VFC VF Corporation

By Mengqi Sun and Jack Hagel 

To tackle health-care needs during the coronavirus pandemic, companies have had to strike a balance between haste and prudence -- an act that often requires the attention of compliance teams grappling with amplified risks and fewer resources.

"There's a volume and a speed at which we've needed to respond to ensure that we [are] meeting the same standards and the same requirements that we would always, understanding the risk profile probably changes somewhat, knowing that you're addressing a global health crisis," Ashley Watson, Johnson & Johnson's chief compliance officer, said Thursday at the WSJ Risk & Compliance Forum.

The New Brunswick, N.J., health-products company has been working with governments and other companies to try to find solutions to address the pandemic, such as developing a Covid-19 vaccine.

The effort has required the company to take on new suppliers and partners quickly while still conducting the necessary due diligence to ensure that they meet the company's compliance expectations. "Just your ability to connect with them is tougher in a virtual environment," Ms. Watson said.

More than half of the compliance professionals that responded to a recent Wall Street Journal survey said they experienced increases in new third-party risks as a result of Covid-19. Many of the respondents also said their relationships with third-parties have become harder during the pandemic.

Companies outside the health-care sector have had the added burden of learning the expectations of new regulators and hastily vetting unfamiliar suppliers to make pandemic-related products outside their typical processes.

VF Corp., the Denver-based maker of Dickies work clothes and Vans sneakers, shifted production to make millions of medical gowns and hundreds of thousands of face masks. The effort required a new grasp of rules governing the manufacturing of protective equipment, understanding of how those rules change by jurisdiction, and investigating whether potential new suppliers will follow them, according to Kellye Gordon, the company's vice president of ethics and compliance and legal operations.

Potential suppliers, perhaps out of a need to win a lucrative contract or maybe even survive, might be willing to skimp on compliance, increasing third-party risks, she said. "And so in terms of our ability to vet those suppliers, that actually became even more important with regards to quality assurance," Ms. Gordon said during a Forum panel.

There are also supply chain, export and even antitrust considerations Ms. Gordon's team has had to manage when collaborating with certain partners on new production lines. "You've got to think about sharing competitive information and making sure that you are removing all the risks related to pricing and confidentiality," she said. The company has sought to mitigate those risks through additional training.

Companies have also had to manage risks not just with selling pandemic-focused products, but with simply giving them away. Donations and charitable giving, if done improperly, can be viewed as a bribe. That is tricky when government agencies or government-affiliated health-care facilities are in need of products a company might have.

"It's definitely a risk that everyone needs to pay attention to," said Ms. Watson, whose company has donated masks and other medical supplies and equipment to organizations around the world.

"You're in this time, where it's like, 'Of course, we can give it away because we're in this global pandemic,' " she said. But companies need to be mindful of how charity could run afoul of the law and they need to monitor donation amounts and reasoning to avoid improperly influencing.

"We had to shift resources to really think about what's the right standard in this environment to make sure that we are, in fact, giving donations in an appropriate way," Ms. Watson said.

Additional compliance risks come as companies are also having to cut back or delay spending due to the economic fallout arising from the pandemic. About 21% of compliance professionals expect a reduction in resources next year, according to the Journal's compliance survey, results of which were released as part of the Forum. About half of respondents expect no change.

VF temporarily closed stores across North America at the beginning of the pandemic, and the company's revenue fell by almost half in its first quarter, which ended in June, compared with a year earlier.

Facing budgetary constraints, the company's compliance team has reprioritized its risks, focusing on the most pressing issues. The company has repurposed compliance employees to take on work that might otherwise have been outsourced to avoid job cuts, according to Ms. Gordon. A compliance employee with a legal background, for instance, took on a lease project that might have otherwise been done by an external service provider.

"It's things and fundamentals that we as a compliance team have to go back to: prioritizing the work," she said.

Write to Mengqi Sun at mengqi.sun@wsj.com and Jack Hagel at jack.hagel@wsj.com

(END) Dow Jones Newswires

October 08, 2020 21:05 ET (01:05 GMT)

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