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Today’s due diligence requirements are more stringent and comprehensive than at any point in history. Companies and intermediaries that want to engage globally are under mounting pressure from regulators, with legal requirements that differ from country to country and intensifying consequences for compliance failures.
Compliance teams are being stretched thin by the continuous introduction of regulations and expectations associated with the burgeoning movement toward environmental, social, and governance (ESG) concerns. They are expected to keep up with rapid-fire new laws and do the utmost to ensure their intermediary partners meet the same exacting standards in order to avoid legal entanglement and damage to their public reputation. These teams are being backed into a corner and forced to find a new way to do more with less, and the traditional due diligence model is unsustainable in the long run.
The portable model for third-party due diligence
In the past, multinational companies were expected to foot the bill for due diligence reports required to onboard new intermediaries. Twenty years ago, the type of strict due diligence we’re used to today applied mostly to extremely high-risk industries like aerospace and defense, where these expectations were built into the budget. However, that’s no longer the case. Nearly every industry you can imagine is now facing ballooning due diligence requirements as global conflict, inflation and general uncertainty are frequently freezing and sometimes even slashing compliance budgets.
There’s no doubt that a robust and expanding third-party network is key to global growth, but companies increasingly can’t afford to fulfill that network growth potential through the traditional model. The portable due diligence model, pioneered by Tcompliance and now a core element of Ethixbase360, is the way forward for both large companies and their aspiring intermediaries.
In the portable model, the intermediary candidate pays for the due diligence report rather than the company. The most obvious benefit is for the company, as they can save hundreds of thousands on due diligence in certification fees and the labor required to perform screenings in-house. However, the portable model is truly sustainable because it offers equal value to the intermediaries themselves.
Why the portable model pays off for intermediaries
It may appear counterintuitive to shift the cost of vetting onto the intermediary candidate, but there are three key issues the portable model solves.
- Repetitive evaluations: Under the traditional model, the intermediary ends up spending countless hours completing separate due diligence reviews for each potential partnership. The Tcompliance model gives intermediaries ownership over their report and admission to a public registry, so they can use the report repeatedly rather than endlessly completing new reviews.
- Opaque results: With the portable model, candidates are able to see their own red flags and take proactive steps to mitigate them rather than scrambling to clear up issues after a company has already rejected them.
- Inconsistent standards: Candidates often have to deal with wildly differing standards for due diligence. Tcompliance reports are highly benchmarked, standardized, and internationally recognized–so intermediaries can be confident they are meeting standards in their risk level bracket.
Intermediaries also receive the advantage of administering training to up to 40 employees, enabling them to educate staff and drive a comprehensive understanding of anti-bribery and anti-corruption throughout their teams.
In the end, the portable model gives intermediaries unprecedented control of their role in the due diligence process while reducing the amount of legwork and time needed to get vetted for each potential contract.
Preparation for the collaborative future
The portable model creates a new relationship where the fiscal and labor burdens of due diligence are distributed more equitably. Because businesses don’t have to pay for the cost of vetting, they’re able to direct that money toward growth–which means they are able to provide more opportunities to intermediaries. Since the intermediaries pay for their own reports that essentially act as passports for potential clients, they can secure more contracts with less work, in less time.
It’s rare in business to find a true win-win dynamic, but the portable model for due diligence is just that. At a time when increasing regulation is taking its toll on businesses and their third-party networks alike, this collaborative approach facilitates sustained growth and opportunities for all.
