Based on the results of a Conference Board/Ethics and Compliance Officer Association (ECOA) survey conducted February-May 2007, a partner's ethical fit will likely be the key to maintaining high third party business conduct standards, rather than the utilization of traditional compliance program control elements, such as codes, training, and whistle-blowing systems.<br /><br />        Besides the implementation difficulties and limited effectiveness of third party ethics and compliance program inclusion (whistleblowing systems, risk assessments, and, in some cases, focused training are exceptions), there are also risks. The imposition of compliance requirements on suppliers may give rise to expectations that exceed the company's ability to monitor or enforce its compliance standards with respect to third parties. This kind of situation can expose the company to serious reputational harm. And a company that applies compliance policies to third parties can be undeservedly associated with third party misconduct in the public mind.<br /><br />        Company-supplier contracts can alsoin theory, at leastcreate benefits or protections for employees of third parties that could result in enforceable third party beneficiary rights.<br /><br />        Says Walker: "The recent Wal-Mart casesince dismissedand law governing third-party beneficiary status suggests that, when extending ethics and compliance requirements to third parties, the less control a company has over the third party, the less ambitious its promises should be with respect to that party's compliance. <br /><br />        The survey findings suggest that companies are taking the control factor into account. For this reason, Walker says, "for most of the respondents, the company code of conduct for its own employeeswhich addresses the issue of third party compliance risksseems to be the preferred method for handling third party ethics and compliance issues.