Companies increasingly focusing on the risk of third-party misconduct

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 new report.

Ronald Berenbeim, principal researcher, The Conference Board and co-author of the report with Rebecca Walker, an attorney specializing in corporate compliance and business ethics, commented: ‘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.’

Based on the results of the survey, 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.

“For most of the respondents, the company code of conduct for its own employees—which addresses the issue of third party compliance risks—seems to be the preferred method for handling third party ethics and compliance issues.

Rebecca Walker, an attorney specializing in corporate compliance and business ethics

Walker said: ‘The recent Wal-Mart case—since dismissed—and 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.’

The survey findings suggest that companies are taking the control factor into account. For this reason, Walker said, ‘for most of the respondents, the company code of conduct for its own employees—which addresses the issue of third party compliance risks—seems to be the preferred method for handling third party ethics and compliance issues.’