OECD’s New Guide on Due Diligence for Ethical Conduct

June 7th, 2018

Corporate compliance officers have another item for their bookshelf: the OECD’s Due Diligence Guidance for Responsible Business Conduct, published on May 31 after three years of consultation and work.

The guidance itself is as useful as any other work in the field: available as a free download: 100 pages, and much of the material organized by specific, practical questions a compliance officer or other senior executive might actually ask. For example:

  • How can an enterprise integrate gender issues into its due diligence?
  • How can an enterprise use its leverage? How can a lack of leverage be addressed?
  • How can an enterprise assess a business relationship without a contractual relationship?
  • What information is tracked under due diligence?

We could (and probably will) devote whole posts to any one of the dozens of questions posed in the OECD guidance. Today it’s worth reflecting on what this guidance itself means as a whole for corporate compliance.

Start with the words in the title: due diligence for responsible business conduct. That’s much more expansive than due diligence for anti-corruption.

Corruption such as bribery, bid-rigging, price fixing — those are crimes. The need to avoid them is clear and compelling. Companies risk severe consequences for engaging in them.

Responsible business conduct encompasses everything from ethical sourcing, to tax avoidance, to resource exploitation, to gender equity. The priorities within that broad category might differ from one company to the next, but no company today can ignore any of those things entirely. No company can say, for example, “We don’t care about ethical sourcing. Human trafficking somewhere down the supply chain is not our problem.”

The OECD guide is another manifestation of the larger corporate concern of protecting corporate reputation. A bad reputation — evidenced by bad business practices or bad company you keep — could lead to regulatory trouble, activist campaigns, restive employees, or loss of other business partners.

Embedded Operations

The OECD guidance also tries to push forward the idea that due diligence shouldn’t be a business process itself, but rather be a set of habits or practices embedded into all the business processes your company uses with its suppliers, employees, and other stakeholders.

Those improved business processes would give the company a clearer, stronger path to carrying out business ethically and responsibly. And while “carrying out business ethically” may sometimes be difficult to define at the edges, the broad meaning of the phrase is easy to see. Moreover, it’s easy to recognize when a business behaves unethically — and, in our modern world, post that moment for everyone to see on social media.

So for example, rather than just performing due diligence background checks on a vendor and telling the operating unit, “Sure, this one is fine, you can use them” — the OECD guidance recommends changing your contracting process from the start, so expectations of responsible conduct are embedded into the sales agreement.

That creates the leverage your enterprise needs to force remedies should that supplier engage in misconduct sometime in the future. The ability to force change, and the willingness to force change, can inoculate your enterprise from the wrath of others, should that supplier’s misconduct someday explode into scandal.

Throughout its 100 pages, the OECD’s guidance raises that point: how an enterprise can embed a thoughtful approach to responsible business conduct across the wide range of operations you have.

The OECD is a global organization, so it’s no surprise that it cites emerging global standards of conduct as the “raw material” for its ideas. For example, it mentions the International Labor Organization when discussing relations with workers. At some enterprises, those specific examples might not be the best fit given the company’s structure or operations.

However, specific examples never hold true for all companies. The broad principles of taking ethical conduct seriously, weaving it into all business processes, and finding practical ways to push ethical conduct forward will hold true for all companies, and it will keep holding true into the future. 

Incorporating CSR Into Due Diligence Programs

The concern surrounding reputation risk has contributed to the rise of corporate social responsibility (CSR) factors as something corporations should consider while governing business conduct. How a company treats its own employees; which suppliers and other third parties it engages; even where to expand or what new products to launch — all those decisions must now acknowledge CSR as an influencing factor.