What is the intersection of Supply Chain, Corporate Social Responsibility (CSR) and compliance? More importantly, how can innovation in the Supply Chain and CSR inform compliance? Most importantly, how can innovation in the Supply Chain and CSR, lead to innovation in compliance; both while making an organization run more efficiently and more profitably? I recently had the opportunity to explore these questions with Jared Connors, the Senior Subject Matter Expert, Corporate Social Responsibility at Assent Compliance Inc. Connors is a well-known subject matter expert around Supply Chain and CSR and we chatted about how his work informs the compliance profession. (My full interview with Connors will be posted Tuesday, August 28 on Episode 32 of Innovation in Compliance.)
Early on in his career Connors worked for a company in the electronics space and was tasked with product regulatory compliance. His work in this area led to a finding of a gap in how certain risks were addressed in the company’s Supply Chain. This led to the beginnings of what he termed the “social audits” of the CSR aspects of the supply chain. The mandate was that the supplier deliver the parts with consistent results and when necessary to drive corrective actions in a certain manner; all without overly burdening the suppliers. This type of exercise became the basis of similar work in CSR.
This insight led to the trend where compliance and CSR in organizations are starting to link up more because of the value of being proactive in CSR issues which can lead to less compliance issues later on. Connors explained, “there are organizations that have very robust corporate social responsibility aspects that look at aspects of supply chain behaviors that say, this is what you’re doing today, but I really need you to be doing something else” He provided an example around the questions of “What’s the overall governance of your program? What sort of policies and procedures do you have in place to ensure that you are not going to create behaviors or situations that are going to impact my organization?”
This has led to the CSR team reporting back to the compliance function on the items they are identifying within the Supply Chain that have been traditionally seen as CSR issues. It has also allowed them to come up with action plans on how to address the problems that may arise so they can avoid those reputational hits or even legal violations. The insight Connors had was to take these types of inquiries made to CSR, the CSR toolkit already in use and applying it to the Supply Chain. It then feeds into an overall compliance regime at a company.
Connors had an interesting story which has helped to guide him through many of these innovations. As a rookie in CSR he was at an industry group and one of the Executive sponsors was doing a presentation on how their companies could be good corporate citizens. This speaker cited to them Milton Friedman’s book “Capitalism and Freedom” for the admonition that “There is one and only one social responsibility of business – to use its resources and engage in activities designed to increase its profits so long as it stays within the rules of the game, which is to say, engages in open and free competition without deception or fraud.”
Connors interpreted this to challenge him to ask such questions as “What can we do to make things better? How are we going to make the organization better? How are we going to create this CSR program to be a strategic advantage for our organization? How are we going to do this for cost savings for our organization? How are we going to do this to reduce the risk impact or the cost of compliance for our organization?”
It was this key insight that helped drive Connors to see the broader application of the “social audits” he began when he was an engineer in the electronics space. This led to seeing the greater operational efficiencies from using a CSR audit to move from simply a detect prong to a more proactive prevent prong. The next innovation step was to take those CSR audits and move them into the compliance realm.
He provided a couple of examples. In the area of health, safety and labor one inquiry from suppliers is the number of working hours per employee. A unusually high number of working hours can lead to not only decreased production but also greater inefficiencies in production. A greater production inefficiency could lead to less or even inferior products being delivered to your company. Another area is in the ever changing (almost daily) world of export sanctions. Connors noted that there are Russian oligarchs, who are now under OFAC sanctions, that are owners of particular refineries. Companies have to address this in their Supply Chain. A CSR professional needs to understand when it is time to raise the red flag and engage a compliance officer or compliance team.
Organizations which have synergies between CSR are generally better run organizations. Connors notes one of his goals is to make sure the right stakeholders are involved. He stated, “When CSR uncovers an issue that could lead to a compliance violation or lead to an enforcement action, we need to make sure that we help those CSR professionals get the right stakeholders from compliance involved in order to address them.” The more proactive you are, the better off you will be at the end of the day.
The bottom line is this more proactive role by CSR and Supply Chain, together with compliance actually leads not only to greater compliance efficiency but greater business efficiency. It also means that companies are learning how to use CSR as a strategic advantage and, equally important, a competitive advantage. Obviously, CSR has a broader remit that the typical compliance function which would be tasked with dealing with the Foreign Corrupt Practices Act (FCPA) or other anti-corruption laws. CSR might not only look at bribery and corruption but also conflict minerals, human trafficking, health and safety or even labor rights. By looking at all of these areas and applying a CSR analytical framework, it can help companies have greater efficiencies in their Supply Chain.
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