The dynamics in the market are increasingly complex, and in this context, it is necessary for companies to implement due  diligence procedures  or  due diligence  to suppliers. These procedures are aimed at knowing and investigating the behavior of a person, natural or legal, prior to establishing some type of contractual relationship, in order to identify and mitigate risks that may arise in connection with these operations.

Due diligence procedures have become more and more frequent and have even come to be understood as a fundamental activity in the development of business. However, and without prejudice to its general acceptance in terms of contracting with suppliers, the analysis of the elements that must be considered for an effective implementation is a subject that is usually relegated to an activity to “comply for the sake of compliance”.

Both international organizations and local good practices have established a series of key elements for effective due diligence, which makes it possible to identify risks and use tools for adequate control and prevention. Some of these elements are:

1. Consider the various possible impacts . By identifying the risks through a comprehensive and complete analysis, we can corroborate that the impacts that these risks entail are not usually one-dimensional, so it is essential to verify what they are, from various perspectives, for example, identifying legal, regulatory, environmental, reputational impacts. , financial, among others.

2. Evaluate the supplier according to the activities that will be provided . Bearing in mind the line of business and activities that the supplier will carry out for the company, some risks may be more relevant than others, considering that the absolute mitigation of a risk is not effective. This evaluation involves specialized research and analysis regarding the supply chain, identifying the most sensitive issues, specific to each industry.
3. Define the evaluation standard . An effective standard for evaluating a supplier is to apply the same rules that the company has set for itself. This accounts for the strengthening, on the one hand, of the corporate culture itself, and on the other, of commercial relations with those who are aligned with our interests. This demonstrates the true commitment to Responsible Business Conduct (CER).
4. Identify conflicts of interest . Different laws sanction acts that could affect the assets of the company, the market or free competition, therefore, the identification of potential or real conflicts of interest is a fundamental aspect to corroborate prior to any contracting, as an essential tool in the procedures. due diligence.
5. Periodically monitor the supplier . The permanent review requires the evaluation of future risks derived from the commercial relationship, eventual legal changes or internal changes in the company, which require the consideration of new criteria, as occurs, for example, with the appearance of new technologies or the incorporation of new crimes to the catalog of the Law on Criminal Responsibility of Legal Entities.

The application of these elements is decisive when carrying out an adequate review, since its effective implementation will allow a much broader range of risks to be identified and correctly managed, involving environmental, social and governance aspects necessary for sustainable development in the market. current.

For more information you can contact :

Francesca Franzani  | Compliance Group Director |  ffranzani@az.cl

Jaime Viveros  | Compliance Group Associate | jviveros@az.cl

Cesar Robledo   | Compliance Group Associate | crobledo@az.cl

Felipe Santiago  | Group Compliance Attorney | fsantiago@az.cl