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Minimising risk through ongoing monitoring

Minimising risk through ongoing monitoring

February 22nd, 2016 - Posted by Sam Hemmant in Anti-Bribery And Corruption

The doping scandal engulfing world athletics is starting to have serious commercial repercussions for the athletics governing body, the IAAF. The recent departure of two key sponsors demonstrates how seriously organisations take brand reputation in the social media age.

The doping scandal engulfing world athletics is starting to have serious commercial repercussions for the athletics governing body, the IAAF. The recent departure of two key sponsors demonstrates how seriously organisations take brand reputation in the social media age. Risk emanates from two key areas: financial risk, whether from legal penalties or loss of business, and reputational risk from negative exposure in the media. As part of a holistic monitoring program, companies must monitor their supply chains for red flags to minimise the potential of both of these risk factors, while also monitoring the media for negative references to the company and its suppliers.

A swift departure for Nestle and Adidas

Food conglomerate, Nestlé, has ended its sponsorship deal with the IAAF with immediate effect because it fears that concerns over doping practices in athletics could damage its reputation. It is the second major loss of sponsorship faced by the organisation since widespread allegations of bribery and corruption emerged last year. Last month, sportswear manufacturer Adidas also scrapped its partnership with the IAAF.

Nestlé said in a statement: "We have decided to end our partnership with the IAAF Kids Athletics programme with immediate effect. We believe this [the negative publicity surrounding the corruption and doping allegations] could negatively impact our reputation and image."

Higher media profile = higher risk

When a business is associated with negative publicity, it can quickly escalate into severe reputational damage, and organisations need to proactively monitor both their supply chains and the media if they are to react early and minimise these risks.

Companies are increasingly seeing corruption scandals in their supply chains and the associated reputational damage is evident in the resulting widespread media coverage and social media reaction. While the IAAF case might not be seen as a typical example of supply chain corruption risk, both Nestlé and Adidas can be regarded as customers of the IAAF. Effectively Nestle and Adidas paid the IAAF money in exchange for a positive association. Unsurprisingly, when the association was no longer positive, there was nothing to pay for.

Whilst many companies will not have the resources for high profile sponsorships with sporting bodies, the fallout from the athletics scandal does offer lessons in risk reduction for companies of any size. It emphasises the importance of a thorough and holistic monitoring process as best practice for all companies: monitoring the media for potential risks associated with the companies that they do business with, and their supply chain for early warning signs and red flags.

Many potential risk areas in the supply chain can be highlighted early through an ongoing monitoring process. This process consistently monitors potential supply chain risk events at the supplier, industry and geographical level including natural disasters, political instability, product recalls, strikes, bribery, corruption, patent infringement, child labour, bankruptcy, boycotts, and hazardous waste incidents. If action is to be taken before the risk is exposed in the media, enhanced due diligence checks must be carried immediately when red flags are raised in these areas.

Attending to the detail

The difficulty is making sense of the increasing volumes of data available. Effective supply chain monitoring has to be automated to gain insight from the analysis of real-time data feeds. Sophisticated batch screening technology can track, manage, and analyse hundreds of pieces of supplier, customer, and associated third-party data at the same time, which helps to give companies the predictive capability necessary to react early when red flags are raised.

Where does media monitoring fit?

Proactive monitoring for risk in the supply chain should be utilised wherever possible, and monitoring the media is one element of the holistic monitoring process. Often though by the time a crisis hits the media it can be too late for a company to react effectively, as can be seen in the cases of Nestlé and Adidas. At that point companies resort to crisis management and damage limitation.

People are vocal, and ongoing social media monitoring gives companies a clearer picture of what customers are saying about them, whether directly, or indirectly through the organisations and interests they are linked to. In some cases this can allow brands to take pre-emptive action to protect their reputations, but if a company can react quickly when a red flag is raised during the supply chain monitoring process it stands a much better chance of taking action before a media crisis hits.

Automation is key

Actionable insight from real time data feeds relies on automation. Powerful batch screening technologies are playing a part here; automating elements of the due diligence process by conducting high volume screening of suppliers, individuals and associated bodies.

While it cannot be said for certain Nestlé and Adidas would have identified the IAAF as a red flag in an automated monitoring process, recent sporting scandals would almost certainly have raised questions about links with large sporting bodies and corruption in time for action to be taken before a media crisis ensued.

By implementing an automated holistic monitoring process, companies can now gain a clearer understanding of the risks they face, identify red flags early and ensure continued compliance in an era of increasing international regulation and scrutiny.

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