News & Insights

Spotlight on suppliers

Following “the Great Resignation” and in a time where businesses are looking to improve company culture in order to retain staff, it is becoming increasingly common for businesses to extend the same level of focus onto their relationships with customers/suppliers.

Although not directly part of the business, suppliers still form a core part of a company’s culture with the products or services they provide. Part of being a supplier may involve directly liaising with staff and becoming an extension of the customer’s project. When successful this can be rewarding for all parties but, conversely, when things go wrong – or values aren’t aligned – this can impact others in the supply chain.

It is important, therefore, that businesses understand the relationships they are entering into and how their reputation can be damaged if they become involved with a company which has values that do not align.

Doing so is in some cases required by legislation such as the Modern Slavery Act 2015, which requires larger businesses to produce a statement that list the steps that they have taken to ensure that throughout their supply chain there is no human trafficking or slavery. Similarly, the Bribery Act 2010 makes it an offence for anyone located in the UK to pay or receive a bribe, thereby promoting a culture of ethical transactions by making companies wary of any act that may constitute bribery.

The risk of falling foul of such legislation has made companies more aware of the relationships they are entering into as they want to prevent any damage to their own reputation. Contractual clauses not only provide remedies (such as the right to terminate and seek damages in the event that the other party fails to comply with the legislation), they also have a preventative effect too by focussing the parties’ attention on compliance, and having policies and procedures in place to reduce the risk of falling foul or the legislation (and breaching the contract terms).

Increasingly contracts are used not only to require compliance with legislation but also to secure alignment of values as to diversity, sustainability, charitable endeavours and the like. It may be beneficial to a customer to ask a potential supplier to comply with the customer’s policies on such matters and, as part of the process of selecting a supplier, to ask for details as to how these standards are met.

However, it can be difficult to ask a supplier for evidence of the work they are doing to meet particular standards. For example, some companies have taken to trying to understand a supplier’s culture before engaging with them by looking at the diversity of the supplier’s workforce, particularly among senior members. This can raise a series of legal implications as GDPR requires companies to have a lawful basis for processing/sharing data and therefore there will be restrictions as to what the company can reasonably ask for from its suppliers. It may be that the information will need to be anonymised before it is shared, which is likely to be easier if a wider pool of data is used (e.g. data about the whole company rather than a specific team) but care still needs to be taken to ensure this is done in a lawful manner.

As progress is made and standards improve down the entire supply chain, more and more supplier organisations will find their customers focussing on ethical, diverse and sustainable practices – and indeed more suppliers will be required to flow this down to their own suppliers. So having policies on areas relevant to your business – which might include modern slavery, CSR, ethics/anti-bribery, health and safety, security, data protection, equal opportunities, whistleblowing, social media and/or environment/sustainability – should mean you are better prepared when customers ask for information regarding your compliance and values.

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