Earlier this year, Lululemon faced a reputational risk and launched an investigation into working conditions at a supplier's factory © SOPA/LightRocket/Getty Images
Earlier this year, Lululemon faced a reputational risk and launched an investigation into working conditions at a supplier's factory © SOPA/LightRocket/Getty Images

Reputational risk overtaking legal and compliance

Changing consumer expectations on sustainability and ethics are pushing procurement to focus on reputational risk. 

Jonathan Bowdler, head of regulatory compliance at the International Compliance Association (ICA), a professional body for the global regulatory and financial crime compliance community, told SM society now expects better behaviour from organisations, something which has become evident as social media has become a part of daily life.

“They expect us to do the appropriate due diligence and know who we're doing business with. It's not just who supplies to us, but who supplies our suppliers. You have to know your suppliers so that if you are challenged in the future, you can show that you understand where your goods and services have actually come from.

“The risk is of course, to a greater or lesser degree, legal and compliance. But in today's world, the reputational piece is probably overtaking that. In a lot of compliance arenas, we've been trying to change the way of thinking from asking the question, ‘Can we do this?’ to, ‘Should we do this?’. It's that slight nuance that moves us from just being compliant to being ethical and doing the right thing.”

Chris Laws, chief product and strategy officer at data and analytics firm Dun & Bradstreet, told SM social pressure is driving change and procurement professionals are now having to make decisions not only based on legal risk but also reputational risk. 

“Do they want to be the only ones not doing something or do they want to lead the pack? Do they see brand value being created by saying, ‘We're leading in this particular industry, we're taking a stand’,” he said. 

“Ultimately, in most companies, the custodian of that is still procurement. Anything that is spending money out of the organisation tends to be based on a procurement policy or a set of processes.

“Some organisations have large procurement teams which handle all of that, but many don't. Some companies now push that process ownership onto whoever in the organisation is looking to procure the item. And so it's all about effective training, effective policy, effective workflow, tools and processes that all team members can use without breaking the intended policy that's been rolled out.”

Laws added procurement has become a much broader risk capability for the business to help it manage its risk profile, which has to deal with a range of risk issues around the environment, governance and cyber.

“Those risks, especially reputational, can occur further down the supply chain than just the direct tier one suppliers. It's been a massive change. As part of that procurement are also now having to really work much more hand in glove with their legal team to interpret the regulations, build the policies, and roll out the training,” he said.

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