Compliance Expert Cites Risk Areas – and How to Avoid Them
Tempe, AZ (June 28, 2016) – Politics certainly are top-of-mind for Americans as the Presidential race heats up this summer. It also should be ever present in the minds of corporate management when making decisions about suppliers, says an executive who advises companies on integrity and compliance risk issues.
“Your supplier potentially could damage your reputation by associating with a certain government or political party,” said Scott Lane, Executive Chairman of The Red Flag Group, which counsels executives at major companies globally.
“Even though most companies have policies about engaging suppliers with links to political parties, political officials or people heavily involved in government to protect impartiality of the firm and ensure there is minimal risk of bias toward a particular government or political party, great care still must be taken,” he said.
“There may not be many suppliers that directly engage with political parties or governments,” Lane explained. “But a good number do aim to gain benefits by means of political influence. Merely being involved with one of those suppliers might be detrimental to a company’s reputation.”
What kinds of organizations to watch for? Lane cited:
- “No-bid” firms. These are suppliers that constantly win deals with government entities without official or public bids.
- State-run companies. A good example is the fishing products supplier 60 percent owned by the Chilean government.
- Law firms. A company may engage a law firm to provide counsel on proposed legislation and then learn the firm is linked to a government or political party.
- Public relations firms. Similarly, a company retains a PR agency that has ties to a particularly political party.
- Lobbying groups.
- Trade unions.
“Another example where this supplier risk can affect organizations is at an individual level with politically exposed persons,” said Lane. “These are individuals who are in, or have been entrusted with, prominent public functions with a country/state or at an international level, as well as their immediate family members or closes associates. This could be the CEO of a lobbying company you just hired being the son of the Minister of Commerce.”
What should companies do to ensure suppliers do not have such political entanglements? Lane recommends three areas of scrutiny:
- Conduct detailed due diligence on suppliers’ connections and relationships with government officials, an initiative often conducted by a third-party entity.
- Conduct audits of their political activities.
- Review suppliers’ policies toward gifts and entertainment.
“Most companies believe reputational damage through integrity risks arise directly through the activities of the company itself,” said Lane. “Yet, in many cases, damage occurs based on the way third parties such as suppliers conduct business. The political arena without question is a risk area to be monitored.”
