An intensifying problem
Even before the global pandemic, companies faced integrity-related challenges on or around their third-party practices, with issues such as beneficial ownership, modern slavery and sanctions.
As organizations start to regenerate, emerging from the pandemic into a harsher economic climate, they may be more inclined to turn a blind eye to unethical actions relating to their third parties. Whether this involves cutting corners on processes and procedures, or knowingly colluding in unethical or illegal behavior to help the organization survive, the price can be high.
Many jurisdictions state that companies have liability for the actions of third parties. In fact, 90% of US Foreign Corrupt Practices Act (FCPA) violations include acts by third parties, a Stanford Law School resource notes. 1
Although ethical third-party management is always crucial for companies, our data shows that they are failing in this regard. Only a third (34%) of companies are very confident that their third parties — including suppliers, vendors, partners or consultants — abide by relevant laws, codes of conduct and industry regulations. This is concerning and suggests an apparent lack of thoroughness in vetting and management.
What is especially concerning is that respondents cite ignoring third-party misconduct as the top unethical behavior they would commit for personal gain.
Across all respondents, 1 in 10 would ignore unethical conduct by third parties, but this figure doubles to 1 in 5 among board members. Such results will negatively affect shareholder confidence in the board members and reinforces the need for change.
Ignoring third-party misconduct is a huge risk for companies. For example, technology giants have come under fire for the working conditions imposed by their overseas suppliers.
Organizations can protect themselves from risk by holding third parties to account on their levels of integrity. This can be achieved by taking a proportionate risk-based approach to engaging and managing third parties. It’s not just supply chains that can bring about third-party risk to companies — they can face significant risk when acquiring, partnering with, or investing in other companies.
“There are practical ways an active monitoring program can help protect against third-party misconduct, in particular when supply chains are being reset,” says Emmanuel Vignal, EY Asia-Pacific Forensic & Integrity Services Leader.