While direct and indirect reputational risks originate from the actions of the company and its employees, respectively, tangential risks are those that result from the actions of a partner or supplier. Given the relative size of supply chains compared to individual companies, and the limited control organizations have over their suppliers (particularly those further down the stream), tangential risks that is, those that originate in the supply chain are the biggest looming threat for most businesses.
These risks may seem remote, Koneska explains, but even those that arise from fourth or fifth-tier suppliers pose a direct financial threat. Brands can no longer claim ignorance for what goes on in their supply chains; they must ensure that what happens upstream complies with both relevant regulations and the values the organization stands for.
Although supply chain risks such as disruptions and delays can damage a brands reputation for reliability, there are certain risks particularly those that put your consumers, or other communities or environments at risk that can be particularly damaging to corporate reputation.
As supply chains grow increasingly complex and reach all corners of the globe, the risk of non-compliance increases. Different countries laws, regulations, and cultural nuances make standardizing compliance and risk management difficult. But the consequences of non-compliance are numerous and include legal action, financial penalties, disruptions to business operations, and reputational damage particularly as it relates to ethics-related compliance issues.
Companies being aware of those regulatory developments and then what companies they're working with that are in those markets that are being impacted is going to be critical, says Joshua Haecker, FiscalNotes head of product, global intelligence.
Supply chains are a potential minefield for ethical and ESG violations. From social concerns such as forced labor and human rights, and environmental issues like waste management and greenhouse gas emissions, to governance matters such as corruption and bribery, the risks are numerous. Many companies will soon be even more exposed due to new regulations that require Scope 3 (supply chain) disclosures, such as Californias new climate disclosure bills (SB 261 and SB 253) and the European Unions Corporate Sustainability Reporting Directive.
Consumers, investors, and employees are paying more attention than ever to violations of ESG-related regulations and norms. A single event or story can quickly escalate to the scandal level, causing consumers to boycott, share prices to plummet, and leaving a lasting mark on a brands reputation.
Supply chains are heavily reliant on data exchanges and technology systems, and significant quantities of sensitive information are regularly passed along the stream. This makes supply chains uniquely vulnerable to cyberattacks such as ransomware, data breaches, and intellectual property theft. Aside from the direct effect these attacks have on the business, when news of security breaches reach mainstream media, brands can spend years building back trust with the public.
Even with comprehensive supply chain mapping, getting proper visibility and transparency from end to end can be difficult. The further down the supply chain, the greater the reputational risks become visibility declines as does control. When theyre aware of them at all, companies often only have indirect contact with their second-, third-, fourth-, and fifth-tier suppliers.
Managing these suppliers is more complex precisely because of the distance involved, says Koneska. Its not always within your power to control these risks. Though you may have a contractual relationship with third-party suppliers that gives you some leverage, their suppliers expose your brand to risk that you have very little control over.
Koneska explains that, until recently, contracts that outlined terms and conditions for lower-tier suppliers were deemed sufficient for risk management purposes. Increasingly, however, this is no longer enough.
There is no clear-cut solution for managing lower-tier supply chain risks, explains Koneska. Instead, there are different techniques used for different scenarios.
Some companies engage in selective due diligence when onboarding new suppliers, Koneska says, looking at their track record and their suppliers. Others will select a sample of third-, fourth-, and fifth-tier suppliers each year to assess, hoping that these samples are representative of the broader supply chain. Still, others will identify high-risk jurisdictions or sectors within their supply chains and conduct additional due diligence in these regions.
But Koneska sees limitations in each of these approaches. All of these exercises are one-off, she explains. They can give you a snapshot of whats happening right now, but they dont necessarily give companies a full picture of their supply chain risks and how these may evolve or change.
Haecker likewise believes that, while companies have methods to identify reputational risks, they often struggle to detect and address the full range of risks that could impact their business. You'll find technology out there that's really good at identifying cyber risks or data privacy risks or regulatory risks, but most companies can't afford to and haven't had time to investigate solutions to cover the full range of critical risks, he explains.
Supply chain risks that can affect a companys reputation need to be monitored and assessed in real time, a task that is best managed with the help of cutting-edge technology.
FiscalNote Risk Connector scans millions of websites every 15 minutes. It establishes connections across industries, detects emerging risks, monitors their evolution, identifies trends, and tracks their emergence. These proactive solutions track risks that arise or have already occurred within a network of vendor relationships.
FiscalNote Risk Connector gives a comprehensive view of the entire supply chain, says Koneska, extending further into the fourth and fifth tier and beyond. By mapping the complex relationship between companies and their suppliers, Risk Connector reveals where certain risks lie in your supply chain, as well as the nature, severity, and spread of these risks. Having a detailed and near-real-time map of your supply chains risk hotspots puts your brand on the front foot and allows your team to pre-empt potential negative events, swiftly managing crises if and when they occur. When it comes to corporate reputation management, timing is everything every minute counts.
Ultimately, a supply chain is only as strong as its weakest link and it only takes a single event with one supplier to cause lasting and widespread reputational damage. In todays corporate climate, supply chain risk management must be a core feature of broader risk management strategies.
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Reputational Risk: The Hidden Dangers of Global Supply Chains - FiscalNote