Erica Salmon Byrne, Executive Vice President, Ethisphere
The COVID-19 outbreak has disrupted and decimated the global supply chain leading to a renewed focus on sourcing from developing countries such as India. While research suggests that India stands to gain from this new wave of supply chain re-construction— a myriad of potential risks continues to threaten the business landscape.
In fact, between India and surrounding countries such as Pakistan, Nepal and Bangladesh, companies are increasingly sharing the limelight as issues relating to supplier risk management extend beyond fraud and corruption to fire safety, building integrity and worker health and wellness. While the majority of companies in the South Asia region are good and upstanding corporate citizens, the increased focus from public and regulatory groups in the U.S. and Europe are having an impact half way across the world.
There are many instances where misconduct by a company’s key supplier has resulted in major disasters, unwanted scandal and even criminal proceedings. At the 2019 BELA South Asia Ethics Summit, members of the community discussed and shared best practices related to regular monitoring and data privacy. One member mentioned, “What determines success is the processes and procedures in place to deal with risks, whether known or unknown.”
The truth is, suppliers are fighting for business, and the competition around the world can be fierce—and will likely be more so in a post-COVID business ecosystem. In reaching for the prize, some may cut corners. Others might neglect ethics; some are just dishonest and others are simply caught up in a situation at no fault of their own. Either way, their shortcomings, real or perceived, can have a significant negative impact on the companies who choose them as a partner. And conversely, those companies who build their capacity for doing business the right way – and use that to attract partners – have an opportunity to thrive.
At the same time, c. In some cases, they bring local knowledge and contacts. For others, they are critical members of the supply chains. However, statistically speaking, these partners can also be a source of risk for many companies. Case in point: more than 90 percent of all US Foreign Corrupt Practices Act enforcement actions in the last 40 years have been related to some form of third-party misconduct. Companies in India and other foreign countries, who partner with multinationals should heed this data, as they will find themselves under scrutiny in a region where companies will cut ties at the first sign of trouble, rather than see their reputations tarnished. Extreme diligence regarding ethics is recommended.
Given the rising importance of third parties, Ethisphere has devoted volume two of its Worlds Most Ethical Companies Insights Report series to best practices for managing these key relationships.
Titled “Third-Party Risk Management,” the report draws on a robust data set generated from the World’s Most Ethical Companies honorees and closely examines risk throughout the lifecycle of a third-party relationship, from selecting and onboarding third parties to maintaining and managing the relationship. Here are a few of the key highlights:
- Due Diligence: Due diligence has expanded far beyond traditional areas like ownership information and a third party’s ethics and compliance track record. A substantial majority of honorees now look at data security practices, policy documentation, human rights, and environmental performance.
- Contracts and Codes: While many honorees do include in their contracts the expectation that third parties will meet certain ethics and compliance standards (86 percent)and require third parties to uphold a supplier code of conduct (90 percent), nearly a third of honorees do not translate their supplier codes of conduct into the appropriate languages—which could present a major obstacle and create unnecessary misunderstandings for international third parties.
- Monitoring: Nine out of ten honorees report that they perform formal, risk-based audits of third parties, and a third utilize a “scorecard” that includes ethics and compliance criteria in their evaluation of third parties.
The report also includes detail about how honorees communicate with their third parties about the importance of compliance and ethics, with a special focus on how they incorporate sustainability and social responsibility concerns.
With the broad spectrum of risks that third parties can create, it’s more important than ever to be sure that these organizations understand the importance of ethics and compliance and truly represent your organization’s values. The report is available on the BELA-member hub:
About the Author:
Erica Salmon Byrne is the Executive Vice President for Ethisphere, where she has responsibility for the organization’s data and services business and works with Ethisphere’s community of clients to assess ethics and compliance programs and promote best practices across industries. Ms. Salmon Byrne also serves as the Chair of the Business Ethics Leadership Alliance; she works with the BELA community to advance the dialogue around ethics and governance, and deliver practical guidance to ethics and compliance practitioners around the globe.