Becoming Vendor to MNCs – Strengthening Governance Framework

Maruti started developing vendors late 1980s. The small companies that partnered with today have become large corporates on their own. Today we have many companies that have successfully used the strategy of scaling their operations by becoming vendors to large corporates.

Most of the multi-national companies today are under tremendous pressure not only to comply with legal and ethical framework but also to push and ensure that their suppliers follow the same framework but with the standards that apply to companies of their size. Nike is an example of the changed expectations from the companies. In 1996, it was discovered that the companies manufacturing shoes for Nike were hiring child labour. This affected its brand value. Nike also discovered that it was associated with slave labour, poorly paid and overworked workers. This forced Nike to change its policies. It strengthened its vendor selection and review policies to put an end to such practices.

The vendor evaluation starts with review of policies of the potential vendor followed with a due diligence exercise where the company evaluates the implementation of the policies, weakness of systems and takes cognizance of risks. Needless to say, that only companies that have implemented the policies are approved as vendors. Recently one of our clients, an electronic waste processor applied to become vendor of reputed European manufacturer of premium cars Some of the essential policies that multinational companies want are HR policies, Procurement policies, governance policy, risk management policies, conflict of interest, whistle blower, Environment, Quality and Sustainability policy. The sustainability policy goes beyond environment and includes relationship with other stakeholders such as employees.

We developed a complete set of policy pack for the corporate governance with industry specific policies on responsible sourcing such as sourcing of conflict metals etc. The company adopted the policies and the policies were shared on the intranet of the company for reference. Adoption of the policies helped company move to the next stage of evaluation.

The adoption of policies goes beyond sharing them with employees. It is essential that the policies are interpreted uniformly across the organization. For that, discussions with employees are important both before and after finalization of policies. Some organizations conduct training sessions on policies to the employees. The policy pack is also shared with new employees during their induction period when key policies are explained to them. Policies backed with processes strengthens the governance, ensures uniform response to stakeholders within and outside of the company. This consistency in application of policies, helps the company fight charges of favoritism be it with employees or vendors. The biggest advantage ofcourse is that it gives a framework for directors of a company to delegate powers and authorities to employees in the company. The employees get clear guidelines on expectation of the company and how it would like them to act in unanticipated situations.

Small and medium enterprises to have to define scaling of business not only in monetary terms that is topline and bottom line but also business policies and practices that show them as responsible citizens.