The Red Flag Group®

Industry codes gain prominence

Industry codes gain prominence

A group of garment makers in Myanmar recently banded together to establish a code of conduct for their industry. The Myanmar Garment Manufacturers Association Code of Conduct sets forth the basic legal, ethical and moral standards for those members that choose to adopt it. The code is not the first of its kind in either the garment industry or in Asia, but it is one of the most recent and necessary examples of the growing trend of industry codes of conduct.

An industry code of conduct sets baseline rules for legal and ethical conduct in an industry, and is typically put together by an existing industry group. The goal of the code is to set standardised working conditions or quality standards, or to address a specific topic of concern that has plagued companies in that industry.

In the code put forth by the Myanmar Garment Manufacturers Association, there are approximately a dozen standards for companies. These include:

  • Working conditions.
  • Health.
  • Safety.
  • Environmental standards.
  • Underage and forced labour.

Many industries and ensembles of companies have started industry groups, organisations, coalitions and other such establishments for various reasons, including knowledge sharing, political influence, and producing standards and practices such as industry codes.

With a recent focus on supply-chain transparency through new pieces of legislation, such as the California Transparency in Supply Chains Act and various conflict minerals acts, and in reaction to accidents at factories, industries are looking to set basic standards in an attempt to self-regulate, address human-rights concerns, and be good corporate citizens.

Trends in industry codes

It seems that many of the industry codes of the past few years have been created as reactions to scandal and tragedy, rather than as proactive measures to reduce risk and drive industry leadership. A prime example of this trend is the multitude of industry codes in the healthcare and pharmaceutical sectors related to interactions with healthcare professionals. In a cursory search, a number of codes were identified with a focus on pharmaceuticals and healthcare. These include but are not limited to:

  • PhRMA Code on Interactions with Health Care Professionals.
  • International Federation of Pharmaceutical Manufacturers & Associations Code of Practice.
  • The AdvaMed Code of Ethics on Interactions with Health Care Professionals.
  • The Health Care Compliance Professional’s Manual.
  • European Federation of Pharmaceutical Industries and Associations (EFPIA) Code.

These codes often have a large focus on interactions with healthcare professionals, off-label use, marketing, and issues specific to the industry. Many of these codes, and others similar to them, were drafted ten or 15 years ago. This was when pharmaceutical and healthcare companies were being hit with billion-dollar fines for off-label promotions, conflicts of interest and inappropriate payments, and interactions with patients and members of the healthcare community.

A key element of all industry codes is a focus on self-regulation. As much as these companies are regulated by government entities around the world, the goal can often be to engage in self-regulation and voluntary standards to keep governments from controlling the companies’ dealings. While in many cases government regulation is necessary, it is generally the want of companies and industries to stave off additional regulations, rules and the potential for fines, investigations and headaches.

Showing that an industry can self-govern can be a positive first step and good-faith effort in demonstrating that companies want to do the right thing; however, uniformity of acceptance within an industry and enforcement and implementation of the code can be a barrier to sweeping industry reform. One very good example of wide acceptance is the Electronics Industry Citizenship Coalition, which has a large number of multinational corporations as members. When it comes to an industry code, the set of standards is only as good as how widely its rules are accepted and how well they are enforced.

Acceptance of industry codes and enforcement

The main difference between an industry code and an employee or supplier code is that almost all industry codes are voluntary. There is no obligation for a company in any industry to comply with or acknowledge an industry code. There can be a sort of peer pressure if every other company in the industry is doing it, or perhaps public pressure to commit to ethical standards, but nothing mandatory. This can put industry codes in an odd position where only a handful of companies abide by them and there is fragmentation on standards.

Many industry codes have no publicly-available lists of companies that adhere to them. In fact, it is rare for a list to be provided publicly. Two such codes that list which companies have agreed to comply, however, are the Electronic Industry Citizenship Coalition (EICC) Code of Conduct and the PhRMA Code on Interactions with Health Care Professionals. Coincidentally, these are two of the most prolific industry codes in existence today. Other industry groups should also encourage transparency by publicly acknowledging member companies as well as noting obvious omissions of major industry players. In contrast, the American Institute of Aeronautics and Astronautics’ (AIAA) Code of Ethics can only be viewed in full by AIAA members, while non-members and the public can only view a short summary.

Enforcement of industry codes can be another point of contention. Public information about code violations or enforcement is almost universally non-existent. In some cases there are avenues that can be used to make a report about code violations or for questions, but little or no information on what happens when companies don’t follow the code. There is a kind of catch-22 for punishments for violations of a voluntary code. Depending on the type of violation, there will likely be other repercussions from government agencies, but the industry group will probably have little power to impose punishments for violations outside of expulsion.

Consistent standards

The products and services offered by an industry and the prevalence of operations in high-risk countries have a significant impact on the standards in an industry code. In the code for Myanmar garment manufacturers there is a large (justifiably so) focus on human rights and working conditions. In other industry codes related to banking and insurance the focus is more on transparency and fair dealings. Some codes are so concentrated on one problematic issue that virtually no other issues are covered. However, in the more broad industry codes, human rights is consistently covered and therefore comparisons can be made. Some topics, such as forced labour, minimum age requirements and working conditions, are covered in all codes that are not specific to one risk area (e.g. interactions with healthcare professionals).

Global non-governmental organization standards

The two largest non-governmental organisations in play when it comes to industry standards and setting minimum standards are the International Labour Organization’s Declaration on Fundamental Principles and Rights at Work, and the United Nations Global Compact. These two documents, among others, set the minimum standard for freedom of association, forced labour, child labour, discrimination, wages and hours and anti-corruption, as well as environmental standards.

In many of the industry codes these standards are quoted directly, used as a basis for the code or referenced with a link to the direct webpage. There is a searchable database on the United Nations Global Compact website to see which companies have agreed to abide by the principles. To provide an example of the scope of the Compact, there are currently 655 participants in Brazil, 545 in the United States, 275 in China, 230 in the United Kingdom, and 210 in Myanmar.

While it is good to have these well-vetted and supported guidelines in the industry codes in some form, these are merely the bare-minimum standards that industries should be following. These standards should be seen as very rudimentary moral standards. For industries drafting their codes, they must go beyond just these high-level standards and advance to something closer to best practice that addresses specific areas of concern for their industry.

Industry codes versus supplier codes versus employee codes

The idea of creating an industry set of standards via a code of conduct might be a new concept to some industries and their member companies. It is worthwhile to compare the relatively new industry code to more established and well-known codes such as the employee code and the business partner/supplier code of conduct.

The industry code is a unique document that has its place among the employee and business partner codes of conduct. While there are a number of quality codes in existence, industry groups that focus on other initiatives, such as influencing legislation and knowledge sharing, should focus on creating comprehensive industry-wide codes of conduct that promote not just human rights but industry best practices for ethical standards.