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Employers are growing more dependent on relationships with third parties to provide HR services such as benefit program administration, recruitment and staffing management, and as partners in joint ventures.
But while suppliers of HR services, temporary employees, contractors and business partners can help reduce costs, improve efficiencies and remove business barriers, companies are increasingly recognizing that such arrangements can expose them to legal and reputation risk, according to a new report by The Conference Board,
Finding the Right Balance: The Essentials of Third Party Ethics Programs.
"Companies struggle with competing tensions that arise from developing business relationships with partners that aren't always mindful or responsive to a broad range of their own stakeholders' concerns, such as environmental compliance, health and safety, and human rights," comments report co-author Rebecca Walker, an attorney specializing in corporate compliance and business ethics.
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 their practices to ensure ethical behavior by third parties. Among the key findings:
Performing Due DiligenceBackground or due diligence checks are preferred to insisting that the third party adopt the company's ethics and compliance programs, the survey found. When it comes to due diligence:
As regards the focus of due diligence searches, disabling financial or legal conditions are more likely than reputational impairments to be the objective of scrutiny.
The most common ethics/compliance initiatives that companies extend to their business partners include:
Infrequent Compliance Audits
Company audits of third-party compliance with ethics policies and practices are infrequent, and a majority of the companies that audit don't do so routinely, the survey found.
Slightly more than 35 percent of the survey participants perform audits or otherwise verify that third parties conduct themselves as required by the company's own compliance and ethics policies. Of this group, slightly less than half conduct audits on a routine basis, while the remainder focuses their audits on specific concerns.
Room for Improvement
"The survey suggests that companies are satisfied with current methods of seeking to extend ethics and compliance standards or requirements to third parties but are willing to search for new approaches," says Berenbeim. "Companies rated all ethics and compliance efforts within a narrow and not especially positive range—they deemed them
Stephen Miller is manager of SHRM Online’s
Compensation & Benefits Focus Area.
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