Vendor Codes of Conduct (“Codes”) have become a more common sight in commercial agreements with companies of all sizes. The past several decades has seen more emphasis placed on how a company conducts itself as well as the partners with which it interacts. As a result, companies have begun to establish standards of conduct for its partners and vendors through the establishment of these Codes.
Codes first emerged in the 1990’s with increased media coverage on the working and living conditions of “sweat shops” run by companies in east and southeast Asia selling products to U.S. apparel companies. These apparel companies needed a way to respond both to the negative publicity and a way to terminate these problematic relationships. Codes became a way for apparel companies to accomplish both – terminating contracts with non-compliant companies, and a public facing document that declared the values and beliefs of the company.
Codes are generally incorporated into commercial contracts and provide that a posted Code is binding and may be updated at any time at the discretion of the company posting the Code. Most Codes address similar issues, (most commonly: labor issues, environmental issues, ethics and compliance issues, and health and safety issues) and usually also addressed by the standard compliance with law provisions of most commercial contracts.
With the widespread adoption of these Codes, some common issues have arisen. Three in particular have become issues to be aware of when negotiating any commercial contract that includes a provision incorporating a Code: (a) inconsistent and contradictory terms among Codes you’ve agreed to, (b) contractual terms in Codes, and (c) Codes that contradict your own internal policies.
As with most contract negotiations, it’s important to take a holistic, pragmatic approach to negotiating provisions related to Codes in commercial agreements. But there are some strategies that can make negotiating Code provisions a bit more streamlined.
First, always offer your own form document as the base document. Negotiating a familiar document provides a great deal of natural leverage in almost all contexts, not just negotiating Code provisions.
If using your own form isn’t possible but the counter party is open to changes to the Codes provision, attempt to remove the Code provision entirely, or agree to the Code only to the extent it conforms to your own already existing policies. If agreement to a Code is required, attempt to lock the version you’re agreeing to, by incorporating the actual text of the Code as an Exhibit or Addendum and allowing changes to the agreed upon code only in mutual writing.
Unfortunately, you will find yourself in situations where you’ll need to agree to a counterparty’s Code. In these cases, you must be aware of what you are agreeing to. Read the Code thoroughly and ensure that you are able to comply with its terms. Understand how compliance will be measured, and what disclosures you’re agreeing to.
Lastly, you may find yourself in a situation where you are negotiating with a party who does not have Code. In these instances, offer your own as the standard. Be sure that it covers the areas important to you and your organization and do not overreach in its terms. An unreasonable Code will often slow down negotiations and negatively affect the goodwill and leverage that may be useful in other areas of negotiation.