Trucks at Work

Ethics as a supply chain risk factor

Here’s an interesting one: apparently, there’s a growing worry among many businesses located outside the U.S. in Europe, the Middle East, and Africa regarding the “ethics” of their supply chain partners.

Indeed, if a survey conducted by insurance firm ACE Group – a subsidiary of ACE Limited – is to be believed, there’s a greater level of concern regarding issues that can severely harm corporate reputations rather than business “interruptions” caused by natural disasters and the like.

Indeed, some of that may be related to heightened worries regarding regulatory compliance as well; especially in terms of how uneven government rules about all sorts of business activities vary widely from one nation to the next.

According to ACE’s Emerging Risks Barometer 2015 – based on a poll of 500 companies in Europe, the Middle East and Africa – there are three major risk areas bedeviling businesses in those geopolitical areas these days:

  • About 43% of those businesses polled said technology is currently among their largest concerns as it encompasses issues such as cyber-attacks, data loss and business interruption as a result of systems failure. Technology also tops the list of risks that businesses expect to have the biggest financial impact for their operations in the next two years. Yet despite those concerns and the fact that technology plays such a critical role in almost every facet of business operations these days, ACE’s poll  indicates companies may not be focusing their efforts in the right areas. For example, less than a quarter (23%) of respondents said their biggest concern is violation of customer data, in spite of the huge potential financial and "reputational" cost of such attacks.
  • Supply chain risks took second place in ACE’s poll of 500 companies, named by 31% as their top concern. It’s interesting to note that supply chain concerns came in as the highest risk in the firm’s 2013 Barometer and remains a top concern for businesses two years later. With more companies expanding into new and often emerging markets – using more complex and extended networks of suppliers and partners – the supply chain is at once both a growth enabler and a key source of risk. However, in what is one of clearest indications of how different areas of risk are increasingly interconnected, ACE’s poll found that businesses are now less concerned about interruption caused by natural disasters and are focusing on issues that can severely harm their corporate reputations. Indeed, survey respondents ranked unethical labor practices as their biggest supply chain worry, with more than six out of ten (61%) admitting that they cannot always vouch for the ethical and trading standards of every company on which they rely.
  • Number three on ACE’s “worry list” is regulatory and compliance risk, named by 27% of the 500 companies surveyed as their top concern. As companies pursue growth on a global scale, regulation is becoming an increasing source of concern, with multinational organizations now facing a patchwork of regulatory regimes across markets and jurisdictions, ACE said. Importantly, 56% of respondents say their company directors may not fully understand the governance and compliance requirements in every country for which they have oversight/responsibility. On top of that, seven out of ten risk managers are concerned that regulatory demands are diverting resources from other areas of the business.

Andrew Kendrick, president of ACE’s European Group, noted that European businesses are “now facing a landscape of new, complex, risks that change at an astonishing rate” that in his words “defy” previous categorizations.

“In this new environment, piecemeal responses will not succeed,” Kendrick (at right) stressed. “Effective action will require board-level commitment, an integrated approach, and the development of a clearly understood risk management culture across organizations."

These imperatives are not new, but their urgency is increasing, he added.

Interestingly, ACE also found that the company risk managers in its poll said they want better solutions for managing “non-physical” risks, with almost half (45%) believing improvements need to be made to minimize technology risk.

Risk managers in the firm’s survey also want to see their industries make progress around people (28%) and the supply chain (28%), ACE added.

Just goes to show that the supply chain still matters; and in a big way.

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