Commitments, Risks & Contracts: Where Are The Boundaries?

Another of the topics discussed at the recent IACCM meeting in Boston was the growing use of Codes of Conduct or Codes of Practice by many corporations.

Despite recent rejection by a US court of complaints brought against Walmart for a claimed breach of its Code, there is still uncertainty over how courts may view such actions in the future. But regardless of the legal implications, we must assume that executives introduce such codes because they are considered important. In most cases, they tend to address key reputational issues that could adversely affect brand image and value.

Richard Cellini, of Integrity Interactive, highlighted the challenges in overseeing such Codes. “Management needs help with issues around ethics and compliance – staying out of trouble”, he observed, citing a range of examples including Siemens, BAE, Mattel, Pfizer and the many other complaints and fines over issues such as data privacy. “In the end, these incidents have far more visible impact than topics like liabilities, indemnities and choice of law.”

The discussion centered around the role of contracts and sourcing staff in overseeing and managing the implications and actions associated with Codes of Conduct and corporate social responsibility. “These initiatives are viewed by many as ‘off-contract'”, commented one, “And that means they are not seen as relevant or part of the job role.” But in the end, these ‘promises’ are also commitments and breaches clearly represent risk – both areas which are without doubt considered within the general job role and competence of contracts staff.

There was also discussion of the complexity in overseeing such Codes, especially in a multi-national / multi-cultural environment. With regulation increasing – for example in areas like product origins and employee work status –  there is growing need to consider where responsibilities for compliance should lie and the extent to which these need to be reflected in contracts. Today, term and condition implications are often ignored, or alternatively are poorly enforced.

“Regulated industries are often the worst”, said Richard. “Having invested in large compliance functions, management often deludes itself that they have achieved control. But without the right interfaces and tools to manage their trading relationships, this control is simply a mirage.”