With the current economic situation being dire, more companies are moving to expand overseas in order to gain more capital. With this though, they are also taking on a tremendous amount of new corporate governance risks that they might not think apply to them at the time but in the end will come back to be a major problem to the company. Child exploitation in foreign markets has been one of the biggest risks which companies have faced in such situations over the years.
However, take into consideration the ethics of the subject in light of other controversial consequences that could result otherwise, to complicate this matter even more. To give an example, when it is discovered that a company’s foreign supplier uses child labor, it is a major setback in proper corporate governance and is a complete media nightmare. But when these children are taken out of employment through these companies, they will have no other option than to be forced into human trafficking. So the point would be that this is not a simple issue that can be treated with a simple solution.
Recently, more and more regulations have been put in place across the country to begin holding companies more accountable for the practices and dealings of foreign organizations. So, the issue of ensuring that a company’s suppliers and other third-party partners are within the bounds of proper corporate governance practices seems to be coming to a head. What this means for businesses is companies will now need to begin playing a much larger role in the proper compliance of their overseas suppliers, on top of the plethora of rules and regulations already in place. The companies will also be monitored by the Securities and Exchange Commission (SEC) and the Department of Justice (DOJ), lest they run the risk of overlooking governance breaches and invite a whole new list of threats for themselves.
Distance now becomes the issue in how a company can most effectively monitor and regulate its suppliers from far away. The company’s compliance and risk management programs must be updated in order to do this successfully and this will mean a great deal of extra work for those teams involved. Agreements will need to be reached between the foreign supplier and the organization regarding the company’s right to conduct their own audits of the business, as well as having the supplier sign into an annual contract agreeing to meet all necessary compliance regulations before entering into any dealings with foreign company.
Unfortunately, this is not a solution that is one-size-fits-all. To stay on top and to prevent any sort of breach to occur, the company will have to keep an eye on these foreign suppliers and continually check up on them. They will also have to keep track of any sort of new laws and regulations that come up later and how to implement them into their compliance program. Compliance is a full time job and far too many companies seem to forget this and while it can be costly to keep up with, the benefits will greatly outweigh the penalties that the company will have to face if they fail to meet the compliance laws.
