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Lockton: Supply Chain and Executive Risks Create Challenges for Firms Going Global

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Posted on 28 Nov 2011

Lockton experts recently spoke with Business Insurance magazine for articles about supply chain and executive risks facing middle market companies as they expand globally.

Unstable World Creates Risks to Supply Chain  

One critical exposure facing expanding global companies is supply line disruptions and breakdowns, says Kevin Holland of Lockton. In particular, weather-related events such as the earthquake and tsunami in Japan, flooding in Australia and Thailand, earthquakes in New Zealand-as well as tornadoes, floods and at least one hurricane in the United States-have presented significant, sudden threats to international supply chains and overseas business partners-on which experts said many small and midsize firms rely heavily but often do not plan adequately around for their possible disruption.

These events have made it vital that mid-market companies "take a second look from time to time and try to understand how that supply chain is put together," said Kevin Holland, a Kansas City, Mo.-based assistant vp at Lockton Cos. L.L.C. Aside from securing adequate business interruption and property insurance, Mr. Holland said companies should explore contractual redundancies that can reduce loss exposures in the event a supplier goes offline.

"As more and more U.S. companies become dependent on overseas suppliers, those companies need to confirm and reconfirm that they're insuring that risk appropriately, and that they're putting in place the right process to address a shutdown of a critical operation," Mr. Holland said.

That process includes consistent and frequent monitoring of employee and resource placements overseas, as well as secure insurance against losses stemming from dissolved contracts with ousted regimes. "Understanding the risks that you have tied to other governments outside the U.S. becomes more and more important, considering the contract frustration you can encounter fairly easily in some of these countries," he said.

Bribery Law Breaches Can Cost Firms Dearly

Lockton executive risk expert Dana Kopper also addresses the executive risks issues surrounding the new U.K. Bribery Act.

Business Insurance reports that the updated Act should be a particular focus for mid-market companies since it applies to a significantly wider range of circumstances. Under that law, enacted July 1, penalties can be applied to any company with direct or indirect dealings with a British entity. That means U.S. companies could find themselves in violation of the U.K. and U.S. anti-bribery laws for the same act. Additionally, the U.K. law prohibits payments to private companies and their executives just as it does payments to government officials.

"The U.K. act is essentially our FCPA laws on steroids," said Dana Kopper, senior vp and director at Lockton Cos. L.L.C. in Los Angeles "You're pulling in your whole supply chain and the vast array of your external business relationships with third parties, and in doing so, you risk running into issues that you could be totally ignorant of but, under the U.K. law, you are at least partially culpable.


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