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Key Retail/CPG Governance Trends for the Year Ahead

By Keri Dawson, VP, Industry Solutions and Advisory Services, MetricStream, info@metricstream.com

As 2013 comes to an end, the retail/CPG industry is bracing itself for even greater compliance requirements, increased regulatory scrutiny, and more risks resulting from social media, global operations, and multi-tiered supply chains.

A growing number of regulatory requirements stood out as the top challenge in 2013. The year ahead will pose similar challenges, requiring organizations to get smart about their governance, risk and compliance programs in order to stay ahead of their risks, to meet compliance requirements, to manage their global supply chains, to protect their reputation, and to attract and retain customers and employees.

Here’s a brief glimpse into some of the key trends that influenced the retail/CPG industry in 2013:

1. An increase in regulations that impact the Retail/CPG industry
Regulations on top of every retail/CPG company’s agenda going into 2014 include the Affordable Care Act, the SEC’s rule on conflict minerals in relation to Dodd-Frank Section 1502, and the Payment Card Industry (PCI) version 3.0 of the Payment Card Industry Data Security Standard (PCI DSS). These focus areas are in addition to existing regulations spanning environmental compliance, product safety compliance, packaging and labeling compliance, employment and labor, data privacy and security, anti-corruption, and more. In a nutshell, Retail/CPG companies are grappling with more regulations and more requirements than ever before, and many are struggling to keep pace with change.

2. Rapid adoption of centralized compliance management programs
In response to an increase in regulations has come the need for retail/CPG companies to re-think and re-imagine their compliance efforts. In 2013, the responsibilities of individual business functions converged into a more centralized and collaborative program. Organizations also put a sharper focus on hiring the right people with the right skill sets, re-assessing and re-allocating resources, centralizing compliance-related activities, and establishing robust monitoring programs.

3. Significant investment in Compliance and Supply Chain Governance
In order to keep pace with today’s evolving risk and regulatory landscape, retail/CPG companies have made significant investments in their compliance programs, as well as their supply chain governance and product quality programs. In addition, due-diligence, audit, risk and compliance management programs focusing solely on the supply chain have gained in importance, as organizations look to build well-governed supply chains, and avoid financial and reputational impacts that stem from environmental, regulatory, and human rights issues.

These key 2013 trends will likely remain a focus for retail/CPG companies in 2014, with an emphasis on the following areas:

1. An increased investment in "integration."
In 2014, we can expect organizations to increase their investments in the integration of multiple assurance functions in order to optimize governance, risk, compliance and audit management. Organizations will continue to benefit from the efficiencies and improved business performance that come from integrating various programs such as quality, safety & testing, supply chain governance, environmental compliance, security, regulatory compliance, CSR, and social compliance. All of this will be done in the name of transparency and establishing a unified view of the organization in the context of extended supplier ecosystems.

2. A focus on reputation amidst increasing incidents.
We can expect to see many more front-page headlines in 2014, as retail/CPG companies face penalties, increased regulatory oversight, and customer scrutiny around their environmental non-compliance, bribery and corruption allegations, factory working conditions, recalls, and health and safety issues. As retail/CPG companies continue to expand their operations around the globe, and as their brands become more valuable, protecting their reputation will become a matter of survival. To that end, establishing mature supply chain governance and compliance management programs will be more critical than ever.

3. Focus on the Affordable Care Act
Retail is, and will continue to be heavily impacted by the Affordable Care Act (ACA) in the U.S. because the industry employs such a large number of temporary employees. As per the ACA, anyone who works 30 hours per week is considered a full-time employee, and therefore needs to be offered health insurance. However, in retail, the traditional definition of full-time is 40 hours per week. This will be yet another complicated compliance requirement for the compliance function and the HR team, as this act requires an understanding of the various compliance requirements under its purview, as well as cross-team collaboration to create new policies and processes that ensure compliance.

Summary
2014 will be a challenging year ahead for the retail/CPG industry, marked by new compliance mandates and new risks. However, with more risk, uncertainty, and complexity come more opportunities to develop competitive advantage, to build a thriving business, and to become a trusted brand. 2014 will be a defining year for many retail/CPG companies, and no doubt those that focus their efforts and resources on the right governance, risk, and compliance programs will emerge as the leaders.


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