Responding to Global Compliance Risk in Our Supply Chains

Transcription

1 Responding to Global Compliance Risk in Our Supply Chains Today s Presenters Travis Miller Assent Compliance General Counsel 2 1

2 Agenda Definitions Product Regulations Behavioral Regulations Business Continuity Best Practices 3 INTRODUCTION 4 2

3 Overview 35% 250k Assent Works with 35% of S&P 500 Product Companies 250,000 Supplier Companies A Partner You Can Grow With Global Footprint 5 Assent s Four Pillars SOFTWARE DATA Assent s platform solution rests on the four pillars of supply chain due diligence EXPERTISE TURNKEY SERVICE 6 3

4 Feature Presentation Defining the Landscape PRESENTER, TITLE & COMPANY Assent Compliance We Are in the Middle of a Compliance Movement The current legal changes are as big as the 60-70s The global population's awareness and attention to compliance matters is practically at an all-time high. The number of new rules and regulations are also surging. Regulators are trying to leverage national laws to address perceived unfairness and uncontrolled risk. Most citizen animosity towards corporations is no longer focused on profits, it is focused on behavior and culture. This regulatory climate requires an understanding of very complex rules and the ability to build programs that manage them. info@assentcompliance.com Assent Compliance

5 This Movement Is a Reflection of Global Trends Outsourcing & Globalization Globalization: The process by which businesses or other organizations develop international influence or start operating on an international scale. Outsourcing: Obtain (goods or a service) from an outside or foreign supplier in place of an internal source. Police Powers: The capacity of the state to regulate behavior and enforce order within their territory for the betterment of the health, safety, morals, and general welfare of their inhabitants. 9 Reacting to Outsourcing & Globalization New business relationships have emerged Suppliers have taken on a broader and more expansive role in manufacturing, in some instances brand owners perform no manufacturing or production activities at all. Third-party intermediary use has expanded as a mechanism to leverage specific skills or geographic advantages to perform functions. Importers of record and distributors have become vital revenue channels who absorb regulatory burden and risk. 10 5

6 Regulations Emerge to Address New Challenges New regulation types and what they do Product compliance: Laws focused on ensuring a product conforms with standards and norms of the market where it is being sold. Behavior regulation: Laws focused on ensuring the practices used to sell and produce a product align with the norms of the market where the brand owning company is located. Business continuity: Laws and codes of conduct designed to integrate standards and norms of practice recognized by the customer as necessary controls to preserve the flow of supplied products. 11 Understanding this New Regulatory Reality New regulation types and what they do Global compliance obligations have been surging over the last decade. An increasing number of countries are adopting regulations that impose trade barriers targeting overseas manufacturing to raise the expense of outsourcing. The pragmatic goal of these regulations is to level the playing field between less regulated developing countries and more highly-regulated developed nations. Savvy businesses must be increasingly aware of the risks and liabilities in their supply chains that are seldom apparent at first glance. 12 6

7 Feature Presentation Product Regulations PRESENTER, TITLE & COMPANY Assent Compliance The Challenge of Product Regulations What are they? Product regulations focus on the safety of a product, usually proscribing limitations on the use of chemicals of concern via: Declarable Substance Lists (DSL): RoHS, REACH, Proposition 65 Mandated safety standard testing: MDD, EMC, LVD Labeling standards: OSHA, CLP, CE info@assentcompliance.com Assent Compliance

8 The Challenge of Product Regulations What do I have to do to manage them? Product regulations typically require investigations and documented due diligence into materials used to manufacture the product and testing to evidence compliance with standards. The accumulated evidence must be aggregated into technical files and maintained as a due diligence record. Practically speaking, you follow a three-step process: Identify the market entry requirements for a product in a given market Align to standards and perform the required due diligence Archive the evidence and make the necessary disclosures regarding findings 15 The Challenge of Product Regulations Example: EU CE Mark & Technical File Requirements Active implantable medical devices (Directive 90385EEC) EMC Directive (201430EU) Lifts Directive (201433EU) Noise emission in the environment (Directive EC) Radio equipment (Directive EU) Appliances burning gaseous fuels (Directive EC) Equipment and protective systems for potentially explosive atmospheres (Directive EU) Low-voltage electrical equipment (Directive EU) Non-automatic weighing instruments (Directive EU) Recreational craft (Directive EU) Cableway installations to carry persons (Directive 20009EC) Explosives for civil use (Directive EU) Machinery (Directive EC) Personal Protective Equipment (PPE) (Directive 89686EEC) Restriction of Hazardous Substances in Electrical and Electronic Equipment (Directive EU) Construction products regulation (Regulation (EU) No ) Hot water boilers (Directive 9242EEC) Measuring instruments sector (Directive EU) Pressure equipment (Directive EU) Toys (Directive EC) Ecodesign of energy related products (Directive EC) In vitro diagnostic medical device (Directive 9879EC) Medical devices (9342EEC) Pyrotechnics (Directive EU) Simple pressure vessels (Directive EU) 16 8

9 The Challenge of Product Regulations Identify the Requirements Active implantable medical devices (Directive 90385EEC) EMC Directive (201430EU) Lifts Directive (201433EU) Noise emission in the environment (Directive EC) Radio equipment (Directive EU) Appliances burning gaseous fuels (Directive EC) Equipment and protective systems for potentially explosive atmospheres (Directive EU) Low-voltage electrical equipment (Directive EU) Non-automatic weighing instruments (Directive EU) Recreational craft (Directive EU) Cableway installations to carry persons (Directive 20009EC) Explosives for civil use (Directive EU) Machinery (Directive EC) Personal Protective Equipment (PPE) (Directive 89686EEC) Restriction of Hazardous Substances in Electrical and Electronic Equipment (Directive EU) Construction products regulation (Regulation (EU) No ) Hot water boilers (Directive 9242EEC) Measuring instruments sector (Directive EU) Pressure equipment (Directive EU) Toys (Directive EC) Ecodesign of energy related products (Directive EC) In vitro diagnostic medical device (Directive 9879EC) Medical devices (9342EEC) Pyrotechnics (Directive EU) Simple pressure vessels (Directive EU) 17 The Challenge of Product Regulations Complete Due Diligence Technical File Requirements Ecodesign EMC LVD RoHS 18 9

10 The Challenge of Product Regulations Make the Declarations & Maintain the Record Due Diligence Assessment Declaration 19 The Challenge of Product Regulations What kind of expertise does my company need? Product regulatory requirements require a high degree of engineering and legal aptitudes. Staff must be able to: Write engineering requirements, specifications and testing protocols Communicate effectively with regulatory agencies to achieve and maintain compliance Provide support for internal and regulatory agency audits Review product and manufacturing changes for compliance with applicable regulations 20 10

11 The Challenge of Product Regulations What is pressing? There are a huge number of increasing regulations in this space Here are the top 5 you will be impacted by in 2017 Everyone is preparing for REACH Expect a surge in SVHCs and a large number of inquiries related to the new article definition EU RoHS 3.0 is going to further drive phthalates out of the electronics supply chain over the next 18 months China RoHS is online, EFUP and Safe Years labels need to be reevaluated. Expect customs stops California Proposition 65 is going to force changes to the labels of all products and facilities that enter California. It is a big deal South America is full steam ahead on product compliance regulations. Watch the emerging rules closely 21 The Challenge of Product Regulations What are the consequences if I do not do it? Brand Damage Product Recall Incarceration Fines 22 11

12 Feature Presentation Behavior Regulations PRESENTER, TITLE & COMPANY Assent Compliance The Challenge of Behavior Regulations What are they? Behavior regulations focus on actions taken by companies to lower the cost of producing goods or to increase revenues in ways that are deemed unethical by the country where the goods are sold. Labor violations: modern slavery, child labor, unsafe facilities Unethical sales activities: bribery, corruption, fraud Anti-competitive behavior: collusion, monopoly, price fixing info@assentcompliance.com Assent Compliance

13 The Challenge of Behavior Regulations What do I have to do to manage them? Behavior regulations typically require internal policies and awareness training, and focused supply chain policies, training, and inquiries. The accumulated evidence must then be vetted and assessed against geographic, supplier, and industry-specific concerns. Practically speaking, you need to do the following: Create a policy and position statement Train staff and suppliers on the associated requirements Send a code of conduct and vetting surveys to suppliers Conduct additional due diligence into high-risk responses Issue any mandatory disclosures 25 The Challenge of Behavior Regulations What kind of expertise does my company need? Behavioral regulations require the ability to interpret policies and ensure compliance with company processes and employment laws. Conducting internal investigations Communicate various HR and management objectives Lead social accountability audits Draft communications, investigative reports and works effectively with legal counsel Ensures compliance with federal, state and local employment laws 26 13

14 The Challenge of Behavior Regulations What is pressing? There is a lot of attention being paid to the reality of forced labor in the supply chain. It is estimated there are more than 30,000,000 people enslaved. 27 The Challenge of Behavior Regulations What is pressing? This reality is driving legislation targeting andor preventing the use of slavery in the production of goods. California Transparency in Supply Chains Act U.S. Federal Acquisition Regulation Final Rule on Combating Trafficking in Persons ( ) UK Modern Slavery Act U.S. Trade Facilitation and Trade Enforcement Act, elimination of consumptive demand exception EU Non- Financial Disclosure Directive French Duty of Care Law, etc. September 2010 January 2015 March 2015 February 2016 January 2017 More to Come

15 The Challenge of Behavior Regulations What is pressing? FCPA Actions are increasing 1992 The first major eyeopening enforcement action occurs when GE is hit with a record $70M fine The Oil for Food scandal breaks, resulting in dozens of FCPA prosecutions due to $1.8 billion in bribes paid to Iraq government The Yates Memo comes out, directing enforcement to focus on individuals and criminal prosecutions The Enron collapse and Worldcom scandals occur. The U.S. government reacts by passing Sarbanes-Oxley, which makes senior executives personally liable for financial disclosures and frauds conducted by public companies 2007 U.S. Federal Bureau of Investigations (FBI) adds a specific division dedicated to FCPA enforcement. The next year Siemens pays a record $1.6 billion dollar fine for pervasive global bribery. 29 The Challenge of Behavior Regulations What are the consequences if I do not do it? Enforcement is picking up

16 The Challenge of Behavior Regulations What are the consequences if I do not do it? Enforcement is picking up. Declarations approved by the company s Board of Directors are now mandatory, which places liability on the Board due to oversight obligations. 31 The Challenge of Behavior Regulations What are the consequences if I do not do it? Enforcement is picking up. Declarations approved by the company s Board of Directors are now mandatory, which places liability on the Board due to oversight obligations. Investigative reporting is focused on the topic and stories are very damaging

17 Feature Presentation Business Continuity PRESENTER, TITLE & COMPANY Assent Compliance The Challenge of Business Continuity What is it? Business continuity focuses on the capability of the organization to deliver products and services following a disruptive incident. Political instability: regional issues, seizure of business assets, strikes Natural disasters: geography, floodingstorms, drought Man-made disasters: sanctions, data privacy, cybersecurity breaches info@assentcompliance.com Assent Compliance

18 The Challenge of Business Continuity What do I have to do to manage it? Business continuity typical requires internal policies and focused supply chain policies, training, and inquiries. Business continuity issues necessitate a strategic supply chain survey that analyzes supplier responses. There also has to be a supply chain policy explaining what is being requested from the suppliers and what the aims of the program are. Supplier rankings and incentives to diversify and protect a business from potential supply chain disruptions will be necessary. 35 The Challenge of Business Continuity What kind of expertise does my company need? Well-versed in supply chain ethics and compliance programs Able to interpret international trade and geopolitical risk factors Compliance-related experience in relevant areas, such as trade, data privacy, cybersecurity Ability to interpret standards and familiarity rolling our information across the supply chain Ability to analyze supplier responses for risk and effectively communicate those risks internally and to the suppliers 36 18

19 The Challenge of Business Continuity What is pressing? Political instability is generating serious business risks. 37 The Challenge of Business Continuity What is pressing? Political instability is generating serious business risks Geographic disasters are capable of disrupting complex supply chains

20 The Challenge of Business Continuity What is pressing? Political instability is generating serious business risks Geographic disasters are capable of disrupting complex supply chains Man-made disasters cost billions annually 39 The Challenge of Business Continuity What are the consequences if I do not do it? Business continuity disasters will impact companies It is not a matter of if, but when and what disaster will impact your business There is the ability to prepare for inevitable consequences to mitigate costs 40 20

21 Feature Best Practices Presentation PRESENTER, TITLE & COMPANY Assent Compliance Starting with the Regulations Regulations drive action and create normalized goals What regulations do: Create a Create a solution Create a problem Create a minimum standard baseline for all parties in scope need for a standard or structure to implement a market for a uniform solution to a standard need for companies to take an action info@assentcompliance.com Assent Compliance

22 Starting with the Regulations Regulations do not solve problems or create industry standards What regulations don t do: Tell companies how to conduct due diligence Tell companies if they are following industry norms Tell companies what solution to implement for their problem 43 Starting with the Regulations How do we leverage what regulations demand against the gaps they leave? Regulations are a framework They give companies a series of don ts or outcomes (ex: disclosures) FCPA instructs companies not to bribe government officials for favor MSA obligates companies to disclose their board approved statement on what they have done to eradicate modern slavery They also give clues to companies regarding the kind of person or skill set they need to acquire to manage or address the problem Regulations essentially drive hiring to combat undesirable outcomes 44 22

23 Outcomes & Goals Recap The top 5 goals of a well-developed compliance program 1. Avoid getting in trouble in the first place 2. Create a way to identify problems before they become systemic 3. Have a defensible position when an audit or investigation occurs 4. Do the right thing to protect the company s brand 5. Leverage new knowledge to generate efficiency and cost savings 45 Outcomes & Goals Avoiding trouble in the first place is paramount The core reason to implement a compliance program is to have a systematic way to avoid problems The robustness of the program serves to channel efforts towards the highest risk areas Once high-risk areas are identified, deeper levels of due diligence can be dedicated 46 23

24 Outcomes & Goals Creating a way to identify problems before they become systemic Early action is usually a critical element to avoiding catastrophic compliance issues Once a process of non-compliance is embedded into a company s culture, it is very difficult to eradicate it It is also a proven fact that statistically the most likely place a company will identify problems is through well-trained employees 47 Outcomes & Goals Having a defensible position when an audit or investigation occurs Every company will be audited or investigated at some point in its lifetime by a regulator, customer or legal claimant The Federal Sentencing Guidelines clearly demonstrate that penalties fluctuate based upon the quality of programs Practically, the closer your program aligns to and meets industry standards and norms, the more defensible the program will be 48 24

25 Outcomes & Goals Doing the right thing usually pays off Corporate brands and reputations usually boil down to trust from customers that they will do the right thing Companies that betray this trust often find that the costs of fines and penalties is dwarfed by lost business opportunities Reputational damage takes a long time to recover from 49 Outcomes & Goals Knowledge is powerful There is a lot of efficiency in modern manufacturing processes that can result in costs savings However, there is a lot of inefficiency and risk that is invisible to senior management, because they cannot see through the silos Most companies begin to detect major cost saving opportunities and find revenues when investigating and developing compliance programs that look at the company holistically 50 25

26 Questions Ask me now Raise your hand Ask me later Travis Miller General Counsel, Assent Compliance Inc p: c: