A code of conduct is one of the most common tools deployed by procurement and sustainability teams as a means of stipulating and encouraging the right behaviours in a company’s supply chain. But when these are implemented from a top-down approach, with little regard for the realities on the ground, there is a risk that they are seen as a box-ticking exercise rather than a genuine impetus for change.
One company committed to forging a different path was Italy-based pharmaceutical maker and healthcare provider Chiesi. As the largest pharmaceutical Group to be awarded B Corp Certification, (see box out below), and more recently changing its statute to become a Benefit Corporation, Chiesi has made a legal commitment to put the wellbeing of all of its stakeholders on a par with the traditional primacy of maximizing value for shareholders, and aims to become carbon neutral by 2030 (Scope 1 & 2) and by 2035 (including Scope 3).
In 2019, the company’s global procurement team recognised the need to create the first code of conduct for suppliers that would ensure that its supply chain was helping deliver on these commitments. Wanting to avoid the shortcomings of a top-down approach and recognising the interdependence of members up and down its supply chain, Chiesi worked collaboratively to create a “Code of Interdependence” informed by a range of internal and external stakeholders.
What are B Corps and Benefit Corporations?
B Corporation is a certification process overseen by the non-profit group B Lab, which recognizes companies that have established high standards of environmental and social responsibility, transparency and accountability. High-profile members of the scheme include Ben & Jerry’s, Patagonia and The Body Shop.
For those who want to make a deeper commitment, a Benefit Corporation is a legal structure designed to give management teams the protection and flexibility to take into account the needs of all stakeholders, rather than just shareholder value, when making important decisions. It allows principles such as sustainability, fairness and social impact to be embedded within a company’s purpose even following significant changes in their ownership structure such as a trade sale or IPO.
Principles of Chiesi’s Code of Interdependence
In order to build a document that would have buy-in from suppliers and ultimately drive genuine positive impact, Chiesi followed six key principles when embarking on the project:
- Convey to signatories the importance of being part of an interdependent ecosystem, as well as the company’s strategic sustainability choices, solidified by B Corp certification and Benefit Corporation status
- Emphasise Chiesi’s own commitment to its principles
- Seek a balance between pragmatic behaviour and applicability over time and across countries
- Recognise the uniqueness with the name and structure of the document
- Enable the application of the UN’s Sustainable Development Goals
- Apply a “soft” approach to co-creation, with strategic suppliers to Chiesi subsidiaries participating in the writing, coordinated by its internal team
How the Code was created
The process of developing the code began with the creation of an internal operative team with 10 representatives from all of Chiesi’s departments, including representatives from procurement, CSR, virtual plant, compliance and legal. They then sought out contributions from procurement managers at all of Chiesi’s affiliate companies.
The internal team then drafted an initial version of the code, drawing on principles and guidelines from key international frameworks, including:
- The B Corp movement and principles
- The United Nations Sustainable Development Goals
- The International Labour Organization
- The Pharmaceutical Supply Chain Initiative, a cross-industry group set up to promote best practice in pharmaceutical procurement
Once this draft was created, Chiesi held a dedicated Vendor Day, inviting executive representatives of 70 strategic suppliers to contribute their perspectives, alongside Chiesi’s CEO, CFO and a number of department heads and shareholders. The aim of this process was to collect their feedback on the concreteness, clarity, applicability, and criticality of the issues raised by the code.
The structure of the day, which lasted from early morning to 4PM included:
- A morning session, where Chiesi management gave a presentation on their aims and the plans for the day
- Afternoon sessions where participants were broken up into working groups. Each group was assigned a particular topic within the code and asked to consider whether and how it would apply to their circumstances, before providing feedback to the wider group.
Suppliers were encouraged to engage with text using a technique called Aspen Close Reading to foster a deeper understanding. This involves participants reading small passages from the text several times in turn to thoroughly consider the meanings and implications of the words they contain.
With this feedback collected, the internal team was then able to pull together a final draft of the code that would reflect the perspectives of a wide variety of internal and external stakeholders.
Crucially, the Code is expected to set the standards not just for supplier behaviour but also that of Chiesi itself, reinforcing the message that the exercise is about interdependence rather than just being imposed on suppliers.
The content of the Code
The final text of the Code is based around nine of the UN’s Sustainable Development Goals that were identified as being especially applicable to a standard customer-supplier relationship:
- #3: Good Health and Wellbeing
- #8: Decent Work and Economic Growth
- #9: Innovation, Industry and Infrastructure
- #10: Reduced Inequalities
- #12: Responsible Production and Consumption
- #13: Climate Action
- #15: Life on Land
- #16: Peace, Justice and Strong Institutions
- #17: Partnerships for the Goals
Against each of these the code sets out a range of key behaviours which suppliers and Chiesi itself are expected to adhere to, broken down into several categories for ease of understanding. For instance, for #8: Decent Work and Economic Growth, these include:
- Fair working conditions, fair working hours, time off and leave
- Wages and benefits, living wage
- Child labour and young workers
- Inhumane treatment avoidance
- Workers protection, occupational health and safety, emergency plans
- Modern slavery avoidance
- Freedom of association
- Business continuity, risk management
- Process safety
Within each of these sections, specific behaviours and practices are identified, broken down into those which are mandatory for Chiesi’s suppliers to adhere to and those which are encouraged to drive long-term improvements.
For instance, within the wages and benefits section, all parties are required to pay fair wages that adhere to local laws and cover the cost of living, to communicate how these are broken down transparently and to refrain from using the withholding of wages as an intimidation action. Meanwhile they are encouraged to exceed minimum wage thresholds, periodically review wages against legal requirements and best practices, and implement compensation based on a meritocracy.
How the Code complements procurement’s other activities
Chiesi’s Code of Interdependence is a tool created and used by global procurement to encourage the right behaviours among its ecosystem. Signing up to the Code is a key plank in how suppliers are assessed, alongside a rigorous onboarding and qualification process. Performance against its criteria is measured over time and used to develop improvement plans that both parties agree on. These are targeted specifically with high-spend and strategically important suppliers in areas where they are performing lower than expected, with a focus on mapping, gradually reducing and potentially deleting or offsetting CO2 emissions.
Meanwhile, this work is supplemented by category plans that give significant weight to sustainability factors when making decisions about the choice of suppliers when carrying out tenders. The Code will be constantly used by Chiesi Global Procurement to raise the sustainability challenge bar across all its suppliers over the years to come, with the aim of having a complete zero impact supply chain as soon as possible.
By working together with suppliers to draw up a collaborative Code of Interdependence, informed by globally established sustainability principles, Chiesi has been able to create a mutually acceptable set of standards that it hopes will be much more widely respected than a traditional code of conduct.
More than 120 parties participated in the drafting of the documents, including 70 strategic suppliers. About ten of these have since become or begun the process of becoming Benefit Corporations or B Corp Certified and the same number have implemented or improves their sustainability processes as a result of being involved in such a project by Chiesi Global Procurement team.
H&T Presspart, a strategic Chiesi’s supplier involved in the drafting, said: “We felt that this process was an innovative and productive way of getting key stakeholders’ input and engagement in sustainability programs.
“We share Chiesi’s same philosophy and are investing considerable resources into making our business more accountable in the sustainability arena. The whole process has definitely helped us in accelerating our sustainability targets.”
Chiesi’s Code of Interdependence will be updated on a regular basis, in line with changes to the company’s own sustainability goals. Suppliers who participated in the initial vendor day will be kept informed of planned changes to the code to give them the opportunity to comment and continue to influence its content.