Nowadays, businesses across the globe require efficient managing a network that includes third-party partners who provide components, work on foreign markets, operate call centers, and act as in the role of consultants or agents.
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A well-maintained and well-organized network of third-party partners makes it easier to manage internal as well as external customers. Many companies, including small businesses and large corporations can’t afford the time or effort to manage complex relationships with third parties.
Inadequate due-diligence on third-party partners could increase the risk of unethical business practices, bribery, as well as other forms of corruption in the business world. The ramifications of a scandal that involves the third-party partner could destroy an organization which could result in such consequences like a damaged reputation and brand devaluation, to legal actions, violations of regulations as well as possible fines and jail terms for directors. A solid, effective program for risk management of third parties is the only way to safeguard the assets of the corporation.
The development of a risk management program is not an easy procedure. It takes time and effort in a continuous manner, because the risks that come with third-party partnerships continually change.
Think about the recent events that saw three legislators from three countries sign new standards and compliance regulations. Without a doubt, if your third-party risk management system is unable to quickly adjust to the new rules (or is not designed to anticipate future legislative movements) your organization is truly at risk.
Don’t cut corners.
Yet, a lot of businesses are willing to risk fate by skipping the development and implementation of their risk management programs from a third party. Certainly, building a strong risk management strategy requires a significant investment of time and resources (both internal and externally), but the consequences of not doing it right could be catastrophic.
Companies can save money by using outdated or inefficient tools to detect, monitor and avoid the risk. Most of the time employing outside experts with track records of successful due diligence expertise is crucial.
Relying too heavily on “desktop” due diligence is a risky shortcut. Desktop due diligence is an essential initial step in the investigation process. It involves background checks in lien searches, background checks, and regulatory filing investigations. It’s a vital component of any due diligence plan but it’s not enough to fully evaluate a third-party.
Understanding the business of potential partners requires spending a lot of time with their leadership, operations managers and customers. These “boots-on-the ground” meetings can help detect potential threats which are usually not apparent from afar and can’t be detected using web-based discovery tools.
This “boots on ground” approach assists in creating an environment of trust which is necessary to ensure ongoing negotiations. It also provides clear insight into the two most rapidly growing issues of third-party risk management, bribery as well in labor management.
Bribery as a compliance issue
Compliance with anti-bribery laws as well as regulations is an ever-changing goal. With a speed that is rapid new laws on anti-bribery are being created all over the world. Complicating matters further some countries might have laws in place, but lack the ability to adequately apply these laws. If this is the situation, it is up on your company’s due diligence program to ensure detection and protection.
The high profile investigations of recent years have contributed to the rapid emergence of bribery and corruption as a major issue for society. This stark contrast between people who are involved in bribery and those who suffer is something that has not been seen before. Any company caught up in bribery scandals is facing more than just a legal challenge. It is going to take time to rebuild the trust of shareholders, employees as well as customers and the general public.
Conducting enough due diligence, surrounded by such varying elements is a task that has to be conducted in the presence of a person. It takes a great deal of immersion to gain an understanding of the mindset and the leadership style of a prospective partner. When it comes to assessing the risk of bribery, certain warning signs are only identified on the spot.
Labor matters and compliance
Compliance with labor laws is an essential component of any third-party risk management plan. It includes everything from overtime for underage workers, to dangerous working conditions and improperly documented incidents.
A lack of attention to compliance with labor laws risks can result in severe penalties. Understanding the areas, industries, and management structures elevate the risk of an organization is essential to efficiently operating an effective due diligence process. It’s almost impossible to establish this understanding by using ‘desktop due diligence. It is crucial to invest your time physically to make sure that the supplier is rewarding and managing employees as well as offering a safe working environment.
Make no mistake that even if the agreement with a third party partner puts the responsibility for payroll concerns firmly upon the vendor, your organization – as a joint employercould still be held accountable in several countries. After all, the labor that is being performed by the facility of your partner will benefit your organization’s bottom line.
A committed team of external experts is the ideal method to meet the needs of identifying, measuring and monitoring the risks of third parties continuously. They are also able to make suggestions based on empirical research. Although no two organizations are alike in terms of the risk profile and requirements There are a few common elements that have helped to build a strong and efficient due diligence program.
Planing.Without a comprehensive plan that describes regular monitoring activities and defines the roles and responsibilities of every role and responsibility the risk mitigation process will be unorganized at best, and inadequate at worst. An organization can safeguard itself against liability if it has a well-designed, management-advocated program. It will determine the most specific risk factors for each affiliation and have an approach to deal with red alerts.
Documentation.Due diligence efforts are only as good as the data and information gathered and protected. The company can identify trends and convey them to other people. They can also maintain its efforts in the face of future personnel changes by making sure that the documentation is up-to-date and accurate. A well-designed risk management plan will provide guidelines that allow for the recording of information, contracts and research in a standard way.
CultureAn organization in which the leadership, management and workforce don’t take risk from third parties seriously is never adequately protected from risks. Effective organizations in this area dedicate themselves to building an environment where every employee is personally involved in the risk management aspect of the operation. Employees should feel at ease reporting any red flags they see and should be encouraged to do so. Insufficient engagement from employees is not enough.
If done correctly, third-party risk management can effectively save the organization from risk, liability and other pitfalls that are commonly associated with outside entities wanting to interact with and conduct business your business.