supply chain risk assessment and clicompliance...

Presenting a live 90‐minute webinar with interactive Q&A

Supply Chain Risk Assessment d C li S iand Compliance Strategies

Mitigating Legal Risks With Due Diligence, Contract Negotiation, and Effective Governance Practices

T d ’ f l f

1pm Eastern | 12pm Central | 11am Mountain | 10am Pacific

THURSDAY, AUGUST 15, 2013

Today’s faculty features:

Barbra J. Moran, Senior Corporate Counsel, Law and Public Policy, Legal Services Division, Caterpillar, Peoria, Ill

Peter R. George, Partner, Baker & McKenzie, Chicago

Michael S. Mensik, Partner, Baker & McKenzie, ChicagoMichael S. Mensik, Partner, Baker & McKenzie, Chicago

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Supply Chain Risk Assessment and Compliance StrategiesCompliance Strategies

Barbra Moran, Caterpillar Inc.Peter George, Baker & McKenzieMichael Mensik, Baker & McKenzie

Strafford Publications WebinarStrafford Publications WebinarAugust 15, 2013

Agenda

GlobalGlobal ElectronicElectronicGlobal SurveyGlobal Survey Case StudyCase Study Electronic

ContractingElectronic

Contracting Wrap-upWrap-up

6

2013 Global2013 Global Supply ChainSupply Chain SSurvey

77

BackgroundBackground

MethodologyMethodology

FindingsFindings

8

B k dBackground

Contract Manufacturer

Supplier

ExtendedEnterprise

rs Intermed

Custom

ITOEnterprise

Contract

iaries

mers

BPO

tors

10

Ubiquitous Cross-Border Flows

InformationInformation TechnologyTechnology Raw Materials

Raw Materials

ComponentsComponents ProductsProducts ServicesServices

PeoplePeople MoneyMoney Personal Data

Personal Data

11

Contract Manufacturer

Supplier

ExtendedEnterprise

rs Intermed

Custom

ITOEnterprise

Contract

iaries

mers

BPO

tors

12

Recent Headlines

• Announces it will sever all ties to suppliers that subcontract its work without the company’s knowledge after factory fire in Bangladesh kills 100 workersWal-MartWal-Mart after factory fire in Bangladesh kills 100 workers

• UK food inspectors discover horsemeat in packagesFi dFi d UK food inspectors discover horsemeat in packages of Findus beef lasagna sourced from a subcontractor that passed Romanian horsemeat as beefFindusFindus

• Hackers steal the email addresses, user names and passwords of 35,000 Billabong customers who registered online for a promotional event organized by the surf wear company’s marketing firm

BillabongBillabongp y g

13

How to best manage third party risk in your global supply chain?supply chain?

14

M th d lMethodology1515

Methodology

• Refraction sent questionnaire to clients in cross-section of industriesQuestionnaireQuestionnaire

• Asked respondents to rate a list of perceived risks from highest to lowestRisksRisks

• Conducted about 100 interviews with senior respondents involved in managing 3rd partiesInterviewsInterviews

• Strong coverage of global markets; 38% respondents had global responsibilityCoverageCoverage p g p y

16

T Si Fi diTop Six Findings1717

Question No. 1

– Corruption and bribery (24%)– General compliance (19%)– Product quality (15%)– Timely delivery (10%)

R i l diff (9%)

What issues are generally of most

– Regional differences (9%)– Insolvency risk (8%)

CSR (7%)

concern in your supply chain

relationships? – CSR (7%)– Ethics (4%)– IP theft (3%)

p

IP theft (3%)

18

Maturity of Anti-Bribery Programs – “It's the bribery and corruption risk. That's critical because we have lots of 3rd parties

worldwide. The risk is that, if they are acting on our behalf, they may be doing things they shouldn't be doing - bribing officials or even making facilitation payments; facilitation payments are not outlawed in certain countries but in our company, they arefacilitation payments are not outlawed in certain countries but in our company, they are outlawed. So we take the stricter policy in a country so that applies. There is a lot of risk around 3rd party engagements.” Compliance Officer

– “Any of their involvement in the anti-bribery, that is a particular concern for us, because we have a global anti bribery program and part of our project is to look at the brokerswe have a global anti-bribery program and part of our project is to look at the brokers and making sure that they have not been involved in any of these illicit payments to government officials. To insure that they are abiding to the global anti-bribery laws.” Compliance Manager “M bi t f i d d dili d ki ' l ti t th t– “My biggest focus is around due diligence and making sure we're selecting partners that don't put us at a undue bribery risk - A lot of that is probably due to the area I'm dealing with - EMEA has a riskier profile from that perspective.” Compliance Manager

19

Question No. 2

– Insolvency of key partners and suppliers (43%)D t t ti (35%)– Data protection (35%)

– Cyber crime (33%)Bribery (32%)

Which specific factors present a – Bribery (32%)

– Rising consumer expectations (31%)

factors present a high level of

perceived risk? ( )– Increased export control / trade

sanction enforcement (31%)– Industrial espionage (21%)

20

Regional Variation – Top 3

Asia P ifiAsia

P ifi EuropeEurope Middle East

Middle East

South AmericaSouth

AmericaPacificPacific

Export control enforcement


u opeu ope

InsolvencyInsolvency

EastEast



AmericaAmerica

InsolvencyInsolvencyenforcementenforcement

BriberyBribery

yy



enforcementenforcement

BriberyBribery

yy

BriberyBribery

InsolvencyInsolvency

enforcementenforcement

BriberyBribery Cyber crimesCyber crimes Cyber crimesCyber crimes

21

Question No. 3– Specific regional risks (20%)

– Local laws in Middle East or Africa– Trade sanctions against Syria andTrade sanctions against Syria and

Iran– Underdeveloped laws in

Southeast Asia

What issues represent the

Southeast Asia – Compliance risks (20%)

– FCPA, UK Bribery Act, EU i t l l ti

greatest level of risk over the next several years? environmental regulations

– Financial risks (15%)– Global economy and vendor

y

insolvency

22

Question No. 4– China (40%) – regulatory instability;

complex bureaucracy; truthfulness of information from 3rd parties

– India (30%) – import / export laws; corruption

– Africa (26%) – political instability; Which emerging ( ) p y;corruption; weak infrastructure

– Russia (22%) – difficult entry; corruption; tariffs

markets present the highest risks?

co upt o ; ta s– South America (21%) – bribery; weak

infrastructure

23

Question No. 5

– More training on major compliance issues and risk mitigation (83%)mitigation (83%)

– Better monitoring for compliance with contract terms

What are best strategies for

and remediation of non-compliance (75%)Better screening and selection

strategies for reducing third party

risks?– Better screening and selection

of third party partners and suppliers (74%)

24

Question No. 6

– Experience and track record (8.2 )R t ti (8 1)– Reputation (8.1)

– Cost (7.9)Strong ethical “tone at the top”

What are most important factors – Strong ethical tone at the top

(7.8)– Transparency of ownership

important factors when selecting

partner or supplier? p y p(7.7)

– Compliance training program (7 7)(7.7)

25

• Vetting and Selecting• Structuring &

D tiFive Essential Elements of Managing 3rd

Documenting• Educations &

Trainingg gParty Risk

Training• Monitoring &

Evaluating• Reacting &

Remedying

26

C St dCase Study

Education & Training

Education & Training

Monitoring & Evaluating

Monitoring & Evaluating

Reacting & RemedyingReacting & RemedyingTrainingTraining EvaluatingEvaluating RemedyingRemedying

Structuring & DocumentingStructuring & Documenting

Vetting & SelectingVetting & Selectinggg gg

28

Key Legal Areas

Customs /Customs /Anti-BriberyAnti-Bribery EmploymentEmployment Customs / Trade

Customs / Trade

EnvironmentEnvironment Privacy / Privacy / EnvironmentEnvironment ySecurity

ySecurity

29

Addressing Risk – Process, Process, Process

• Redundancy through true diversification and processesMinimizeMinimize

• “Real time” information flows and processesControlControl

Miti tMiti t • Effective business continuity plans and processesMitigateMitigate• Clear contractual definition of roles / responsibilities AllocateAllocate p

and understanding residual risk and processesAllocateAllocate• Coverage and financial reliability of insurer and

processesInsureInsure processes

30

Vetting & Selecting


Customs / Trade


ySecurity

31

Vetting & Selecting


Customs / Trade


ySecurity

32

Customs & Trade - Processes

• Sanctions/Embargoes; ScreeningScreening

• Understanding products, information Cl ifi tiCl ifi ti

g pand technology that will be shared; classifying to determine requirements

ClassificationClassification

• Ensuring appropriate licenses are obtainedLicensingLicensing

33

Vetting & Selecting


Customs / Trade


ySecurity

34

Security/Data Privacy in Vetting & Selection

• “Appropriate” safeguardsSecuritySecurity

• Know where informationRestrictionsRestrictions Know where information can be used, stored, etc.

Restrictions on TransferRestrictions on Transfer

• Access to informationAccessAccess

35

Vetting & Selecting


Customs / Trade


ySecurity

36

Negotiated Risk Allocation

R t tiR t ti Li it ti fLi it ti fRepresentations / Warranties

Representations / Warranties IndemnitiesIndemnities Limitation of

LiabilityLimitation of

Liability

Legal C li

Legal C li F M jF M j TerminationTerminationCompliance ObligationsCompliance Obligations

Force MajeureForce Majeure Termination Rights

Termination Rights

37

Contracting Processes

TemplatesTemplates Risk Matrix Risk Matrix TemplatesTemplates / Playbooks/ Playbooks

DeviationDeviation ApprovalApprovalDeviation Options

Deviation Options

Approval AuthorityApproval Authority

38

• Vetting and Selecting• Structuring &

D tiFive Essential Elements of Managing 3rd

Documenting• Education & Training• Monitoring &g g

Party Risk • Monitoring & Evaluating

• Reacting & gRemedying

39Preparation and Process

A2

A2 Author, 7/26/2013

ElectronicElectronic C t tiContracting

40

Typical Wet Ink Signature Process

Send contract to

Receive signed contract

Send contract to

Receive signed contract

Send fully signed copy

other party from other party internal signer from internal signer

to other party

3-5 days; shipping costs; follow-ups

41

Electronic Contracting Solution

42

Advantages

• Trims days off cycle time; No need for personnel to wait for a signed, scanned, faxed, etc. document to be returned to them in order to send to the next required party

Speed

document to be returned to them in order to send to the next required party• Transaction closing times reduced from 2-3 days to less than 1 day

Productivity

• Focuses staff on strategic activity instead of paperwork• 15% cost reduction per event (client benchmarking)

Productivity

• Moving paper is expensive

Cost Savings

Moving paper is expensive• 30K/ year reduction for one client

Advantages (Contd.)

• Easier to do business• Noted convenience in particular for partner’s who are on the go – ability to e-sign with mobile

t h l hil t li i i t f

User Experience

technology while traveling vs requiring access to a fax or scanner

Better Controls

• Use of Templates• Signature monitoring – shows when contract was delivered, viewed and signed, which also

eliminates need for email follow-up asking if document was received• Audit trail and copies of every document• Fax/scans sometimes are illegible or unclear; e-signatures are clean, accurate, and legibleFax/scans sometimes are illegible or unclear; e signatures are clean, accurate, and legible

• Go Green: less paper

Responsibility

• Go Green: less paper• Opportunities for further streamlining

ChallengesFlexibility• Bespoke Offerings – highly negotiated transactions and one of deals present less

opportunities for standardization• Strategic Relationships – master agreements may provide for electronic purchase orders, but

to establish framework agreements parties may prefer wet ink signature documents,

Flexibility

g p y p g ,especially in the cross border context

• Existing processes may create barriers to changeL t t t i d t i d t i l t l t i t t

Legacy Contracts

• Legacy contract terms may require amendment in order to implement electronic contracts and purchase orders

• Controls and procedures may require wet ink signatures / approvals

E f bili Ri k• Local Law – legal requirements in some jurisdictions may require / provide advantages to wet

ink signatures• Contract Formation – particular language requirements for electronic contracts• Proving Contract Terms establishing processes to maximize enforceability

Enforceability Risks

• Proving Contract Terms – establishing processes to maximize enforceability

Key Legal Issues

•Proving the identity of the personal that executed the contract•Wet ink signatures can be validated by handwriting specialists•e-mail address, password, computed identification, biometrics, actions, other

Attribution

•Proving the electronic contract is the contract executed by the counterparty•Initialling pages•Process, contract execution history•Trusted third parties

Authentication

•Proving the content of the electronic contract has not been altered•Storage history, archival evidence•Technology – password protections, locked documents, etc

Integrity/Non-RepudiationRepudiation

•Burden of proving attribution and authenticity•Qualified or advanced electronic signatures•Country specific requirements that certain contracts be wet ink signed

Legal Requirements

46

y p q gRequirements

Country Variation in Acceptance

• Electronic signatures legally equivalent to wet ink signatures• Evidence of attribution, authentication and reliability• U.S., Canada, AustraliaGroup I U.S., Canada, Australiap• Only advanced or qualified electronic signatures given same

weight as wet ink signaturesG II weight as wet ink signatures• Burden of proof on party seeking to enforce electronic contract• Austria, Belgium, Czech Republic

Group II• Electronic contracts not widely used or subject to higher

scrutiny• Significant risk of non-enforceability• Russia, China, Turkey

Group III47

Methods of Implementation

• Custom or Off The Shelf Products• Credentialing Requirements• Master “Wet Inked” Agreements with operative language

Electronic Contracting Master Wet Inked Agreements, with operative languageContracting

• Suppliers establish credentials to access portalA i t f b l t iSupplier • Access requires acceptance of buyers electronic contracting terms

• Transactions processed through portal

Supplier Portals

• Buyers establish credential to access portal• Access requires acceptance of supplier’s electronic

contracting terms• Transactions processed through portal

Buyer Portals

48

p g p

Typical Electronic Contracting ImplementationsImplementationsHigh Volume of Non Standard Contracts with Low Enforcement

Non Standard Contracts with Low Transaction Volume and High

fRisks – Proprietary or Third Party Electronic Contracting Tools

Enforcement Risks – Wet Ink Signature Deals

High Volume of Standard Contracts with Low Enforcement Risk -Buyer/Supplier Portals

Low Volume of Standard Contracts with High Transaction Volume and High Enforcement Risks – Master Agreements ith Electronic PO’sAgreements with Electronic PO’s

49

W UWrap-Up50

Thank youBarbra Moran

[email protected]

Peter [email protected]

Michael S. MensikMichael S. [email protected]

Baker & McKenzie International is a Swiss Verein with member law firms around the world. In accordance with the common terminology used in professional service organizations, reference to a “partner” means a person who is a partner, or equivalent, in such a law firm. Similarly, reference to an “office” means an office of any such law firm.

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