Recent judgement in Conflict Minerals Rule litigation elicits conversation about the importance of compliance versus proactive reputation management when it comes to vendor management around the globe.
To be, or not to be compliant, that is not the question — at least when it comes to vendor management. As such, risk-minded business leaders are moving beyond compliance to focus on reputation management, and whether any of their vendors could put their reputations at risk.
Regulatory compliance and reputation management often go hand in hand, but when regulations cease to exist or are reduced, companies might be tempted to lower their own vendor or supplier quality management standards. This can be risky business, though.
Conflict Minerals, Conflicting Approaches To Compliance
Bringing this issue to light, of late, is the recent ruling regarding conflict minerals litigation — a longstanding legal embattlement over federal regulations aimed at reducing the human rights violations, armed violence and instability that often stem from sourcing specific minerals in conflict-affected areas around the globe.
In April 2017, a district court judge in Washington, D.C., ruled that requiring companies to disclose if a product is ‘DRC (Democratic Republic of Congo) conflict free’ on their websites — as required by section 1502 of the Dodd-Frank Act — violates First Amendment rights, and companies need not comply going forward.
Whether the SEC will reinstate the mandatory audit requirement contemplated by the Conflict Minerals Rule, remains to be seen. But it also might be irrelevant: Even if authorities won’t hold companies accountable for any socially irresponsible vendors or business practices related to the rule, the public just might. In today’s socially conscious environment, consumers increasingly base buying decisions on companies’ social responsibility platforms.
In fact, a 2015 corporate responsibility report “Project ROI” highlighted that corporate responsibility can help to increase sales revenue up to 20 percent, as well as affect variations in customer satisfaction by 10 percent or more.
Take Reputational Risk — And Compliance — By The Horns
Considering the public’s apparent vested interest in supporting socially responsible companies, businesses would be well served to take a proactive approach to addressing vendor risks like those associated with the Conflict Minerals Rule — looking at them through the lens of reputational and quality supply chain management, instead of through a compliance lens that focuses on whatever the moment’s regulations require.
Doing so doesn’t have to be yet another daunting one-off initiative that depletes an organization’s resources. Vendor and supply chain risks can easily be folded in with other strategic and integrated risk management initiatives if you have the right solution in place.
For instance, risk management technology can help organizations stay ahead of these risks — whether they’re compliance-driven or not — by:
- Simplifying the vendor risk assessment process: More easily collect any relevant information about vendors through an online portal, where all data can be submitted and reviewed in one place — making it easier to identify key risks in the supply chain.
- Automating vendor-specific communications or alerts: Receive automatic notifications if vendors might be impacted by an adverse event or if they are the subject of a controversial occurrence, allowing for early intervention to head off any potential supply chain disruptions.
- Aggregating risk data from across the organization: Gathering vendor data in the same place as all other risk data will help support the necessary audit process, and make it more effective and efficient.
As mentioned above, reputational risk management and compliance often go hand and hand. But organizations don’t have to sit back and wait for compliance mandates to ensure their vendors meet the high standards that customers expect.
With the right attitude about reputation management, and the right integrated risk management solution in place, businesses can tackle the risks associated with vendor management and supply chain disruptions.
Do you have the tools in place to easily identify and monitor your best (or riskiest) vendors? Click here to find out.
Check out our post on 8 Tips for Successfully Managing Vendors