Beyond Reps and Warranties: Handling Third-Party Risks through a Well-Developed Supplier Code

“With increased global activity and the prevalence of social media as a means of discussing brands and company reputation, there is little doubt that companies must look hard at formalizing behavioral expectations for their third-party partners.”

As companies increasingly rely on third-party relationships as a means to maximize profits and facilitate global expansion, the compliance risks such relationships can pose have become painfully clear. As illustrated by recent U.S. Foreign Corrupt Practices Act (FCPA) cases, third-party actions have resulted in fines for customer companies that have reached well upwards of $500 million. In fact, a substantial majority of 2009 FCPA cases involved third parties. These cases reveal that, although companies are investing more time and money into their ethics and compliance programs, this same effort is not being extended to abate third-party risks. A 2009 study conducted by the Society of Corporate Compliance and Ethics supports this assertion, revealing that of the 400 compliance and ethics professionals polled, only:

• 47 percent of companies disseminate their internal corporate code of conduct to third parties;
• 26 percent of companies require that third parties certify to their code of conduct; and
• 17 percent of companies have a code of conduct that is applicable to third parties.

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