Next week, in a five-part podcast series sponsored by Assent Compliance Inc. (Assent), I explore market access for supply chain. During the course of this series, I visit with several members of the Assent team to introduce the topic, consider what market access is, provide an overview of trade compliance, Federal Acquisition Register (FAR) flow downs, the value of continuous monitoring and the origins of laws impacting market access. I had the chance to discuss continuous monitoring in the supply chain with Jared Connors, Subject Matter Expert in Corporate Social Responsibility (CSR). It turns out that is a key tool to maintaining market access.
Connors began with questionnaires, which he believes have gotten a bad name and even have been called “a four-letter word” in supply chain compliance. Typically, it begins with a company conducting an outreach campaign to collect self-declarations from suppliers to better understand their internal practices and their potential impact for risk assessment. How should a company think through using adverse media for monitoring a supplier evaluation today?
Connors said, the three most often used criticisms he has found are that (1) “questionnaires often get a bad name because of the way they might be administered or how they ask questions because they might not be necessarily getting at the right drivers to understand the internal management procedures and policies of an organization.” This initial criticism is then (2) compounded as often, “a company will not understand the value of the information received from those questionnaires and when comes when questionnaires are not written very effectively.” A final criticism (3) is frequency. Simply put companies are not monitoring their suppliers on a regular basis.
Connors said one of the answers for organizations is to move toward continuous monitoring, “what companies can do is they can be informed of public information against supplier behavior, whether it be directly covering things within the questionnaire or looking at the supplier as a whole by openly reviewing public record sources on the supplier. To see what’s coming out against them, whether it be a credible blog source or an actual media outlet or an NGO report.”
We then turned to some of the information which Connors believes a company can or should screen for in this monitoring process. Connors began by noting that CSR, sustainability or Environmental, Social and Governance (ESG) “cover a lot of areas. Yet the three main focus areas of CSR and ESG are on economic, environmental and social issues.” Connors believes this means you need to “understand what the economic viability of your supplier and how they are impacting their local community.” This would include financial insolvency issues, social issues and labor rights. Under environmental issues, “your organization would need to understand how they are impacting the environment or how their products are viewed also as impacting the environment.” This can be the physical pollution of a river of the makeup of a product such as a battery.
This list of issues makes clear that when you are screening your suppliers, you need to look at a wide variety of risk classifications. Your organization could use a questionnaire and “take those risk categories and turn them into public record reviews for those suppliers.” This could be one way to gain insight into supplier ethics and business behavior. You could also take another approach where you review social media and then see what risk categories might pop up. With the machine learning of an AI-based adverse media program this could allow you to expand the way you review your supply chain.
Connors turned to a couple of examples. The first was around conflict minerals or responsible minerals. Many companies have been reporting on this for several years and collecting data on upstream suppliers such as smelters or refiners. Yet Connors said that your organization might be six to eight layers removed from those level so gathering information on your downstream suppliers has become more of the norm now. Yet without continuous monitoring your organization might miss Office of Foreign Assets Control (OFAC) announcements of adding persons or entities to its sanctions list. If such person or entity had supplied component parts to one of your products and you continued to use that product, you could be in violation of the law.
The second area was in reviewing social media to ascertain if a supplier had complied with the substantive aspects of modern slavery legislation. Connors stated, “You can search a supplier about your expectations as laid out in your Supplier Code of Conduct around recruiting fees, overtime hours, expectations, forced and bonded labor. From there move to use terminology that should be contained within the policy and terminology that may be picked up by a reporter, an NGO may be evaluating labor practices internally. By utilizing the language that is consistent with industry standards, you will have better results searching for supplier behavior because there’s a lot more out there on even some very small companies.”
It turns out continuous monitoring in the supply chain is critical for numerous reasons. Of course legal and regulatory are always at the forefront. But with the ongoing trade disruptions led by the Trump Administration, you need to have such continuous monitoring to maintain market access.
Join Michael Volkov and myself on Friday, May 17 for a nuts and bolts session on how to structure this important component of any best practices compliance department. The webinar is hosted by Hanzo. In this webinar you will learn:
1) Why the intake of a hotline report is a critical start of your investigation protocol.
2) How to effectively set up a triage program for all internal and external reporting.
3) The different levels of investigations you should set up.
4) What type of report you should issue.
5) How and why you should protect the privilege.
The time of the webinar is 2 PM EDT. Registration and additional information is here. Best of all it’s FREE.
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© Thomas R. Fox, 2019