Due Diligence and Chain Responsibility

More articles
People talking in a steel shop

It is often difficult to keep track of value chains. At the same time, companies are responsible for the impact their business operations have on people and the environment, including within the supply chains.

It is important that you as an entrepreneur know what is going on within your chain and are aware of, and address, the risks. This is important for the world in which we do business and offers advantages for you as an entrepreneur.

What is expected of you?

The Dutch government expects corporate social responsibility to be at the forefront of a companies’ business approach. The OECD guidelines for multinational enterprises provide the principles for doing business at an international level. Those guidelines include a provision on Due Diligence. The addition of this concept is an important revision of the OECD guidelines in 2011, in which more attention is given to, among other things, human rights and chain responsibility.

Due diligence means that companies are expected to identify the risks their business activities bring with them and to determine how to address those risks. In other words, this is the process through which enterprises identify, prevent, mitigate and account for how they address their actual and potential adverse effects. Examples include human rights aspects, working conditions, the environment and corruption. There are different risks and impacts in each country and for each product.

Due Diligence

The nature and extent of Due Diligence depend on the context within which you operate. Examples of relevant factors include the laws of the country in which the enterprise operates, the seriousness of potential misconduct, and the characteristics of the sector. Companies need to know what is going on within their chain and should take action to minimise any risks.

Should you have insufficient influence on your business partners to prevent or address misconduct, you are expected to increase your influence on those suppliers. Examples of ways in which you can do this include cooperation with partners from the sector, through European sector organisations, or through partnerships with NGOs and local authorities.

Why Due Diligence?

Due Diligence is first and foremost a responsibility. Every company should know the impact its activities are having on the immediate surroundings. However, it is also an opportunity. McKinsey research shows that identifying the interests of stakeholders is essential for companies to deal  successfully with their external environment.1)

  1. There is ever more research showing that corporate social responsibility (CSR)has a positive impact on a company’s financial health.2)
  2. Companies employing responsible business practices have more loyal employees, customers and suppliers. In order to employ responsible business practices, you need to be aware of the impact of your enterprise’s activities. Due Diligence is therefore a necessary first step if you wish to benefit from these CSR-related advantages.

Where to start?

As a starting point for due diligence you can use the online CSR Risk Check tool developed by CSR Netherlands based on the OECD guidelines. The CSR Risk Check tool provides an overview of the issues and risks you will probably encounter when you start doing business in a specific country with a specific product, including earlier in the chain. It can also be useful to exchange experiences with other companies in the same sector. How have they arranged their business with their suppliers? Fellow entrepreneurs will often already have more experience with respect to problems and opportunities.

CSR Netherlands tips for doing business internationally:

  • Do business through reliable intermediaries or agents who have a good command of the local language: ask other enterprises to name companies with which they have had good dealings in the past, and ask them specifically what they do in the area of CSR.
  • Keep the supply chain as short as possible, as this will reduce the chance of misconduct in one of the chains. This also offers financial and quality-linked benefits.
  • Talk to the supplier about CSR and sustainability and include clauses about working conditions and the environment in the supply contract. You can emphasise the financial benefits of CSR, such as higher quality and stable quality, as well as reduced employee turnover.
  • Find out from your supplier where the product comes from and in which circumstances it is produced. Does your supplier subcontract work and, if so, to whom? How many hours are worked in a standard working week and what are the workers paid?
  • Visit the producer as often as possible and check the method of production regularly (both in terms of quality and conditions), even if you have regularly done business with the same supplier in the past.

More information?

You will find inspiring experiences of other entrepreneurs who do business at international level on english.rvo.nl and www.rvo.nl (in Dutch), and also on www.mvonederland.nl (in Dutch).You will find information about the OECD guidelines on: www.oecdguidelines.nl

 

1) Brown, John & Robin Nuttall: Beyond corporate social responsibility: Integrated external engagement (2013)

2) Carroll, Archie B & Kareem M. Shabana: The Business Case for Corporate Social Responsibility (2010)

Service menu right