Mitigating Societal Risk in Your Supply Chain
Companies are constantly facing many types of reputational risk and social risk when your suppliers or suppliers they rely on engage in unethical practices personal and financial gain. The many types of social risk and causes of reputational risk that businesses must mitigate include the abuse of human rights, corruption and bribery, unsafe working conditions, and not understanding and supporting the rule of law. Many of these result in workers who, because of deception or coercion, cannot choose the terms of their working conditions. This is modern slavery—one of the top sources of reputational risk and social risk that businesses must mitigate.
Through an increase in the complexity of supply chains, globalized business practices have led to an increase in forced labor. To cut production costs, many businesses rely on cheaper suppliers in developing countries. These countries do not always oversee labor standards rigorously, and this oftentimes leads to modern slavery in the supply chain.
One of the Most Common Types of Social Risk: Modern Slavery
At the end of 2016, many workers from Nepal working for labor supply and subcontracting companies of Samsung and Panasonic claimed they were exploited in Malaysia. They were deceived about their wages and required to pay significant fees to initially secure their jobs. Upon arrival in the country, their passports were taken from them, forcing them to stay in Malaysia. Substandard working conditions were also reported. Workers were required to work—without rest and with very restricted restroom breaks—for more than a dozen hours while standing.
This is a clear example of how exploitation of people creeps into global supply chains. These laborers were not working directly for Samsung or Panasonic, and these conditions go against the standards set by the two companies as well as Malaysian law.
In your contracts with third-party suppliers, it’s essential to include the social and reputational risk mitigation framework you have set internally. You must not only consider the legislative requirements, but also what is morally right, especially from the viewpoint of customers, investors and other stakeholders. It is important to consider, not only the laws, but also the traditions where you operate.
In addition to issues of modern slavery, companies need to stay alert to other issues that pose reputational risk, such as bribery and corruption or practices that cause environmental harm.
The Complexity of Reputational Risk Mitigation
When it comes to a social and reputational risk mitigation framework, you cannot be reactive. Measures must be taken beforehand as you enter new markets, offer new products or services, or partner with third-parties.
Sources of reputational risk come not only from your own organization, but from the entire supply chain. More than 160 countries are estimated to have modern slavery, so businesses must protect themselves, their reputations and laborers around the globe. While it’s good to be aware of the countries rated as extreme or high risk for forced labor, it can still be very difficult to find evidence of these conditions in supply chains without the right tool.
In order to be an ethical and socially responsible business, and to protect your reputation, due diligence and ongoing risk monitoring is essential. Supply chains are never fully transparent and could be deceiving partners about working conditions for their own profitability.
Managing Social Risk to Prevent Supply Chain and Business Disruptions
LexisNexis Entity Insight is a fast, efficient and cost-effective solution for proactively monitoring local and global suppliers and third-party business partners, and their ties to modern slavery and human rights. It sets a new industry standard by helping you manage reputational and social risk in your supplier and third-party portfolio.
Transparency and visibility into your supply chain is essential for a reputational risk mitigation framework. LexisNexis Entity Insight helps you anticipate and manage reputational and social risk more effectively, gain better visibility and market intelligence on your supply chain and third-party portfolio. Unlike negative news monitoring using a traditional search engine and alerts, LexisNexis Entity Insight leverages a wide range of market intelligence and premium news sources that are often unavailable on the open web to help companies capture an in-depth view of reputational, regulatory, financial, strategic and social risks.