2014-15 Canada-China Business Forum Magazine

LABOUR, ENVIRONMENTAL, HEALTH & SAFETY PRACTICES SUPPLY CHAIN MANAGEMENT How do you ensure your labour practices or the labour practices of your partner in China meet the necessary standards with regards to local labour regulations, benefits requirements and your expectations for environmental, health and safety (EHS)? How do you ensure compliance with the rapidly evolving standards in China with regards to these requirements? How do you meet shareholder expectations for EHS that go beyond Chinese standards? If you are sourcing from China, you need to demonstrate that your products were made in a way that is consistent with your CSR policies and values. That means rigorous supplier assessments and continuous improvement of all labour standards, including EHS. Your supplier’s quality performance is generally an excellent indication of EHS performance and vice versa. If you spot deficiencies in one, there are likely to be deficiencies in the other. • What are legal requirements in China for pay, overtime, vacations, bonuses, benefits and EHS, and what systems do you have in place to regularly review these requirements for your operations? • What are international pressures for labour practices and performance in your sector and what are the expectations from shareholders and other stakeholders with regards to EHS performance in China for your operations? • Invest in People Invest in your CSR managers, EHS managers and inspectors. There are more and more managers and inspectors experienced in CSR and EHS standards in China. Independent inspectors that can be hired are also available. Paperwork & Documentation While paperwork may indicate the existence of appropriate systems, there is no substitute for field inspections and audits by your own staff to ensure proper implementation. How can you assess EHS systems, training and equipment? • How are you tracking and communicating your labour practices and EHS performance to your shareholders and other stakeholders? USING AGENTS & INTERMEDIARIES China is a vast and complicated market. The bureaucracy is particularly complex with multiple levels of government and jurisdictions that often overlap. Engaging a well-respected local law firm is a critical first step. The CCBC can help. However, decision-making is not always transparent, and often it will be necessary to engage well-connected local agents to help navigate the rules and regulations as well as to establish your links to the real decision-makers. It is critical to recognize that the use of agents and intermediaries can carry significant risk of unacceptable behaviour that might cause legal or reputational problems. Tips: Background Checks Vet your agent carefully for integrity. Information should be provided that addresses the qualifications and reputation of the agent. The CCBC, Canadian Trade Commissioners and private agencies can help with this. Detailed Contracts Use detailed and clear contracts with agents. Specifically list the tasks or services that are expected and the basis of remuneration. Do you have qualified Chinese-speaking staff visiting and assessing your suppliers? • Are you asking the right questions during these assessments and do you know if the answers you are receiving are accurate? How are you tracking supplier performance? • Assessments and audits of labour practices should focus on performance as well as systems in place. Instead of asking, “what personal protective equipment (PPE) is being used by workers?”, it is more instructive to understand and document what PPE training exists for workers, what corrective measures exist for non-compliance, and the current state of PPE use and condition during audits. • • Focus on Performance How can you assess current practices within your operations, with regards to working conditions, wages and overtime, benefits, etc? • Tips: What can you expect with regards to access to records and official documentation? • How can you best assess a supplier’s environmental performance? • Are your inspectors adequately trained in assessing EHS performance? • Are your inspectors trained to deal with physical threats or offers of bribes? Set Limits & Parameters Most important is to list the activities that are forbidden. Bribery and breach of confidentiality provisions are major concerns. Hospitality & Gifts Gift-giving is part of the business culture but it has been seriously curtailed by the Central government. It is suggested that a financial limit be explicitly stated for any gifts to be presented to or meal to be taken with Chinese counterparts. CANADA CHINA FORUM BUSINESS 2014-2015 ccbc.com Tips: Clarify Your Expectations List the standards and norms you expect your suppliers to meet and describe in precise detail how your inspectors can verify compliance, and what deliverables and documentation are expected to document this compliance. Insist on the right to conduct random inspections. Localize Your Process for the China Context If you develop a list of vendor prequalification questions developed overseas to be understood or properly applied in China, you will likely end up with incomplete or irrelevant answers. Supplier assessment and auditing questionnaires should be developed in partnership with inspectors who understand what the CSR performance requirements are, how they can assess a vendor’s performance in these areas and why this is important. Ask the Right Questions Your inspection of suppliers should focus on processes instead of just results. What systems are in place to document compliance with all applicabl

2014-15 Canada-China Business Forum Magazine | Page 80