Business Ethics Project III

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DOI: 10.1002/tqem.21559

R E S E A R C H A R T I C L E

Supplier codes of conduct: Company authorization of subcontractors

Richard M. Kashmanian

Office of Policy, U.S. Environmental Protection

Agency, Washington, District of Columbia

Correspondence

Richard M. Kashmanian, Office of Policy,

U.S. Environmental Protection Agency,

1200 Pennsylvania Avenue, N.W., Washington,

DC 20460.

Email: kashmanian.richard@epa.gov

Abstract Companies continue to build greater sustainability and transparency in their supply chains to

increase their business value and to respond to greater stakeholder pressures and expectations

to increase sustainability and transparency. As company supply chains have grown and expanded,

which presents increased challenges for building greater transparency, it is possible that the use

of subcontractors in supply chains has also increased. The amount and impact of subcontracting

conducted in supply chains may be of greater concern to certain companies and/or sectors than

others, and it may have an important impact on their sustainability efforts. This article assesses the

extent to which supplier codes of conduct apply to the use of subcontractors and include a require-

ment for suppliers to obtain prior company approval or authorization before subcontractors con-

duct work. Based on a review of more than 50 supplier codes of conduct, the companies that

are highlighted in this article for including this requirement are primarily in the apparel/footwear,

food, pharmaceuticals, and/or retail sectors. The article asserts that supplier codes of conduct that

include requirements for suppliers to protect and safeguard confidential business information

could be strengthened to further protect the company's products, integrity, and reputation/brand

and increase its competitiveness and resilience by also including a requirement of prior approval

or authorization of a supplier's use of subcontractors.

K E Y W O R D S

prior approval/authorization of use of subcontractors, subcontractors, supplier code of conduct,

supply chain sustainability, supply chain transparency

Gentlemen, the officer who doesn't know his communica-

tions and supply as well as his tactics is totally useless.

(General George S. Patton)

1 I N T RO D U C T I O N

There have been numerous descriptions of how companies engage

with their supply chains to improve environmental performance,

reduce environmental footprints, and manage business risks as they

advance sustainability. Among these descriptions, the United Nations

Global Compact and BSR (2010) displayed a pyramid, BSR (2010)

depicted a building with four pillars, the United Nations Global Com-

pact and BSR (2015) used a flow diagram, Kashmanian (2015) and

World Economic Forum (2015) described a path, BSR (Norton, Ryan,

& Prepscius, 2017) and SustainAbility, United Nations Environmental

Programme, and United Nations Global Compact (2007) presented a

ladder, and BSR (Norton et al., 2017) and EY (2016) outlined a maturity

model.

Key elements used to describe the process for a company to

advance sustainability in its supply chain include:

• Improving understanding of its supply chain and associated environ- mental impacts;

• Setting of expectations for its suppliers;

• Monitoring and evaluating supplier environmental performance and conformance to/compliance with its expectations/requirements;

• Engaging with suppliers to build their capacity and capability to improve their performance;

• Driving improvements through use of various tools and strategies; and

• Integrating sustainability across its supply chain.

Movement across these elements can represent paradigm shifts,

such as moving from a focus on:

• Being in compliance with laws and regulations to going beyond com- pliance and being accountable, responsible, and resilient;

10 KASHMANIAN

• Working internally to working and collaborating externally with suppliers, customers, communities, nongovernmental organizations,

and other stakeholders and being transparent;

• Increasing efficiency and reducing costs to increasing revenues, product branding, company reputation, business value, and shared

value; and

• Working incrementally to working transformationally.

A key strategy for a company to advance through these stages

involves increasing engagement with its suppliers and integrating sus-

tainability through its supply chain. These processes and elements con-

tinue to mature and evolve as the level of understanding of and support

for sustainability grows.

A key strategy for a company to advance through these stages involves increasing engagement with its suppliers and integrating sustainability through its supply chain

Prior supply chain articles by the author have focused on:

• The use of supplier codes of conduct to identify and manage com- pany expectations of its suppliers and the use of supplier perfor-

mance scorecards to assess supplier performance over time (Lee &

Kashmanian, 2013);

• The extent to which supplier codes of conduct are applied beyond a company's Tier 1 or direct suppliers (Kashmanian & Moore, 2014);

• Key elements used by companies to build more sustainable supply chains (Kashmanian, 2015); and

• Key actions used by companies to build transparency in their supply chains (Kashmanian, 2017).

To illustrate their key points, each article used numerous examples

of what companies are doing. This article narrows the focus on supplier

codes of conduct to assess the extent to which they apply to the use

of subcontractors.1 The article also focuses primarily on the environ-

mental component of sustainability but also considers the economic

component.

2 I M P O RTA N C E O F S U P P LY C H A I N S

Supply chains can represent close to or more than 50% of a com-

pany's environmental footprint for many industry sectors (GreenBiz

& Trucost, 2018); this percentage can be up to twice as much for

retail companies as it is for manufacturing companies (Brickman &

Ungerman, 2008). GreenBiz and Trucost (2018) estimated that supply

chains represent on average 79% of a company's environmental

footprint. For specific environmental aspects, analyses by CDP (2015),

Coca-Cola (2011), and General Mills (2017a) estimated that supply

chains contribute well over 50% of greenhouse gas emissions or water

use.

With these percentage contributions from supply chains to a com-

pany's environmental footprint, it is likely important for a company

to know which suppliers are in its supply chain, what their envi-

ronmental impacts are, and which tier(s) in their supply chain con-

tribute the greatest share to its footprint or business risk as it

strives to reduce its environmental footprint, sets goals for these

supply chain reductions, manage business risks, and/or increase its

resiliency.

2.1 Business value

Companies are learning more about their supply chains for busi-

ness reasons and also in response to stakeholder (including cus-

tomers [which includes other companies and/or consumers], investors,

and nongovernmental organizations) interests, pressures, and expec-

tations (Clean Clothes Campaign, 2017; EY, 2016; GreenBiz, 2017;

SustainAbility et al., 2007; United Nations Global Compact and

BSR, 2010, 2015; World Economic Forum, 2015). These efforts can

be challenging as supply chains have grown larger, have become

less linear and more complicated and dispersed, and have devel-

oped more into networks including some that are global for many

companies (EY, 2016; SustainAbility et al., 2007). Here are some

examples:

• Baxter (2013) purchases raw materials, goods, and services from approximately 35,000 suppliers located in more than 100 countries

that its operations around the globe need.

• Honda (2011) estimates that its automobiles are made from 20,000 to 30,000 parts.

• General Motors (2017) purchases approximately 200,000 items from more than 21,000 suppliers around the world; these items are

delivered or provided to its more than 170 manufacturing opera-

tions in 30 countries.

• HP (2016a) has hundreds of production suppliers and tens of thou- sands of nonproduction suppliers2 worldwide.

• Intel's (2017) multi-tiered supply chain includes more than 19,000 suppliers in more than 100 countries.

• Nestlé (2018) works with 165,000 direct suppliers and 695,000 farmers worldwide.

The business case for a particular company [to advance

supply chain sustainability] depends on a variety of issues

including industry sector, supply chain footprint, stake-

holder expectations, business strategy and organizational

culture. Supply chain sustainability management practices

that respond to multiple drivers can maximize the value to

business. (United Nations Global Compact and BSR, 2015,

p. 15)

KASHMANIAN 11

Because supply chains are so integral to a company's success and growth, efforts to advance sustainability in supply chains can be very rewarding

Because supply chains are so integral to a company's success and

growth, efforts to advance sustainability in supply chains can be very

rewarding:

2.1.1 Baxter

Baxter's efforts [with its supply chain] play a central role

in the company's overall sustainability efforts. As a health-

care company, maintaining a safe, secure and reliable sup-

ply chain has a heightened importance as it is essential to

ensuring patient safety. … Baxter is committed to building and driving a sustainable supply chain. This is one of the com-

pany's nine sustainability priorities and reflects the fact that

Baxter's suppliers represent a substantial portion of its

overall environmental impacts. (Baxter, 2013, p. 2)

2.1.2 General Motors

In order to build the most valuable automotive company, we

must recognize that our impacts go beyond the walls of GM

to include our entire value chain, of which suppliers make

up a significant part. The importance of strong supply chain

management and relationships is further underscored as new

issues arise due to business expansion into emerging mar-

kets and increased participation in more advanced technolo-

gies, such as electrification. We seek to partner with suppliers

who share our purpose and values. We expect our employees

working with suppliers to hold them accountable to the same

environmental principles and ethical standards to which we

hold our own employees and operations so we all win with

integrity. (General Motors, 2017, p. 119)

2.1.3 Honda

In order to provide customers with a timely, stable supply of

better products and services, it is necessary to put signifi-

cant effort into developing and optimizing supply chains with

suppliers around the world while also taking into account

environmental and human rights issues. Companies within

the automobile industry, which is a broad-based industry

supported by many suppliers, must pursue the reduction of

not only their own environmental impacts but also those of

suppliers throughout their entire supply chain. In addition,

as awareness of compliance and human rights issues grows

worldwide, companies are being asked to verify working con-

ditions and legal compliance not only for themselves but also

for their suppliers, as well as to make efforts to take corrective

action if required. (Honda, 2017, p. 86)

2.1.4 HP

The mission of HP supply chain responsibility program is to

protect and empower workers, and to reduce global and com-

munity environmental impacts while simultaneously creating

benefits for HP and our customers. We believe this mission

is complementary to our business objectives and results in a

competitive advantage. (HP, 2016b, p. 2)

2.1.5 Intel

Actively managing our supply chain creates business value

for Intel and our customers by helping us reduce risks,

improve product quality, achieve environmental and social

goals, and raise the overall performance of our suppliers. We

work to advance accountability and improve performance

across our entire supply chain. Assessments, audits, and

capability-building programs help us ensure that our supply

chain is both resilient and responsible. (Intel, 2017, p. 49)

2.1.6 Nestlé

We source supplies of raw materials from millions of farmers

across the world. These farmers are critical to a secure, long-

term supply, and therefore to our success. By understanding

and managing where and how our ingredients are produced,

and the issues farmers and their communities face, we can

help develop thriving communities and support better liveli-

hoods for those with whom we live and work. (Nestlé, 2017,

p. 23)

2.2 Business/Supply chain risks

In addition to the business case or value described above for companies

by advancing sustainability in their supply chains, there are other busi-

ness reasons for companies to further engage with their supply chains

to advance sustainability. Indeed, the United Nations Global Compact

and BSR (2010, 2015) identified the three most common business

drivers for supply chain sustainability:

• Sustainability-related risks,

• Sustainability-driven productivity, and

• Sustainability-advantaged growth.

Of these three categories, this article focuses primarily on

sustainability-related risks, which were further described by the

United Nations Global Compact and BSR (2015, p. 15):

12 KASHMANIAN

• “Maintain social license to operate

• Meet existing and emerging legal and reporting requirements

• Minimize business disruption from environmental, social and eco- nomic impacts

• Protect company's reputation and brand value; meet investors’ and stakeholders’ expectations.”

There have been other efforts to describe the risks that companies

and/or their suppliers are exposed to. For example, EY (2016) identified

operational, financial, regulatory, and reputational risks to be the major

drivers for companies to advance sustainability in their supply chains.

The United Nations Global Compact and BSR (2015) included the fol-

lowing risks to the company: business continuity, regulatory, reputa-

tional, market acceptance, and customer requirements.

The depth, breadth, and complexity of supply chains may differ between certain industry sectors, but it is important for a company to recognize where these risks, concerns, and/or impacts are greater along its supply chain.

In addition, Ceres (2017a) categorized financial risks in the agricul-

tural supply chains as follows: market, reputational, regulatory, oper-

ational, and litigation. BSR (2015) identified business risks created by

climate change, but they also could be viewed more broadly as supply

chain risks:

• Physical risk to suppliers—impacts to assets and operations;

• Input risk—reduced availability or increased cost of key resources/inputs3;

• Regulatory risk—changing regulations in sourcing or distribution markets;

• Labor and community risk—disruptions in community social, envi- ronmental, and economic infrastructure that affect supplier work-

force availability and productivity; and

• Stakeholder (or reputational) risk—related to the above risks and with the potential to affect the company and their suppliers.

If a company is exposed to water risks or water scarcity in its supply

chain, Ceres and Pacific Institute (Morrison, Morikawa, Murphy, &

Schulte, 2009) and JPMorgan (2008) identified these categories of

water-related risks: physical risks, reputational risks, and regulatory

risks. Ceres extended this list by adding litigation risks (Barton, 2010).

Similarly, WBCSD, SustainAbility, and IUCN (2012) identified these

water-related risks: financial risks, operational risks, product risks,

reputational risks, and regulatory risks. Lloyd's (2010) expanded this

further by identifying physical risk, regulatory risk, community risk,

reputational risk, investment risk, and geopolitical risk.

To summarize the discussions in the reports mentioned above

regarding a company's exposure to business risks from its supply chain,

these risks could affect “share price, influence loss of market access,

firm's brand equity and result in regulatory issues. Overall, these risks

impact a company's balance sheet (assets, liabilities, equity, valuation),

income statement (revenues, costs, profitability, net income), and cash

flow” (Thoumi, 2017).

As a result, a company may be exposed to significant risks along its

supply chain. Honda recognized the importance of reducing risks in its

supply chain, stating that it

views all phenomena that can impact production, such as

natural disasters, fires, financial issues and labor issues

within the supply chain, as risks for the procurement of com-

ponents and materials, and works to reduce them and to pre-

vent the spread of any impact when they materialize. Honda

(2017, p. 93)

HP (2016a) recognizes that there are risks deeper in its supply

chain, beyond its Tier 1 suppliers, and that these risks can extend to

the sourcing of minerals and raw materials used to make its products. In

addition, “food and agricultural companies have faced significant chal-

lenges recently with child labour on farms which they rarely buy from

directly. The electronics industry is struggling with mining in conflict

zones for the minerals that go into their products” (United Nations

Global Compact and BSR, 2010, p. 40). Furthermore,

Many companies struggle with whether and how to include

sub-tier suppliers in the scope of their supply chain pro-

gramme because of the lack of direct interaction and per-

ceived lack of influence. However, many companies and

industries have found that sub-tier suppliers have the most

significant challenges in addressing sustainability issues.

(United Nations Global Compact and BSR, 2010, p. 25)

The depth, breadth, and complexity of supply chains may differ

between certain industry sectors, but it is important for a company

to recognize where these risks, concerns, and/or impacts are greater

along its supply chain. For example,

We recognize that many of the issues facing manufacturers

like Mars arise in the lower tiers of extended supply chains

where many more suppliers are involved. It is therefore essen-

tial that our direct suppliers recognize the role they must play

in promoting responsible sourcing practices with their own

suppliers, including ensuring the [Supplier Code of Conduct's]

principles are flowed down to, and adhered by, lower tier sup-

pliers and compliance monitoring takes place at all levels in

the supply chain. (Mars, 2014, p. 13)

KASHMANIAN 13

How a company engages with its supply chain can reflect where it is

along its sustainability path as well as the level of complexity of its sup-

ply chain. That is, “Companies demonstrate different levels of maturity

in their relationships with the supply chain, from basic communication

to considering suppliers as an extension of their business” (EY, 2016,

p. 7). Companies that are further along their sustainability path “work

with suppliers toward shared commitments as they recognize that

suppliers, vendors and subcontractors play an important role in achiev-

ing their sustainability goals and those of their customers” (EY, 2016,

p. 7).

How a company engages with its supply chain can reflect where it is along its sustainability path as well as the level of complexity of its supply chain

The World Economic Forum (2015, p. 6) asserted that “[t]he root

cause for many of the world's worst societal and environmental condi-

tions lies in failures in decision-making and in barriers to implementing

improvements”. One of the four associated difficulties identified was

“[e]nsuring compliance in global, non-transparent supply chains, par-

ticularly if there is sub-contracting through multi-stage suppliers (e.g.,

tier 5 suppliers)” (World Economic Forum, 2015, p. 6).

3 I N C R E A S E D AT T E N T I O N TO S U P P LY

C H A I N S

An initial opportunity for a company to engage with its suppliers can

be through the development and use of a supplier code of conduct

or similar set of guidelines or standards in which the company states

and manages its expectations and requirements of them (e.g., to

comply with laws and regulations and related company policies; Lee &

Kashmanian, 2013;United Nations Global Compact and BSR, 2010,

2015). Supplier codes of conduct were first established in the

1990s and were initially largely focused on labor issues (Jorgensen,

Pruzan-Jorgensen, & Cramer, 2003; Kolk & van Tulder, 2002). The use

of supplier codes of conduct has grown since then, and their focus on

environmental issues has expanded (e.g., by evolving to focus not only

on complying with regulations, but also to going beyond compliance

and/or addressing issues that are not regulated; Ceres & Sustainalytics,

2014; HEC Paris and EcoVadis, 2017; Lee & Kashmanian, 2013). A num-

ber of companies have included suppliers in their own internal codes

of conduct (see, e.g., FedEx, 2016; Home Depot, 2014; UPS, 2011).

As companies mature and evolve their sustainability strategies,

many of them integrate sustainability across their supply chains.

According to EY (2016),

As companies move towards a more mature program, they

focus on integrating these processes seamlessly with the

procurement function, requiring suppliers to cascade the

requirements further down in the supply chain, and identi-

fying opportunities to improve supplier performance. Mature

companies address also their own buying practices and

sourcing processes, rather than simply relying on suppliers

to achieve their sustainable sourcing goals. They integrate

these practices and processes with product design and devel-

opment to explore opportunities for enhancing sustainabil-

ity via materials or processes used in the manufacturing of

a product or delivery of a service. (EY, 2016, p. 4)

3.1 Supplier codes of conduct

Included in the integration of sustainability across supply chains is the

integration of sustainability in the breadth, depth, and applicability of

a company's supplier codes of conduct. Kashmanian and Moore (2014)

assessed the extent to which supplier codes of conduct were applied

to beyond- or sub-Tier 1 or direct suppliers and discussed the impor-

tance of providing clarity in these codes regarding intent, scope, and

accountability as well as other tools and collaborations or partnerships

that companies can utilize to strengthen the impact of these codes. The

breadth and depth of these codes continue to expand. In a way, the

supplier code of conduct is a window into how a company sees and

engages with its supply chain. As part of the research for this article,

more than 50 supplier codes of conduct, spanning companies from dif-

ferent industry sectors, were reviewed and several industry experts

were questioned.

A number of companies have cast a wide net in describing which

suppliers would need to conform/comply with their supplier codes of

conduct, by stating that it applies to all of their direct (and indirect)

suppliers (e.g., Campbell Soup Company, 2017; Mars, 2014), sub-tier

suppliers (e.g., Nestlé, 2013b), or a total or whole supply initiative

(e.g., Patagonia, 2013; Responsible Business Alliance, 2018). Unless

explicitly mentioned, one could assume from some of their descrip-

tions that subcontractors may also be subject to their supplier codes of

conduct.

Here are some examples:

3.1.1 Campbell Soup Company

This [Supplier] Code applies to all of Campbell Soup

Company's direct and indirect suppliers, brokers, co-

manufacturers/co-packers, re-packers, special packers,

warehouses, distributors and licensees in all categories,

including their parent, subsidiary or affiliate entities (herein

referred to as “Supplier”). (Campbell Soup Company, 2017,

p. 2)

14 KASHMANIAN

3.1.2 HP

HP requires its Suppliers, their sub-tier suppliers and any

other 3rd party agents to uphold the highest standards of

ethics in their business operations. (HP, 2015, p. 5)

3.1.3 Mars

This Code and our responsible sourcing program more

broadly applies to all of our direct and indirect suppliers in all

categories. Direct suppliers are those that contribute directly

to the production of finished goods, primarily raw materi-

als and packaging. This includes the suppliers of agricultural

goods, farmers and sub-contractors. Indirect suppliers are

those that provide goods and services outside of those used

in the production of finished goods. This includes the ser-

vices and items purchased to construct and run our factories,

the transport and warehousing of our products and the mar-

keting services we use to promote our brands and products.

(Mars, 2014, p. 2)

3.1.4 Patagonia

Requirements in this Code apply to the whole supply

chain, including sub-suppliers, sub-contractors and farms.

(Patagonia, 2013, p. 1)

3.1.5 PepsiCo

Suppliers, vendors, contractors, consultants, agents and

other providers of goods and services who do business

with PepsiCo entities worldwide are expected to follow this

[Supplier] Code. (PepsiCo, 2013, p. 1)

3.1.6 PetSmart

This PetSmart Suppler Code of Conduct (“Code”) applies to

PetSmart's vendors/ suppliers, contractors, consultants and

individuals and their subsidiaries, affiliates, and subcontrac-

tors (each a “Supplier”) who provide goods or services to

PetSmart or its affiliates and subsidiaries, whether directly

or indirectly. PetSmart requires its Suppliers to act in accor-

dance with this Code and in full compliance with all applica-

ble laws and regulations. Suppliers are responsible for ensur-

ing that they and their employees, workers, representatives,

agents and subcontractors comply with this Code. (PetSmart,

n.d. a, p. 1)

3.2 Supply chain transparency

Many companies are increasing transparency in their supply chains,

responding to their own and their stakeholders’ interests, pressures,

and expectations. Kimberly-Clark (2017, p. 1) asserted “Supply chain

transparency is critical for managing rising levels of risk in an environ-

ment where corporate supply chain practices are attracting increas-

ing legal, regulatory, and consumer activity.” A company's efforts to

increase transparency in its supply chain can include several elements,

for example:

• Map its supply chain,

• Trace material flows through its supply chain,

• Achieve commodity/product certification,

• Report publicly (at least) its Tier 1 suppliers, and

• Set public goals for its supply chain and report progress (Kashmanian, 2017).

As is the case with all aspects of corporate sustainability

performance, [supply chain] transparency is key. Companies

should disclose not only information about who is in the

supply chain, but how those suppliers are or are not

implementing social and environmental standards. (Ceres &

Sustainalytics, 2014, p. 50).

Lacking transparency increases a company's difficulty in engaging

with its beyond- or sub-Tier 1 suppliers (United Nations Global Com-

pact and BSR, 2010).

A company's efforts to increase transparency in its supply chain can include several elements

As discussed by Kashmanian (2017), with growing and expanding

supply chains, it is becoming more difficult for a company to know

who the suppliers in its supply chain are, where they are located, what

their sustainability challenges are, and where and how to prioritize

their attention to engage with them. Meanwhile, there is greater inter-

est and expectations from companies as well as their stakeholders to

learn more about these suppliers, but “[w]hen global supply chains are

opaque, consumers often lack meaningful information about where

their apparel was made.” (Clean Clothes Campaign, 2017, p. 1).

While it is becoming increasingly challenging for companies to

know more about their growing and expanding supply chains, it is also

becoming more important for them to do so “to manage business risks

and bring value to stakeholders” (EY, 2016, p. 3; see also Kashmanian,

2017). Indeed,

The most significant and widely reported challenge is achiev-

ing transparency beyond Tier 1 suppliers – particularly in

emerging markets. This challenge is exacerbated by the sheer

number of suppliers deeper in the supply chain as well as the

use of subcontractors and a myriad of standards and regula-

tions. (EY, 2016, p. 34)

KASHMANIAN 15

Indeed, supply chain transparency and traceability are major chal-

lenges for companies, especially if their supply chains are complex,

long, and opaque (Ceres, 2017a, 2017b; Clean Clothes Campaign,

2017; GreenBiz, 2017). “While stakeholder expectations for report-

ing and disclosure related to sustainability topics have significantly

increased in the past few years, companies still do not have a good

understanding of the risks deeper in the supply chain” (EY, 2016, p. 7).

Furthermore, if a company's suppliers maintain a network or layers of

subcontractors, its visibility through its supply chain will be reduced

(World Economic Forum, 2015).

When considering concerns such as supplier factory workplace

safety, labor practices, product (including food) quality, safety,

and integrity, and sourcing of materials (including relationship to

conflict minerals, conflict wood, tropical deforestation, and water

security, as some examples), many companies have made sourcing

pledges or set supply chain goals. Greater knowledge of their supply

chains can inform their determinations of whether they have achieved

their pledges or goals. Examples of how to obtain this greater knowl-

edge include mapping their supply chains, tracing materials through

their supply chains, and/or achieving certification of the commodities

or processes used in their supply chains (Kashmanian, 2017). The

more a company can trace its supply chain, the better the company

can manage its supply chain and know where the impacts are (Chacon,

personal communication, 2018).

When considering concerns such as supplier factory workplace safety, labor practices, product (including food) quality, safety, and integrity, and sourcing of materials (including relationship to conflict minerals, conflict wood, tropical deforestation, and water security, as some examples), many companies have made sourcing pledges or set supply chain goals

In the case of Nestlé (2013a), “To ensure the palm oil we source is

not associated with deforestation, we must know where it comes from.

So we work with our suppliers to build traceability and carry out field

assessments against our [Responsible Sourcing Guidelines]” (p. 128).

Nestlé (2017) also recognizes that consumers increasingly want to

know where their products come from and the company's traceabil-

ity work for its 12 priority categories of raw ingredients can help it

respond to their requests. As an example of the business value from

increased knowledge of and subsequent effort to reduce supply chain

impacts,

sustainability pledges [to reduce deforestation from supply

chains] are part of corporate social responsibility strategies

that have been embraced by companies to meet society's

expectations and of growth strategies to improve brand-

ing and consumer loyalty, reduce reputational risk, increase

market shares and profits, mitigate potential losses of critical

environmental services and ensure long-term supply. (Lambin

et al., 2018, p. 109)

Some of these examples of transparency may be complements or

alternatives. For example, traceability of material flows can enhance

the ability to map a supply chain, and vice versa. An imperative to

map a supply chain or trace material flows may not be as important

if the upstream commodity or process has already been certified to a

standard.

In reference to when a certification standard should be consid-

ered for agricultural commodities, de Man and Ionescu-Somers (2013)

stated,

[t]he more the raw material has a “commodity” character, the

more uniform the raw material is and the less direct influence

the company has on farmers. In such “commodity” supply

chains, it may make sense to rely on external standards and

the related certification systems. In supply chains where a

company is sourcing directly and, as a result, has more direct

contact with suppliers and farmers, it may be less obvious

to rely on external standards and systems. (Somers, 2013,

p. 23)

Furthermore, when considering whether to choose a certification

standard or work more directly with suppliers to improve their envi-

ronmental performance,

Sourcing from anonymous commodity markets does not

provide [a] company with realistic possibilities to impact

the farmers’ practices, owing to the lack of traceabil-

ity/transparency. A practical solution here may be to require

compliance with an externally defined and independently

certified sector sustainability standard. (de Man & Ionescu-

Somers, 2013, p. 32)

Here are some examples of why companies attach importance to

knowing and sharing what is happening in their supply chains:

3.2.1 Campbell Soup Company

Campbell is committed to transparency in its operations and

throughout the supply chain. Our transparent approach to

16 KASHMANIAN

business is important to our stakeholders and we expect the

same of our suppliers. We are also committed to moving

toward a fully traceable supply chain. If requested, Supplier

shall disclose the geographical location of facilities produc-

ing raw materials for Campbell, as well as the origin of raw

materials within the Suppliers’ own direct supply chain. We

may also ask Suppliers to provide mapping back to the origin

of materials to assess upstream supply chain compliance. If

you are unable to comply with this today, we expect you to

begin putting capabilities in place to do so. (Campbell Soup

Company, 2017, p. 11)

3.2.2 Nestlé

The assessment of actual impacts of the production of raw

materials is being evaluated through our work to map our

supply chains back to the primary producer. With traceabil-

ity established back to the farm or feedstock level, we will be

able to work with suppliers to improve their performance and

meet our Responsible Sourcing Guidelines. (Nestlé, 2013a,

p. 200)

3.2.3 Patagonia

Patagonia and our suppliers are jointly responsible for ensur-

ing social and environmental responsibility and the integrity

of our product content claims from the farm through the

finished goods factory level. The only way to work towards

this goal is to have transparency and traceability into all lev-

els of our supply chain. Patagonia requires suppliers to map

and continuously track and monitor all locations in all lev-

els of their supply chain and upon request provide trans-

parency information into the owned and/or subcontracted

farms, mills, plants, factories and other sites that are involved

in the production of our products. (Patagonia, 2013, p. 4)

The above supply chain/transparency elements are important to a

company's business enterprise as well as its sustainability efforts to, for

example:

• Improve and/or protect product quality, safety, and integrity;

• Avoid, mitigate, minimize, or manage exposure to business risks;

• Identify environmental hotspots in its supply chain to devote greater attention and take action;

• Improve sourcing of materials;

• Understand environmental impacts from its supply chain;

• Respond to stakeholder interests, pressures, and expectations;

• Evaluate progress toward sustainability pledges and goals; and

• Avoid negative attention and impacts on corporate reputation as well as on company and brand integrity (Kashmanian, 2017; United

Nations Global Compact and BSR, 2015).

As mentioned above, a company states its expectations of suppliers

in its supplier code of conduct or similar set of guidelines or standards.

As evident from how companies integrate their supplier codes of con-

duct into their sustainability strategies, these codes are an important

initial step to advance sustainability through company supply chains;

however, companies do not view their supplier codes of conduct as an

endpoint in this regard (Kashmanian, 2015; SustainAbility et al., 2007;

United Nations Global Compact and BSR, 2010, 2015).

To advance a company's desired sustainability efforts, its supplier

code of conduct can be coupled with other tools to verify if suppliers

are meeting company expectations and to identify actions to engage

further with suppliers that are not meeting these expectations. These

tools include supplier audits, monitoring, and self-assessments, iden-

tification and implementation of corrective and preventive measures,

incentives to increase supplier capacity, supplier performance score-

cards, technical assistance to increase supplier capability, collabora-

tion to leverage resources, and transparency to publicly share more

supply chain information (e.g., see Ceres & Sustainalytics, 2014; HEC

Paris and EcoVadis, 2017; Kashmanian, 2015; Kashmanian & Moore,

2014; Laurell, 2014; Lee & Kashmanian, 2013; SustainAbility et al.,

2007; United Nations Global Compact and BSR, 2010, 2015).

To advance a company's desired sustainability efforts, its supplier code of conduct can be coupled with other tools to verify if suppliers are meeting company expectations and to identify actions to engage further with suppliers that are not meeting these expectations

4 D I S RU P T I N G O R U N D E R M I N I N G A

C O M PA N Y'S S U S TA I N A B I L I T Y E F F O RT S

As supply chains have grown and expanded, it is possible that subcon-

tractors are conducting more of the supply chain work. This may be

more likely in certain sectors than in others. The impact of the amount

of subcontracting and what tier/where this work takes place in a

supply chain may be an important consideration regarding environ-

mental impacts and the contribution to a company's environmental

footprint, as well as the level of business risk that may be posed to the

company. Concern for such environmental impacts and business risks

may be more likely or greater for certain companies and sectors than

for others.

For example, in the apparel sector, subcontracting is important and

takes place within the supply chains of most apparel brands. For brand

KASHMANIAN 17

manufacturers, it is important to know where the different produc-

tion steps take place. The main sustainability concern regarding this

sector's Tier 1 suppliers (primarily conducting final garment manufac-

turing) is for labor/social concerns; these suppliers typically have rel-

atively low environmental impacts. The main sustainability concern

regarding this sector's Tier 2 suppliers is for social and environmen-

tal concerns (Chacon, personal communication, 2017; Kibbey, personal

communication, 2017). These Tier 2 suppliers conduct washing, print-

ing, dyeing, milling, and finishing, and their biggest environmental risk

is water pollution resulting from their use of chemicals. As is typical in

many sectors, apparel companies have much greater visibility into their

Tier 1 suppliers than their Tier 2 suppliers (HEC Paris and EcoVadis,

2017). In addition, the environmental performance by their Tier 2 sup-

pliers may be wide-ranging (Kibbey, personal communication, 2017).

Mettler and Ashida 2014 pointed out that customers are increasing

demands on apparel companies for them and their suppliers to com-

ply with environmental and social standards; these authors recognized

the difficulty in doing so when a company's supply structure is deep and

complex.

These Tier 2 suppliers conduct washing, printing, dyeing, milling, and finishing, and their biggest environmental risk is water pollution resulting from their use of chemicals

The Apparel and Footwear Supply Chain Transparency Pledge

includes a requirement that apparel and footwear companies publish

on their websites an updated list of all authorized production units and

processing facilities, including their authorized subcontractors4 (Clean

Clothes Campaign, 2017b). The Clean Clothes Campaign (2017a) con-

tends that publishing supply chain information helps a company to

build trust with its stakeholders, including customers and investors,

and also increases its accountability. Indeed, “[s]upply chain trans-

parency can also help check unauthorized subcontracting” (Clean

Clothes Campaign, 2017, p. 4).

4.1 Company preapproval or authorization

of subcontractors to suppliers

Several companies from a handful of key sectors include requirements

in their supplier codes of conduct that notify suppliers of the need to

obtain prior approval or authorization before any work is conducted by

a supplier's subcontractor. This approval or authorization could include

a screening and assessment of whether the new supplier would meet

the company's sourcing, quality, and social and environmental stan-

dards (Patagonia, n.d.). The companies that are highlighted below are

primarily in the apparel/footwear, food, pharmaceutical, and/or retail

sectors (note that there is overlap between some of the companies

listed under apparel/footwear and food with retail). Some of the key

supply chain issues in these sectors may be linked to labor, factory

workplace safety, food safety, product quality/integrity, and sourcing.

These and/or other important supply chain issues may also be associ-

ated with other sectors.

4.1.1 Apparel/Footwear

C&A

Suppliers must obtain approval from C&A for all production

units, whether owned or subcontracted, prior to the start of

production. The use of any unauthorised production unit is

strictly prohibited. (C&A, 2015, p. 8)

Gap

Vendors shall obtain written authorization from Gap Inc. to

use these facilities prior to the start of production. … Ven- dors shall only use Gap Inc.-approved facilities for the pro-

duction of goods. Vendors shall obtain written authorization

from Gap Inc. to use these facilities prior to the start of pro-

duction. (Gap, 2016, pp. 6, 7)

H&M

All suppliers and other business partners are obliged to keep

H&M informed at all times of where each product is being

produced, including subcontracting and homework. Relevant

documentation must be maintained for auditing purposes.

We reserve the right to make unannounced visits to all units

producing goods or services for H&M, at any time. We also

reserve the right to appoint an independent third party of our

choice to conduct audits in order to evaluate compliance with

our Code of Conduct. (H&M, 2010, p. 5)

Levi Strauss & Co

Unauthorized subcontracting is prohibited (Levi Strauss &

Co., 2013, p. 18). When production levels are high work is

subcontracted out to a nearby factory. Levi Strauss & Co. has

not been informed of the use of the stated factory. … Action must be taken immediately by the factory and production

removed. (Levi Strauss & Co., 2013, p. 19)

NEW BALANCE

This Code of Conduct applies to all subcontractors uti-

lized by suppliers to NEW BALANCE. Suppliers shall take

all necessary steps to ensure that their subcontractors and

component suppliers adhere to this Code of Conduct. No

subcontractors shall be used without prior approval from

NEW BALANCE. (NEW BALANCE, 2015, p. 1)

18 KASHMANIAN

Nike

Nike's policy is to evaluate potential contracted factories

before they enter their supply chain to assess compliance

with standards, including country-related risks and issues

including forced labour, human trafficking and slavery. Nike

uses both internal and external third party audit reassur-

ances in safety, quality, environment, security, financial, and

regulatory. …Nike plans to better map out and understand the impacts that direct suppliers of material have further

up the supply chain, to better develop standards of their

upstream suppliers of their contracted manufacturers. (Nike,

n.d., p. 1)

Patagonia

Patagonia does not permit subcontracting without our prior

written approval. All salesman-sample and bulk production

orders must be placed within facilities that have been pre-

approved by Patagonia, without exception. Direct suppliers

are required to continuously monitor approved subcontrac-

tors and sub-suppliers for social and environmental respon-

sibility using standards that meet or exceed our Code and

Benchmarks. (Patagonia, 2013, p. 3)

PUMA

Vendors and their subcontractors accept that their business

practices are subject to scrutiny. All subcontractors must be

authorized by PUMA and it is the responsibility of the ven-

dor to ensure that this Code of Conduct is respected at their

subcontractors. (PUMA, 2016, p. 1)

VF Authorized Facilities will not utilize subcontractors in the

manufacturing of VF products or components without VF's

written approval and only after the subcontractor has agreed

to comply with the Terms of Engagement, including these

Global Compliance Principles. (VF, n.d., p. 3)

4.1.2 Food

Campbell Soup Company

Supplier is required to disclose all facilities that are owned,

leased, subcontracted or used in any form to produce any

item supplied to Campbell.…All subcontractors must be dis- closed and engagement in any unauthorized subcontracting

is prohibited. (Campbell Soup Company, 2017, p. 3)

Mars

Supplier does not use subcontractors or assign to any other

party its contractual obligations to Mars, without prior writ-

ten approval by Mars or its subsidiaries. Prior written accep-

tance of this Code by the approved subcontractor or assignee

is required before production begins. (Mars, 2014, p. 12)

4.1.3 Retail

IKEA

All IKEA suppliers are obliged to keep IKEA informed at all

times about all places of production or operations, includ-

ing their sub-contractors where production or operations for

IKEA takes place. (IKEA, 2008, p. 3)

Lowe's

If permitted by the terms of its agreement with Lowe's, Ven-

dors shall not retain any Subcontractors without a thorough

documented examination of the Subcontractors’ person, rep-

utation and integrity. In addition, Vendors shall not retain any

Subcontractors in connection with their provision of services

or goods to Lowe's unless the Subcontractors comply with the

Code of Conduct. Vendors must remain responsible for ensur-

ing that their Subcontractors comply with the Code of Con-

duct. (Lowe's, 2013, p. 2)

Office Depot

Office Depot expects organizations producing goods and pro-

viding services for it, including any approved subcontractors

(collectively “Suppliers”), to follow and adhere to these Sup-

plier Guiding Principles in order to do business with Office

Depot. (Office Depot, 2015, p. 1)5

PetSmart

Production Partners may not subcontract any portion of the

manufacturing process without prior written consent from

PetSmart. Production Partners are responsible for ensur-

ing all approved subcontractors comply with this Code.

(PetSmart, n.d. b, p. 1)

Starbucks

Starbucks prefers to contract with the direct source of its

products or services unless outsourcing or subcontracting is

approved in writing. (Starbucks, 2014, p. 5)

Walmart

All Supplier subcontracting must be disclosed to Walmart.

Subcontracted facilities may not be used without prior

authorization by Walmart. Suppliers have an affirmative

duty to discover and disclose all facilities within their supply

chain. Disclosure requires Walmart be provided with the sub-

contracted facility name, location, contact information, and

a brief description of the actions taken by that facility, and for

this information to be kept accurate. No Supplier shall engage

in unauthorized subcontracting. (Walmart, 2014, p. 32)

KASHMANIAN 19

4.1.4 Other

General Motors

[O]ur contracts lay out expectations for lawful compliance

with data protection and privacy, wages, hours and con-

ditions of employment, subcontractor selection, discrimina-

tion, occupational health/safety and motor vehicle safety. We

request that all of our direct suppliers certify compliance with

these provisions of our contract. We follow up with those

suppliers who do not confirm compliance. (General Motors,

2017, p. 120)

United Technologies

If your contract with UTC prohibits you from assigning, del-

egating, or subcontracting your obligations, we expect you

to strictly comply with this prohibition. If your contract with

UTC permits you to assign, delegate, or subcontract your obli-

gations or procure products or services from others that will

be incorporated in products or services acquired by UTC from

you, we expect you to carefully select your business partners,

and perform due diligence, audit, and oversight to prevent

and detect misconduct. You must flow down the principles

set forth in this Code to these business partners and we will

hold you responsible for ensuring compliance by your busi-

ness partners. (United Technologies, n.d., p. 3)

In addition, two pharmaceutical companies require prior approval

of materials used and manufacturing methods and sites without

directly mentioning prior approval of subcontractors. These require-

ments are likely intended to protect product quality, safety, and

integrity, as well as business integrity and continuity, and/or system-

atically manage their business activities:

A company has opportunities to consider when its suppliers may need to add subcontractors, such as when new materials are being used or when there is a change in a product order or product design that the supplier is not yet able to address or fully address in-house.

Bristol-Myers Squibb

Third Parties (including sub-suppliers) must not make any

changes in specification, part design, material, manufactur-

ing process, manufacturing location, or registration status,

for any goods that BMS will purchase, without prior written

approval from BMS. (Bristol-Myers Squibb, 2011, p. 6)

Johnson & Johnson

Notify the relevant Johnson & Johnson Company of

proposed changes to specifications, methods, suppliers,

materials/components, manufacturing/supply process,

manufacturing location or equipment in order to determine

impact on the Johnson & Johnson Company's Product

(Johnson & Johnson, 2017, p. 15). Assist in maintaining

a safe and secure supply chain, by supplying authentic

products manufactured through appropriate authorization

and according to the requirements issued by any Johnson &

Johnson Company. (Johnson & Johnson, 2017, p. 11)

From these examples of companies that require prior approval

or authorization before suppliers use subcontractors, Campbell Soup

Company, Mars, and Patagonia indicate that they apply their supplier

codes of conduct to their Tier 1 and beyond-Tier 1 suppliers. The other

companies referenced above state that their supplier codes of conduct

apply to their direct suppliers such as suppliers that produce goods for

them (i.e., Tier 1 suppliers). As a result, this likely indicates that Tier 1

is the supply chain tier that they focus on regarding the use of subcon-

tractors. Indeed, EY (2016, p. 34) asserted, “many companies reported

that moving into Tier 2 and beyond, to understand the landscape of

subcontractors, mills, mines, plantations or smelters contributing to

the company's supply chain, presents significant challenge and uncer-

tainty.” Nevertheless, “Increasingly, companies are relying on suppliers

to influence their suppliers and subcontractors, and promote sustain-

ability deeper in their supply chain” (EY, 2016, p. 39).

A company has opportunities to consider when its suppliers may

need to add subcontractors, such as when new materials are being used

or when there is a change in a product order or product design that the

supplier is not yet able to address or fully address in-house. In addition,

a company may also have opportunities to inquire about a supplier's

use of subcontractors and enforce its requirement (if relevant) of their

preapproval or authorization. For example, a company could ask for a

supplier's list of subcontractors as part of the conduct of its supplier

quality, social/labor, or other business audit (Chacon, personal commu-

nication, 2018). If appropriate, a company that expects its suppliers to

cascade sustainability-related requirements up their supply chain can

encourage them to make use of these or similar opportunities.

If subcontractors are added without a company's prior approval or

authorization, progress on its sustainability efforts could be disrupted

or undermined-–for example, its sustainability progress may be dis-

rupted and the company's efforts to reduce its environmental foot-

print and advance transparency in its supply chain may be undermined.

However, perhaps more problematic for the company is that there may

be greater exposure to business risks, pressures, and problems that

20 KASHMANIAN

this and other companies would likely want to avoid. Thus, prior knowl-

edge and approval of which suppliers are in their supply chains is of

great importance for reasons related to factors including:

• Product quality, safety, and integrity;

• Risk avoidance, management, and mitigation;

• Business integrity;

• Sustainability objectives and goals;

• Stakeholder interests, pressures, and expectations; and

• Business resilience.

4.2 Protection of sensitive information

An additional reason or motivator for a company's interest in and

knowledge of the suppliers in its supply chain could be to protect and

safeguard sensitive, confidential, proprietary, business, and personal

information as well as intellectual property, trade secrets, and other

assets, regarding the company and its customers, suppliers, and/or

employees. That is, unauthorized subcontractors may be unaware that

a company requires that its confidential and proprietary information

be safeguarded and protected. Such safeguards and protections may

be required in numerous supplier codes of conduct under provisions

related to ethics, business integrity, business conduct/ practices, com-

pliance, etc., or some combination.

An additional reason or motivator for a company's interest in and knowledge of the suppliers in its supply chain could be to protect and safeguard sensitive, confidential, proprietary, business, and personal information as well as intellectual property, trade secrets, and other assets, regarding the company and its customers, suppliers, and/or employees

Nine of the companies listed above as well as others from their

and/or other industry sectors include such requirements in their sup-

plier codes of conduct. These companies include 3M (n.d.), Alcoa

(2016), American Airlines (2016), Apple (2017a), Baxter (2016),

Bristol-Myers Squibb (2011), Campbell Soup Company (2017), Cisco

(2017), Coca-Cola (2008), General Mills (2017b), General Motors

(n.d.), Home Depot (2014), HP (2015), International Paper (2013),

Johnson & Johnson (2017), Kellogg (2014), Lockheed Martin (n.d.),

Lowe's (2013), Mars (2014), McDonald's (2012), Merck (2011),

Motorola Solutions (2017), Nestlé (2013b), Northrop Grumman (n.d.),

PetSmart (n.d. a, n.d. b), Staples (2016), Starbucks (2014), Target

(2016), Toyota (2012), Unilever (2017), United Technologies (n.d.), and

Weyerhaeuser (2017), as well as the European Automotive Work-

ing Group on Supply Chain Sustainability (2016) and the Responsible

Business Alliance (2018). In addition, American Airlines (2016), Kel-

logg (2014), and McDonald's (2012) state that they extend these code

of conduct requirements beyond the conclusion of their business rela-

tionships with suppliers.

Here are some examples:

4.2.1 American Airlines

We protect our confidential information because it's one of

our most valuable assets. Confidential information includes

all information that American Airlines has not publicly dis-

closed, including things like product information; nonpub-

lic financial information; business strategies; contract terms;

employment and personnel information; information about

our relationships with customers, suppliers, or government

agencies; and any other information that gives us a competi-

tive advantage. Suppliers protect and do not disclose to oth-

ers American Airlines’ confidential information. Remember

that the responsibility for protecting confidential informa-

tion may continue even after our business relationship ends.

… American Airlines’ intellectual property includes patents, trademarks, copyrights, and trade secrets. Suppliers may not

use American's intellectual property except as authorized

by written agreement with American. Any nonbusiness use,

unauthorized use, or misuse of intellectual property can jeop-

ardize its protection and value, and may also constitute theft.

(American Airlines, 2016, p. 4)

4.2.2 Baxter

All Suppliers requiring the exchange of confidential infor-

mation with Baxter are required to execute a confidentiality

agreement with Baxter in advance. Exchange of confidential

information is limited to that required to fulfill contracted

performance requirements. Suppliers shall not share Baxter's

intellectual property or confidential information or any

other information that they acquire with respect to Baxter's

business (including information developed by Suppliers

and information relating to products, customers, suppliers,

pricing, costs, know-how, strategies, programs, processes,

and practices). (Baxter, 2016, p. 1)

KASHMANIAN 21

4.2.3 Cisco

Suppliers are expected to respect and comply with intellec-

tual property rights. Any transfer of technology, proprietary

information, or trade secrets without Cisco's prior written

consent is prohibited. Suppliers are required to respect the

reasonable privacy and confidentiality expectations of every-

one with whom they do business, and appropriately pro-

tect all data that may come into their possession because

of their relationship with Cisco. This includes data relat-

ing to Cisco, Cisco employees, customers, and partners, and

entails compliance with Cisco's instructions and privacy, data

protection, and security laws and regulations when personal,

confidential, proprietary, or other sensitive information is

collected, stored, processed, transmitted, or shared. (Cisco,

2017, p. 3)

4.2.4 PetSmart

Production Partners will use PetSmart confidential informa-

tion only for the purpose for which it is provided and will

not improperly use or disclose any of PetSmart's confidential

information, including trade secrets. Production Partners will

not use the name “PetSmart” or any other name, mark, logo,

design, product designations or other intellectual property of

PetSmart without PetSmart's written permission. (PetSmart,

n.d. b, p. 1)

4.2.5 Target

Confidential information means all non-public Target data,

including: business plans, retail pricing strategies, marketing

plans, team member personal information, guest personal

information and intellectual property. Vendors may not out-

source, disclose, share or use this information outside the

requirements defined in their contractual or non- disclosure

agreement with Target. Unauthorized disclosures could harm

Target, breach the vendor conduct contract or even be illegal.

(Target, 2016, p. 9)

5 D I R E C T L I N K S I N S U P P L I E R C O D E S

O F C O N D U C T TO S U B C O N T R AC TO R S

Subcontracting could take place at any stage along a company's sup-

ply chain and as part of any of its supply tiers to provide a good or ser-

vice. Perhaps due to the expected growing prevalence of subcontract-

ing as supply chains have expanded, several companies have devoted

specific attention to subcontractors in their supplier codes of con-

duct, such as recognizing these suppliers as their partners. Companies

that include adidas (2016), Apple (2017a, 2017b), H&M (2010), Lowe's

(2013), Mars (2014), NEW BALANCE (2015), Patagonia (2013), PetS-

mart (n.d. a), PUMA (2016), Staples (2016), Target (2016), and Walmart

(2012) explicitly state that subcontractors are included among the sup-

pliers that must conform/comply with their supplier codes of conduct.

Subcontracting could take place at any stage along a company's supply chain and as part of any of its supply tiers to provide a good or service

In addition, the Responsible Business Alliance (2018, p. 1), for-

merly the Electronic Industry Citizenship Coalition, states that its sup-

plier code of conduct “may be voluntarily adopted by any business

in the electronics sector and subsequently applied by that business

to its supply chain and subcontractors, including providers of con-

tract labor.” In addition, the European Automotive Working Group

on Supply Chain Sustainability (2016, p. 1) supply chain principles

state

The following guidelines clearly describe our minimum expec-

tations towards business ethics, working conditions, human

rights, and environmental leadership, for our suppliers as well

as their subcontractors and suppliers. We expect that suppli-

ers will uphold these standards and cascade them down their

supply chain. (European Automotive Working Group on Sup-

ply Chain Sustainability, 2016, p. 1)

The importance of subcontractors to a company's supply chain and

sustainability efforts can be inferred from H&M (2010):

This Code of Conduct specifies what we require from our sup-

pliers, their subcontractors and other business partners in

order to fulfil our commitment to our Board of Directors, to

our employees, to our customers, to our shareholders and to

other stakeholders. It is the responsibility of H&M's suppli-

ers and other business partners to inform their subcontrac-

tors about H&M's Code of Conduct and Policy for Homework,

and to ensure that these are implemented in every factory

and workplace that produces, finishes packs or otherwise

handles goods or performs services for H&M. (H&M, 2010,

p. 1)

Companies that include 3M (n.d.), adidas (2016), Apple (2017a,

2017b), BMW Group (2017), Campbell Soup Company (2017), Cisco

(2017), Gap (2016), General Mills (2017b), General Motors (n.d.), H&M

(2010), IBM (2004), Interface (2016), International Paper (2013), Kel-

logg (2014), Lowe's (2013), Mars (2014), McDonald's (2012), Nestlé

(2013b), NEW BALANCE (2015), Patagonia (2013), PetSmart (n.d. a,

n.d. b), Stora Enso (2014), Unilever (2017), United Technologies (n.d.),

and VF (n.d.) specifically state that their suppliers must ensure that

their subcontractors conform/comply with their supplier codes of con-

duct or similar sets of guidelines or standards (e.g., by communicating

and cascading the supplier code of conduct to these suppliers, training

22 KASHMANIAN

them, and monitoring and evaluating their conformance/compliance to

the code and compliance with the law).

Here are some examples:

5.1 adidas

Business partners must make progressive improvement in

environmental performance in their own operations and

require the same of their partners, suppliers and subcon-

tractors. This includes: integrating principles of sustainability

into business decisions; responsible use of natural resources;

adoption of cleaner production and pollution prevention

measures; and designing and developing products, materials

and technologies according to the principles of sustainability.

(adidas, 2016, p. 3)

5.2 Apple

Apple will assess its suppliers’ compliance with this Code, and

any violations of this Code may jeopardize the supplier's busi-

ness relationship with Apple, up to and including termination.

This Code applies to Apple suppliers and their subsidiaries,

affiliates, and subcontractors (each a “Supplier”) providing

goods or services to Apple, or for use in or with Apple prod-

ucts. (Apple, 2017a, p. 1)

5.3 General Mills

We expect you to apply similar standards to your own suppli-

ers and subcontractors by communicating the expectations

contained in this Code of Conduct and holding them account-

able as well. This includes contract and seasonal workers and

temporary agencies. (General Mills, 2017b)

5.4 Interface

Suppliers are expected to make reasonable efforts to hold

their subcontractors and upstream suppliers accountable to

the principles outlined in this Code. (Interface, 2016, p. 3)

5.5 Unilever

The supplier has in place a code of conduct or responsible

sourcing policy for its direct suppliers, consistent with the

requirements of this RSP. In addition, there is a process to

communicate this to all of its direct suppliers and to monitor

compliance by these direct suppliers. (Unilever, 2017, p. 14)

6 C O N C L U D I N G R E M A R K S

As discussed above, companies continue to move along their sus-

tainability paths as their sustainability and supply chain engagement

efforts mature and evolve. By applying sustainability to reduce their

environmental footprints and integrating it across their supply chains,

companies are making their supplier codes of conduct more robust. As

companies build greater sustainability and transparency in their supply

chains, and stakeholder pressures and expectations to increase their

sustainability and transparency, there will be greater need for compa-

nies to know more of what suppliers, including subcontractors, are in

their supply chains and what they are doing.

By applying sustainability to reduce their environmental footprints and integrating it across their supply chains, companies are making their supplier codes of conduct more robust

Based on findings from Kashmanian (2017), several companies in

the apparel/footwear, electronics/information technology, and food

sectors are among the leaders in increasing transparency in their sup-

ply chains. There can be several reasons for greater supply chain trans-

parency in these sectors, including to:

• Address past sustainability concerns and prevent or minimize their recurrence;

• Understand the makeup of and impacts from their supply chains;

• Increase business value for the company and respond to stakeholder interests, pressures, and expectations;

• Inform strategies to reduce their environmental footprints and sup- ply chain impacts;

• Avoid, mitigate, reduce, and/or manage business risks;

• Protect product quality and company and brand reputation;

• Increase competitiveness; and/or

• Increase business resilience.

Previous reports have indicated difficulties many companies experi-

ence in identifying or mapping all of their suppliers. For example, deep

into a company's supply chain, the number of suppliers may be large

and the number of subcontractors used may be many. These suppliers

can play an important role in affecting whether a company progresses

toward or achieves its sustainability goals.

KASHMANIAN 23

Based on a review of more than 50 supplier codes of conduct, the

companies that are highlighted in this article for requiring suppliers

to obtain prior company approval or authorization before subcontrac-

tors conduct work are primarily in the apparel/footwear, food, phar-

maceutical, and/or retail sectors. Companies in these sectors may cur-

rently be more likely to include this requirement to address or avoid

supplier labor concerns or food/product safety concerns, to protect

or increase product quality, to increase business resilience, and/or to

respond to sourcing questions or concerns. It is expected that this

requirement will be adopted in the future by more companies in these

and other sectors for similar reasons. In addition, some pharmaceutical

companies require prior approval of materials used and manufacturing

methods and sites without directly mentioning prior approval or

authorization of subcontractors; these requirements likely reflect a

focus on product quality, safety, and integrity as well as on business

integrity and continuity.

Based on a review of more than 50 supplier codes of conduct, the companies that are highlighted in this article for requiring suppliers to obtain prior company approval or authorization before subcontractors conduct work are primarily in the apparel/footwear, food, pharmaceutical, and/or retail sectors

In consideration of the role of subcontracting to a company's sup-

ply chain, it is important to identify when the use of subcontractors

may occur along the supply chain, where it already is occurring, and

the potential environmental impacts, as well as what type and level of

exposure of business risk this may pose to the company. In addition, if

subcontracting occurs with and beyond a company's Tier 1 suppliers,

and if the company is concerned with the associated potential impacts

and business risks, what tools or levers does the company have or

should it develop to be aware of these subcontractors and their associ-

ated impacts and risks, and to reduce or mitigate them? As discussed in

this article, a company's supplier code of conduct is one such tool, but it

is not considered a stand-alone tool to advance sustainability. Follow-

ing are some areas that may be deserving of further inquiry:

• What are the material financial risks that a company and its investors are exposed to and which supply chain tier(s) pose the greatest risks?

• How can a company avoid, reduce, manage, and/or mitigate these risks through engagement with its supply chain?

• Is subcontracting beyond-Tier 1 suppliers a business, sustainability, and/or strategic concern for a company?

• Does a company's supplier code of conduct apply to its beyond-Tier 1 suppliers?

• Are a company's Tier 1 suppliers required to cascade the supplier code of conduct requirements through their supply chains and how

would a company enforce this requirement?

• How could a company's supplier code of conduct and other supply chain sustainability tools further evolve?

When considering requirements in several supplier codes of con-

duct from a broader swath of sectors that include requirements

for suppliers to protect and safeguard business-sensitive, confi-

dential, and proprietary information, this focus could be strength-

ened by also including the abovementioned requirement that the

company authorizes or approves of the use of subcontractors in the

supply chain (as well as extending this requirement to after the con-

clusion of the company's business relationship with suppliers). Viewing

these two requirements—authorizing subcontractors and protecting

information—on a parallel track, and including both in supplier codes

of conduct could further protect the company's products, integrity,

and reputation/brand and increase its competitiveness and resilience.

This may be more likely for consumer-facing companies and/or compa-

nies with high brand recognition (BSR, 2010; EY, 2016). This may also

cause a greater drive toward convergence of supplier codes of conduct

within a sector (e.g., as employed by the Responsible Business Alliance,

2018, and the European Automotive Working Group on Supply Chain

Sustainability, 2016).

Further research to expand or extend the focus of this article could

assess:

• Extent to which subcontractors are used and their impact on sustain- ability efforts;

• Sectors where use of subcontractors is greater and/or of greater concern to sustainability efforts;

• Reasons why companies include requirements in their supplier codes of conduct for prior approval or authorization of work by sup-

pliers’ subcontractors; and

• Identification of other companies and/or sectors where these or sim- ilar reasons may apply.

AC K N O W L E D G M E N T S

The initial spark for the topic discussed in this article was formed when

the author noted the supplier codes of conduct from Patagonia and VF

Corporation whereby they included the requirement that they must

approve the use of suppliers’ subcontractors. The author would like

to thank the following individuals for their review and insightful and

substantive comments on an earlier draft of this article: Sean Cady,

24 KASHMANIAN

VF Corporation; Cara Chacon, Patagonia; Betty Cremmins, CDP; Jason

Kibbey, Sustainable Apparel Coalition; Terry Lee, Bluenumber, LLC;

Harry Lewis, U.S. Environmental Protection Agency; Dan Reid, Respon-

sible Business Alliance; and Gabriel Thoumi, Climate Advisers.

D I S C L A I M E R

The purpose of this article is to share information regarding the impor-

tance of subcontractors to a company's sustainability and supply chain

efforts and how companies are considering subcontractors in their

supplier codes of conduct or similar set of guidelines or standards.

The companies mentioned in this article do not constitute an all-

inclusive list. The mention of a company does not imply endorsement

of use or verification/testing of the company's claims, nor the com-

pany's overall practices or past compliance history, by the U.S. Environ-

mental Protection Agency. Any views expressed represent the author's

assessments and do not necessarily reflect those of the Agency or the

Administration.

E N D N OT E S 1 Walmart (2014, p. 37) asserted, “Subcontracting exists when a Supplier

contracts with any third party to fulfill any part of a contract between the

Supplier and Walmart.”

2 “Nonproduction suppliers provide HP with important goods and services

that are not directly related to product manufacture, such as staffing,

telecommunications, and travel (excluding product transport)” (HP, 2016a,

p. 24).

3 May also lead to or be referred to as Operational risk (WBCSD, Sustain-

Ability, and IUCN, 2012).

4 Walmart (2014, p. 38) asserted that unauthorized subcontracting is “Pro-

duction, augmentation, or packaging of merchandise for Walmart in a facil-

ity that has not been fully and accurately disclosed in advance to Walmart,

and audited under Responsible Sourcing requirements.”

5 These entries from Lowe's and Office Depot imply that they require

suppliers to obtain prior company approval or authorization before

subcontractors conduct work.

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KASHMANIAN 27

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AU T H O R'S B I O G R A P H Y

R. M. Kashmanian is a senior economist with the U.S. Environmen-

tal Protection Agency's Office of Policy, Washington, DC. During

his over 30-year tenure in the policy office, he has undertaken and

managed numerous projects related to environmental sustainabil-

ity, stewardship, innovations, and incentives. He has authored or co-

authored more than 50 articles and reports on these topics. For the

past 15–20 years, his work has focused primarily on corporate sus-

tainability and building greater sustainability in supply chains. He also

led the development of and managed EPA's Performance Track Corpo-

rate Leader Program. He holds an MS and a PhD in resource economics

from the University of Rhode Island. He can be reached by email at

kashmanian.richard@epa.gov.

How to cite this article: Kashmanian RM. Supplier codes

of conduct: Company authorization of subcontractors. Env-

iron Qual Manage. 2018;27:9–27. https://doi.org/10.1002/

tqem.21559

https://www.utc.com/Suppliers/Documents/UTC_Supplier_COC.pdf

https://www.ups.com/media/en/code_bus_conduct.pdf

https://business-humanrights.org/sites/default/files/webform/VF\04520Global\04520Compliance\04520Principles.pdf

https://cdn.corporate.walmart.com/67/fd/5c9b7b964883b792bce97dd00edf/standards-for-suppliers-poster_129884072278822736.pdf

https://cdn.corporate.walmart.com/7c/c3/3d339cb74ec9a2fad98fd43d3589/standards-for-suppliers-manual-english.pdf

https://wbcsdservers.org/wbcsdpublications/cd_files/datas/business-solutions/water_leadership/pdf/WaterForBusiness_Third\04520Update.pdf

https://www.weyerhaeuser.com/application/files/6815/1019/3877/Sustainability-Code-of-Ethics-2017.pdf

https://www3.weforum.org/docs/WEFUSA_BeyondSupplyChains_Report2015.pdf

https://doi.org/10.1002/tqem.21559

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